HARESH UDHAV BUXANI,BANGALORE vs. THE ITO (IT), WARD-1(1), BANGALORE

PDF · subscribers
ITITA 1125/BANG/2022Status: DisposedITAT Bangalore31 March 2023AY 2014-1514 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the property at C-13-1606, South City, was indeed used as self-occupied property by the assessee. The assessee provided evidence of the property's address, which was distinct from the other two flats in South City that were let out. Therefore, no income from this property should be offered. Regarding the Vayudoot Chambers property, the Tribunal ruled that the assessee is eligible for vacancy allowance under Section 23(1)(c) of the Act. The Tribunal interpreted Section 23(1)(c) to mean that if a property was let out in previous years or subsequent years, and despite best efforts remained vacant during the year under consideration, the benefit of Section 23(1)(c) should be extended. The Tribunal disagreed with the Revenue's interpretation that the property must be 'actually let' in the relevant previous year, finding it inconsistent with the phraseology of Section 23(1)(c) and the contrast with Section 23(3). The ALV of the Vayudoot Chambers property was therefore determined at Nil. The appeal of the assessee was allowed.

What were the facts?

The assessee, Shri Haresh Udhav Buxani, a non-resident, filed an appeal against the order of the CIT(A) for Assessment Year 2014-15. The dispute concerns the determination of the Annual Letting Value (ALV) of two properties: Flat No. C-13-1606, South City, and a commercial property at 11th Floor, Vayudoot Chambers, MG Road, Bengaluru. The Assessing Officer (AO) treated Flat No. C-13-1606 as deemed let out and calculated its rental income. For the Vayudoot Chambers property, the AO disallowed the assessee's claim of vacancy allowance, assessing income under Section 23(1)(a) of the Income Tax Act, 1961. The CIT(A) directed re-computation of income from house property, leading to the present appeal by the assessee.

What were the issues?

1. Whether the Annual Letting Value (ALV) of Flat No. C-13-1606, South City, should be determined as self-occupied property or deemed let out, as per Section 23(1)(a) and 23(2) of the Income Tax Act, 1961. Assessee's contention: The property was used as self-occupied and hence its income was not offered. Evidence of its address was provided to support this claim. Revenue's contention: The AO treated it as deemed let out based on information that all three flats in South City were let out throughout the year. 2. Whether the vacancy allowance claimed for the commercial property at 11th Floor, Vayudoot Chambers, MG Road, Bengaluru, should be allowed under Section 23(1)(c) of the Income Tax Act, 1961, or if the property should be assessed under Section 23(1)(a). Assessee's contention: The property remained vacant for the entire year, and efforts were made to let it out. Therefore, the ALV should be nil as per Section 23(1)(c). Revenue's contention: Vacancy allowance cannot be granted as per Section 23(1)(c), and the property should be assessed under Section 23(1)(a) based on deemed rental value.

Which sections of the Income-tax Act were involved?

Section 23(1)(c),Section 23(1)(a),Section 23(2),Section 23(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BENGALURU “B” BENCH, BENGALURU

Before: Shri George George K. & ShriLaxmi Prasad Sahu

For Appellant: Smt. Suman Lunkar, CA
For Respondent: Shri Gudimella VP Pavan Kumar, JCIT
Hearing: 15.03.2023Pronounced: 31.03.2023

IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU “B” BENCH, BENGALURU Before Shri George George K., Judicial Member and ShriLaxmi Prasad Sahu, Accountant Member IT(IT)A No. 1125/Bang/2022 (Assessment Year:2014-15)

Shri Haresh Udhav Buxani vs. The Income Tax Officer-1(1) No. 31, Hira House, 2nd Cross (Interntional Taxation) Old Airport Road, Wheelers Road BMTC Building, 80 Ft. Road Bengaluru 560001 Koramangala PAN – AFSPB8521J Bengaluru 560095 (Appellant) (Respondent) Assessee by: Smt. Suman Lunkar, CA Revenue by: Shri Gudimella VP Pavan Kumar, JCIT Date of hearing: 15.03.2023 Date of pronouncement: 31.03.2023 O R D E R Per: Laxmi Prasad Sahu, A.M.

This is an appeal filed by the assessee against the order passed by NFAC Delhi vide DIN No. ITBA/APL/M/250/2022-23/1046455041(1) dated 25.10.2022 passed by the CIT(A) for ay 2014-15. The sole issue involved in all the grounds are determination of ALV of the property No. C-1306- South City & commercial property situated at 11th floor Vayudoot Chamber for determination of rent as per Section 23(1)(c ) of the I.T. Act. 1961.

2.

