PER G. MANJUNATHA, AM:
This appeal filed by the assessee is directed against order passed by the learned Commissioner of Income Tax (Appeals)- 1, Chennai, dated 29.03.2018 and pertains to assessment year 2013-14.
2. The assessee has raised following grounds of appeal:-
1. The order of the learned CIT(A) is contrary to the law, facts and circumstances of the case.
2.1. The learned CIT(A) erred in not appreciating amended provisions of Section 23(1)(c) which came into operation w.e.f 01/04/2002 as per Finance Act, 2001 and which is squarely applicable in the appellant's case.
1
2
2.2. The learned CIT(A) failed to consider the true purport and intend of Circular No.14 of 2001 dated 09/11/2001 issued u/s.119 of the Income Tax, Act, 1961 by the Central Board of Direct Taxes with regard to rationalization of provisions relating to "Income from House Property".
2.3 The learned CIT(A) grossly erred in overlooking the Board's observation that due to the various amendments (as many as 8) made over the years in Sec.23, the provisions have become quite complicated, disjointed and difficult for the taxpayers to understand.
2.4 The learned CIT(A) had failed to construe that Clause (c) of Sec.23(1) was meant to rationalize the provisions of Sec.23 so as to provide for simplified determination of Annual Value after allowing deductions in computing the Annual Value itself on account of vacancy and unrealized rent.
2.5 Even after noticing that the appellant's property was vacant for whole of the previous year and owing to such vacancy the actual rent received was NIL, the learned CIT(A) failed to adopt the Annual Value as NIL.
2.6 The learned CIT(A) ought to have appreciated that the appellant, despite all diligent efforts could not find a suitable tenant and on that score the property remained vacant for the whole of the previous year.
2.7 The learned CIT(A) had failed to follow the settled legal position that the Board's Beneficial Circulars issued u/s.119(2) are binding in nature and it is not open to the Revenue to raise a contention that it is contrary to terms of the Statue so long as the Circular remains in operation.
3
2.8 The learned CIT(A) failed to take into account the observations of Hon'ble Members of ITAT- Pune Bench reported in 71 Taxmann.com 214 in the case of Vikas Kesav Garud Vs ITO, Ward 1(2), Nashik, that the Hon'ble Andhra Pradesh High Court's decision relied upon by the Assessing Officer could not be read in a manner that if the property remained vacant throughout the year, the provisions of Sec.23(l)(c) do not apply at all.
2.9 The learned CIT(A) ought not have relied on the decision of Hon'ble Punjab & Haryana High Court in the case of Susham Singla Vs CIT (76 taxmann.com 349) while rendering her decision, since the facts and circumstances of the case are distinguishable from the appellant's case.
2.10 The learned CIT(A) erred in omitting to consider that the appellant's claim u/s.23(1)(c) was allowed by the AO in the scrutiny assessment made for the AY 2012-13 and the same treatment should have been given for the A Y 2013-14 as well, applying the principle of consistency.
3.1 The learned CIT(A) erred in not adjudicating the appellant's ground with regard to AO's failure to set-off the brought forward losses of the preceding years against the current years' income.
4.1 The Appellant Craves leave of Hon'ble Tribunal to submit further grounds as may be required.
4.2 For these and other grounds that may be adduced at the time of hearing, the appellant prays that the claim of the appellant with regard to applicability of Sec.23(1)(c) be allowed and the order of the learned CIT(A) may be set aside in full."
4
3. Brief facts of the case are that the assessee did not carry on any business during the previous year relevant to the assessment year 2013-14. The assessee owns commercial property at New No.64, Old No.30, Ethiraj Salai, Egmore, Chennai-600 008. The assessee's source of income is rental receipts from commercial property right from assessment year 2008-09 upto assessment year 2011-12 and from assessment year 2015-16 to 2016-17. However, in between for the assessment year 2012-13 to 2014-15 the assessee did not receive any rental income as the whole commercial property was lying vacant. The assessee has filed its return of income for the assessment year 2013-14 on 29.09.2013 admitting loss of Rs.74,61,184/- under the head 'income from house property'.
4. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee has adopted gross annual value at Nil for the property, as the same was vacant throughout the year, therefore, after considering relevant submissions of the assessee computed annual value of the property as per provisions of section 23(1)(a) of the Income Tax Act, 1961, and
5
determined gross annual value of Rs.1,15,94,161/- and computed income from house property at Rs.23,91,146/- after allowing standard deduction u/s.24(a) and interest on loan u/s.24(b) of the Act.
5. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). The assessee has contended the issue, in light of certain judicial precedents and argued that when the property was let out and it became vacant for whole or any part of the year, then annual letting value of the property needs to be computed u/s.23(1)(c) of the Income Tax Act, 1961, but not u/s.23(1)(a) of the Act.
6. The learned CIT(A), after considering relevant submissions of the assessee and also by relied upon decision of the Hon'ble Punjab & Haryana High Court in the case of Susham Singla Vs. CIT 76 taxmann.com 349, which was subsequently upheld by the Hon'ble Supreme Court by dismissal of SLP filed by the assessee, rejected contention of the assessee and upheld additions made by the Assessing Officer towards income from house property on the basis of
6
computation of annual letting out value of the property as per provisions of section 23(1)(a) of the Income Tax Act, 1961. Aggrieved by the learned CIT(A) order, the assessee is in appeal before us.
7. The learned A.R for the assessee submitted that the learned CIT(A) erred in not appreciating fact that when property was actually let out during the previous year or immediately during any previous year, but vacant for whole or any part of the previous year, then annual letting out value of the property should be computed as per provisions of section 23(1)(c) of the Income Tax Act, 1961, but not as per provisions of section 23(1)(a) of the Act. The learned A.R for the assessee further referring to various decisions and also decision of the Hon'ble High Court of Andhra Pradesh in the case of Mr. Vivek Jain Vs ACIT, 337 ITR 74, submitted that the issue is in favour of the assessee, because in the said judgement property was not let out at all and it became vacant throughout the year and in that context, it was held that when the property is not let out and became vacant for whole or any part of the year, then annual letting value of the property should be computed as per provisions of section 23(1)(a) of the Income Tax Act, 1961. In
7
this case, property was let out in the past and became vacant only for the impugned assessment year, because of non- availability of tenants. Further, the assessee has made its best efforts to find out tenants by reaching out to various agencies, which is evident from e-mail correspondence between the assessee and agents, therefore, it cannot be said that property is vacant and annual letting value of the property should be computed as per provisions of section 23(1)(a) of the Income Tax Act, 1961. In this regard, the learned A.R. has relied upon decision of the ITAT., Mumbai Benches in the case of Sonu Realtors Pvt.Ltd. Vs. DCIT (2018) 173 ITD 82 (Mum Trib).
8. The learned D.R., on the other hand, supporting order of the learned CIT(A) submitted that property was not let out and it became vacant for whole or any part of the year, then provisions of section 23(1)(c) of the Act does not apply and hence, the Assessing Officer has rightly computed annual letting value of the property as per provisions of section 23(1)(a) of the Act and their order should be upheld.
9. We have heard both the parties, perused material available on record and gone through orders of the authorities
8
below. As per provisions of section 23(1) of the Act, for the purpose of section 22, annual value of any property shall be deemed to be sum for which property might reasonably be expected to let from year to year and where property or any part of property is let and was vacant during whole or any part of previous year and owing to such vacancy, actual rent received or receivable by the owner in respect thereof is less than sum referred to in clause (a) amount so received or receivable will be annual value of the property. As per plain reading of section 23(1)(c), if any property was let and was vacant during whole or any part of previous year, then annual value of said property should be computed in terms of provisions of section 23(1)(c) of the Act. In this case, there is no dispute with regard to fact that property owned by the assessee was let right from assessment year 2008-09 to 2011- 12, however, same was vacant due to non-availability of tenants for the assessment year 2012-13 to assessment year 2013-14. But, same property was again let out from the assessment year 2015-16 onwards. The assessee has computed Nil annual letting value of the property in terms of provisions of section 23(1)(c) of the Act, whereas the Assessing
9
Officer has determined annual value in terms of provisions of section 23(1)(a) of the Act. The Assessing Officer has relied upon decision of the Hon'ble High Court of Andhra Pradesh in the case of Mr. Vivek Jain Vs. ACIT (supra) to support his findings. According to Assessing Officer, in order to apply provisions of section 23(1)(c) of the Act, property must be let out during the previous year and it should be vacant for any part of the previous year.
