Section 23 – Annual value of property of the assessee which property had remained let out for 36 months and thereafter could not be let out and had remained vacant during whole of the year under consideration, but had never remained under self-occupation of the assessee, has to be rightly computed at `nil’ by taking recourse to section 23(1)(c) of the Act

8.  [2018] 97 taxmann.com
534 (Mumbai-Trib.)

Sonu Realtors (P.) Ltd. vs. DCIT

ITA No.: 2892/Mum/2016 & 66(MUM) OF 2017

A. Y.: 2011-12 and 2012-13.

Dated: 19^th September, 2018.

Section 23 – Annual value of property of the
assessee which property had remained let out for 36 months and thereafter could
not be let out and had remained vacant during whole of the year under
consideration, but had never remained under self-occupation of the assessee,
has to be rightly computed at `nil’ by taking recourse to section 23(1)(c) of
the Act 

FACTS

The assessee, engaged in the
business of construction, filed its return of income for assessment year
2011-12, declaring therein a total income of Rs. Nil. In the course of
assessment proceedings, the Assessing Officer noted that immovable properties
were reflected in the balance sheet of the assessee but the deemed rental
income had not been offered for taxation. He called upon the assessee to show
cause why deemed rent of the properties owned by the assessee should not be
charged to tax under the head `Income from House Property’. The assessee, in
response to the show cause, submitted that the two flats owned by it were let
out to Sterling Construction P. Ltd. for a period of 36 months vide agreement
dated April 2007. Upon expiry of the license period, the licensee vacated the
flats. During the period when the properties were let out on leave and license,
the rental income was offered for taxation under the head `Income from House
Property’. Since during the entire year the property was vacant, the assessee
had considered the annual value to be nil. The assessee contended that its case
is covered by section 23(1)(c) of the Act. The AO, however, held that since the
properties under consideration were not let out at all during the previous
year, the provisions of section 23(1)(c) would not be applicable to its case.

Aggrieved, the assessee preferred
an appeal to the CIT(A) who upheld the order passed by the AO. Aggrieved, the
assessee preferred an appeal to the Tribunal.

HELD

The Tribunal noted that the
assessee had vide agreement dated April, 2007 let out the Unit No. 401 &
425 of project Balaji Bhavan to Sterling Construction Pvt. Ltd. for a period of
36 months, and had offered the rental income received therefrom as its
“Income from house property” in the preceding years, but after the
expiry of the license period of 36 months the licensee had vacated the property
and conveyed its intention of not getting the license agreement renewed any
further. It observed that it is not the case of the department that after the
property was vacated, the same thereafter had remained under the self
occupation of the assessee.

In light of the aforesaid factual
position the Tribunal found itself to be in agreement with the submissions of
the Ld. A.R. that the issue raised before it is squarely covered by the orders
of the coordinate benches of the Tribunal in the case of (i) Vikas Keshav
Garud vs. ITO [(2016) 71 taxmann.com 214 (Mum.); (ii). ACIT vs. Dr. Prabha
Sanghi [(2012) 27 taxmann.com 317 (Delhi)]; (iii). Premsudha Exports (P) Ltd.
vs. ACIT [(2008) 110 ITD 158 (Mum.); and (iv) Informed Technologies India Ltd.
vs. DCIT [(2016) 75 taxmann.com 128 (Mum.)].

The Tribunal, observed that the
co-ordinate Bench in the case of Informed Technologies India Ltd. (supra)
had while analysing the scope and gamut of section 23(1)(c) of the ‘Act’,
concluded that in light of the words ‘Property is let’ used in clause (c) of
section 23(1) of the ‘Act’, unlike the term ‘house is actually let’ as stands
gathered from a conjoint reading of sub-section (2) to (4) of section 23, it
can safely and rather inescapably be gathered that the conscious, purposive and
intentional usage of the aforesaid term ‘Property is let’ in section 23(1)(c)
of the ‘Act’, cannot be substituted by the term ‘house is actually let’ as used
by the legislature in all its wisdom in sub-section (3) of section 23.

The Tribunal held that it can
safely be concluded that the requirement that the ‘house is actually let’
during the year is not to be taken as a prerequisite for bringing the case of
an assessee within the sweep of section 23(1)(c) of the ‘Act’, as long as the
property is let in the earlier period and is found vacant for the whole year
under consideration, subject to the condition that such vacancy of the property
is not for self occupation of the same by the assessee who continues to hold
the same for the purpose of letting out.

Though the
term ‘Property is let’ used in section 23(1)(c) is solely with the intent to
avoid misuse of determination of the ‘annual value’ of self occupied properties
by the assesses by taking recourse to section 23(1)(c), however, the same
cannot be stretched beyond that and the ‘annual value’ of a property which is
let, but thereafter remains vacant for the whole year under consideration,
though subject to the condition that the 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 ‘Act’. The Tribunal held that
the assessee had rightly determined the ‘annual value’ of the property at Nil
by taking recourse to section 23(1)(c) of the ‘Act’.

It observed that the CIT(A) had
misconceived the judgment of the Hon’ble High Court of Andhra Pradesh in the
case of Vivek Jain vs. Asstt. CIT [2011] 14 taxmann.com 146/202 Taxman
499/337 ITR 74.  It observed that in
the said judgment the Hon’ble High Court in the concluding Para 14 & 15 had
observed that though the benefit of computing the ‘ALV u/s. 23(1)(c) could not
be extended to a case where the property was not let out at all, however the
same would duly encompass and take within its sweep cases where the property
had remained let out for two or more years, but had remained vacant for the
whole of the previous year.

The Tribunal was of the view that now
when in the case of the present case no infirmity emerges from the computation
of the ‘annual value’ of the said property u/s. 23(1)(c) of the ‘Act’ by the
assessee. The Tribunal allowed this ground of appeal filed by the assessee.