The brief facts of the case are that the assessee is a non-resident &has filed return of income for the impugned AY on 17.07.2014 declaring total income of Rs. 3,90,940/-. Subsequently the case was selected for scrutiny under CASS and statutory notices were issued to the assessee for calling information in support of the income shown in his return of income. In

2 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani response the learned A.R. appeared and submitted the details called for. On verification of the documents filed it was found that the assessee has shown rental income of Rs.3,50,225/- and income from other sources at Rs.16,680/-. Further, on verification of computation of income; the income from house property was shown as under: -

Flat No. C-13 1406 & Pent House, South City Gross Annual Value 553,470 Less: Municipal taxes 18,820/- Net Annual Value 534,650 Less: Deduction u/s 24@30% 160,395 Less: Interest paid on the housing loan Income from House Property 374,255

Further in support of the claim of income from house property the assessee has filed the following documents: - • A copy of the rental agreement entered with M/s. Catalyst on 12.08.2011 for a period of 11 months and the lessee agreeing to pay a monthly rent of Rs.22,000/- along with Rs.4000/- as maintenance charges. Further, it states that the lessee & lessor shall have the option to new this agreement for two terms of 11 months on mutual agreement. The escalation after the end of each term is minimum @5% on the last lease rent paid. • Copies of the municipal taxed paid for the year 2013-14 as under  C-13-1406, South City Rs.5,460/-  C-13-1806 Penthouse, South City Rs.7,900/-  C-13-1606, South City Rs.5,460/-

3.

On verification of the above documents it was seen by the AO that the assessee has offered rental income from two flats only, i.e. C-13-1406 and Penthouse. The Assessing Officer (AO) made enquiries and he got information from the Caretaker of the Apartments that all the three flats were let out throughout the previous year under consideration. Further, on verification of the documents the AO noted that the assessee has another residential house at #31, Hira House, Sindhi Colony, Wheeler Road, Bangalore, which is used as

3 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani self occupied property, therefore, the AO calculated the deemed annual value of the property No. C-13- 1606 south city for Rs. 3,00,000/- and allowed statutory deduction and calculated rental income at Rs. 2,03,670/-.The AO on further verification of the return of income for the previous year noted that the assessee has offered income from the property 11thFloor, Vayudooth Chambers, MG Road, Bangalore of Rs.16,56,392/-. In this regard the assessee was asked why the income from commercial property has not been offered for income during the current financial year. In this regard the assessee filed submissions dated 16.06.2016 and 11.08.2016 in which it is stated that the said property was not let out throughout the year and computed gross annual value as under: - Fair Rent of the Property for the year 3,00,000.00 Period during which property remained vacant 12 months Less due to vacancy 12 months Vacancy allowance admissible 3,00,000.00 Gross Annual Value Nil

4.

The AO noted from the submissions that the assessee has claimed vacancy allowance for the property 11th Floor, Vayudooth Chambers, MG Road, Bangalore but as per the opinion of the AO, vacancy allowance cannot be granted as per Section 23(1)(c) of the Income Tax Act, 1961 (the Act) and assessed income from the property 11th Floor, Vayudooth Chambers, MG Road, Bangalore as per Section 23(1)(a) of the Act. He computed the income from house property as under: -

Property 1: Flat No C-13 1406 , South city Gross Annual Value 230,580 Less: Municipal taxes 5,460 Net Annual Value 225,120 Less: Deduction u/s 24 @ 30% 67,536 Income from House property I 157,584 157,584

Property 2: Flat No C-13 1606 South City Deemed Gross Annual Value 300,000

4 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani Less: Municipal taxes 9,043 Net Annual Value 290,957 Less: Deduction u/s 24 @ 30% 87,287 Income from House property II 203,670 203,670

Property 3: Flat No C-13 1806 Pent house, South City Gross Annual Value as per the rent agreement 288,750 [23100x2 & 24255x10] Less: Municipal taxes 7 ,900 Net Annual Value 280,850 Less: Deduction u/s 24 @ 30% 84,255 Income from House property III 196,595 196,595

Property 4: Vayudooth Chambers Deemed Gross Anni.al Value as per last year return 1,656,392 Less: Municipal taxes - Net Annual Value 1,656,392 Less; Deduction u/s 24 @ 30% 496,918 Income from House property III 1,159,474 1,159,474 Total Income chargeable under the head 1,717,323 "Income from House Property"

5.

The AO further noted that as per the rental agreement the assessee has received maintenance charges. Accordingly he worked out the income from other sources at Rs.64,680/-. After computing the above the AO has sent proposal to the assessee for filing objection in regard to the adoption of income from house property and income from other sources stated above. In response to the above proposal sent the assessee has neither responded nor filed any objection. The AO relying on judicial pronouncements completed the assessment and assessed the income at Rs.17,82,003/-.

6.