10. We do not find any merit in the reasons given by the Assessing Officer for simple reason that in order to attract section 23(1)(c) of the Act, following requirements must be fulfilled :-
i) the property or any part thereof must be let out;
ii) It should have been vacant during the whole or part of the previous year; &
iii) Owing to such vacancy actual rent received or receivable by the owner in respect thereof should be less than the sum referred to in clause (a) . From the above, it is very clear that provisions of section 23(1)(c) of the Income Tax Act, 1961 does not apply, in case
10
where property is not let out at all. However, if the property is let out for two or more years and was vacant for whole or any part of the previous year, then said property would come within ambit of provisions of section 23(1)(c) of the Income Tax Act, 1961. In this case, property was let out earlier, however, it was vacant during the impugned assessment year owing to non- availability of tenants. It is not the case of the Assessing Officer that property was not at all let out. In fact, the Assessing Officer has admitted fact that property was let out, but was vacant for the impugned assessment year alone. Further, the assessee has made his best efforts to let out the property which is evident from e-mail correspondence between the assessee and agents however, could not get tenants for relevant period. Therefore, we are of the considered view that the assessee has rightly computed annual letting value of the property as per provisions of section 23(1)(c) of the Income Tax Act, 1961 and this principle is supported by the decision of the ITAT., Mumbai Benches in the case of M/s. Sonu Realtors Pvt.Ltd Vs. DCIT (supra), where an identical issue has been considered by the Tribunal and held that term 'property is let' used in section 23(1)(c) is solely used with intent to avoid misuse of
11
determination of annual value of self-occupied property by taking recourse to section 23(1)(c), however, same cannot be stretched beyond that and thus, annual value of property which was let, but thereafter remains vacant for whole year under consideration, subject to condition that same is not put under self-occupation of the assessee and is held for the purpose of letting out of the same would continue to be determined u/s.23(1)(c) of the Income Tax Act, 1961.
11. As regards case laws relied upon by the Revenue by the decision of Hon'ble High Court of Andhra Pradesh in the case of Mr. Vivek Jain Vs. ACIT (supra) and decision of the Hon'ble Punjab &Haryana High Court in the case of Susham Singla Vs. CIT (supra), we find that facts of those cases are entirely different and cannot be applied to facts of the present case.
12. In this view of the matter and considering facts & circumstances of the case and also by following decision of the ITAT., Mumbai in the case of M/s. Sonu Realtors Pvt.Ltd Vs. DCIT (supra), we are of the considered view that the Assessing Officer has erred in computing annual letting value of the property in terms of section 23(1)(a) of the Act. Hence, we
12
direct the Assessing Officer to delete addition made towards income from house property.
13. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 29thJuly, 2022 Sd/- Sd/-
(महावीर सहं) (जी. मंजुनाथ)
(Mahavir Singh) (G. Manjunatha )
उपा य / Vice-President लेखा सद!य / Accountant Member चे#नई/Chennai,
$दनाकं th/Dated 29 July, 2022
DS
आदेश क (त)ल*प अ+े*षत/Copy to:
Appellant 2. Respondent 3. आयकर आयु,त (अपील)/CIT(A)
4. आयकर आय,ु त/CIT 5. *वभागीय (त(न0ध/DR 6. गाड 3 फाईल/GF.