Aggrieved by the order of the AO assessee filed appeal before the CIT(A) &he filed detailed written submissions and vehemently argued his case before the CIT(A) and submitted that the property C-13-1606 has been opted as self occupied property and the commercial property situated in 11th Floor, Vayudooth Chambers was lying vacant for the whole year. Detailed

5 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani written submissions were sent to the AO for calling remand report and in the remand report the AO mostly quoted the findings of the assessment order and Inspector’s report were also submitted.

7.

The learned CIT(A) after verifying the remand report annexing the Inspector’s report in which it has been noted that as per the enquiry made by the Inspector all the properties were let out. Further, in respect of the commercial property at Vayudooth Chambers the assessee submitted that the property was let out to M/s. J235 Software India Ltd., who vacated the property on 01.03.2013. However, in the previous year in question the property remained vacant for the whole year. Subsequently, the assesseefound a new tenant, M/s. Piaggio Vehicles Pvt. Ltd. in February 2015. Therefore the assessee has claimed vacancy allowance for AY 2014-15 following the provisions of Section 23(1)(c) of the Act. The learned CIT(A) after considering all the material facts available before him, relying on the judgements and submission of the assessee, vacancy allowance was not granted to the assessee in respect of the commercial property and in respect of C-13-1606, South City no exemption was granted for self occupied property and directed the AO for re-computation of the income from house property, accordingly, the order was passed by the CIT(A) on 25.10.2022.

8.

Aggrieved by the above order of the CIT(A) assessee filed appeal before the Tribunal. The learned A.R. reiterated the submissions made before the lower authorities and she submitted the propertyC-13-1606, South City was used by the assessee as self occupied property as per section 23(2) of the Act. , therefore, the income from the same property was not offered. She also submitted a copy of acknowledgement of the return in which we noted that the name and address of the property is PoonamSahkashini, 31, 2nd Cross, Wheeler Road, Pulikeshinagr, accordingly, the assessee is eligible to claim the said property as self occupied house property. She further submitted that in

6 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani respect of the commercial property situated in Vayudooth Chambers the property was remained vacant for whole of the impugned year. The property in previous year was given on rent and was vacated on 01.03.2013. Thereafter no suitable tenants were found. After taking lot of efforts by the assessee, who is an NRI, the property was let out in the month of February 2015. Therefore, the income from the said house property should be assessed as per Section 23(1)(c) of the Act. The AO has not disturbed the prior year’s income as well subsequent year’s income in spite of the fact that the income was offered only for actual period the property was let out.In support of her arguments she relied on the following judgements: - i) Sachin R. Tendulkar vs. DCIT [2018] 96 taxmann.com 253 (Mum. Trib.) ii) Premsudha Exports P. Ltd. vs. ACIT [2008] 110 ITD 158 (Mum.) iii) Smt. Shakuntala Devi vs. DCIT, ITA No. 1524/Bang/2010 order dated 20.12.2011 iv) DCIT vs. Dhaval D. Patel [2022] 145 taxmann.com 20 (Ahd. Trib.) v) YashVardhanArya vs. ITO (Intl. Taxn.), ITA No. 203/Bang/2022 order dated 17.06.2022 She also submitted that the above case laws are similar with the assessee’s case. In the above cited cases the property was let out for some period and it was lying vacant during the impugned assessment year. Accordingly the income was computed as per Section 23(1)(c) of the Act. Therefore, the above case laws directly support the case o the assessee.

9.

The learned D.R., on the other hand, relied on the orders of the lower authorities and submitted that the property should be assessed as per Section 23(1)(a) of the Act. The assessee is not eligible for claiming vacancy allowance for the entire year. The learned D.R. further submitted that the Inspector visited the property and after enquiry he noted that the property was not vacant. Therefore, the income should be assessed as per Section 23(1)(a) of the Act. He further submitted that in respect of commercial property the

7 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani assessee is not eligible for vacancy allowance and income should assessed as per Section 23(1)(a) of the Act. He argued that the case law relied on by the learned CIT(A) in the case of SushamSingla vs. CIT [2016] 76 taxmann.com 349 (Punjab and Haryana) has been reached finality and the Hon'ble Supreme Court has dismissed SLP No. 996 of 2017 by order dated 10.04.2017. The learned D.R. also relied on the order of the ITAT Pune “A” Bench in ITA Nos. 2695 & 2696/Pune/2016 and ITA Nos. 1248 & 1249/Pune/2017 order dated 07.06.2022 in which the judgement of the Hon'ble Andhra Pradesh High Court in the case of Vivek Jain and judgement of the Hon'ble Punjab & Haryana High Court in the case Susham Singhla and many other judgements have been relied on. In this order it has been clearly held that if the property was not let out for the whole year income shall be computed as per Section 23(1)(a) of the Act and not as per Section 23(1)(c) of the Act. The learned D.R. also relied on the judgment of the coordinate bench of the ITAT Bengaluru in ITA No. 26/Bang/2014 order dated 22.06.2015 in which vacancy allowance claimed by the assessee has been rejected by the Tribunal.

10.

In the rejoinder the learned A.R. submitted that the judgement relied on by the learned D.R. is distinguishable on fact because in those cases the properties were never let out but in the impugned case in hand the property was let out before and after the impugned assessment year and the judgements relied on by her is similar with assessee’s case.

11.

Considering the rival submissions and perusing the materials available on record and the orders of the authorities below we noted that during the impugned assessment year the assessee was owner of four properties as under:- i) C-13-1406, South City ii) C-13-1806, Penthouse, South City iii) C-13-1606, South City

8 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani Commercial property at 11th Floor, Vayudooth Chambers iv)

12.

Since the assessee is an NRI and he has offered income from house property from Sr. No. 1 & 2 and the property at Sr. No. 3 has been claimed as self occupied house property as per provisions of Section 23(2) of the Act and in respect of property No. 4 the assessee has computed income as per Section 23(1)(c) of the Act no income has been offered, claimed vacancy allowance because the property was remained vacant for whole year. During the course of hearing the learned A.R. submitted a copy of the return of income in which the address has been mentioned as stated above & in support of the address she submitted a copy of the property tax receipt. In the receipt of property tax and in the copy of return of income filed, the address mentioned are the same. It clearly indicates that the address shown in the income tax return does not belong to the assesse it belongs to somebody else. The allegation made by the AO in regard to the ownership of the address shown in the income tax return is baseless. Further the AO has not given benefit of the self occupied house property to the assessee in respect of property No. 3, which isalso not correct, In the impunged case the assessee is eligible to claim vacancy allowance for self occupied house property as per the provisions of Section 23(2) of the Act. Considering the above noted facts this issue is allowed.

Now coming to the commercial property situated at 11th Floor, 13. Vayudooth Chambers, the property was earlier let out and vacated by the previous tenant on 01.03.2013 and subsequently in the month of February 2015 the property was let out. In between the property was lying vacant and the assessee has claimed vacancy allowance as per Section 23(1)(c) of the Act whereas the AO has not allowed the vacancy allowance and assessed notional rental income for the impugned assessment year. Considering the submissions of the learned A.R. and the case laws relied on by her the issue in hand is similar with the case laws cited by the learned A.R. of the assessee. In that

9 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani case it was also noted that the earlier and subsequently the property was let out but in the impugned assessment year the property was lying vacant and the coordinate bench of the Tribunal has allowed the appeal of the assessee for granting vacancy allowance as per Section 23(1)(c) of the Act. The case law relied on by the learned D.R. in the case of Susham Singla (supra) the construction of property was completed in the month of July 2011 and immediately in September2011, the assessee appointed a broker to find out a suitable tenant but the broker could not find a suitable tenant. Accordingly the assessee did not offer any notional income in his return of income. We also noted in the judgement relied on by the learned D.R. in ITA No. 26/Bang/2014, at para No. 9 that the property at Jubilee Hills, Hyderabad was never let out by the assessee. The ld. Dr has also relied on the judgement of co-ordinate bench of ITAT Pune in the case of Mr. Arihant Patni in ITA No. 2695/PUN/2016 order dated 07/06/2022 the fact of this case that the property was never let out during the year or year earlier to that, in this judgement the co-ordinate has discussed in detail the judgement of Vivek Jain vs. ACIT (2011) 337 ITR 74 rendered by the Hon’ble High Court of Andhra Pradesh and held that the vacancy allowance can not granted to the assesse u/s 23(1)(c) since the property was not let out for whole the year. In view of this the case law relied by the ld. DR is not applicable in the present case on hand.

13.1. It is here important to note that in the case of Vivek Jain v. Asstt. CIT reported in [2011] 14 taxmann.com 146/202 Taxman 499/337 ITR 74 (AP) in which at para No. 14 held as under:-

14.

The contention that, as clause (c) provides for an eventuality where a property can be vacant during the whole of the relevant previous year, both situations, i.e., "property is let" and "property is vacant for the whole of the relevant previous year" cannot co-exist does not merit acceptance. Clause (c) encompasses cases where a property is; let out for more than a year in which event alone would the question of if being vacant during the whole of the previous year arise. A property let out for two or more years can also be vacant for the whole of a previous year bringing it within the ambit of clause (c) of section 23(1) of the Act.

10 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani In the impugned case the property was also given on rent earlier and vacated from 01.03.2013 to February 2015, accordingly the case of relied by the ld. DR. Also supports to case of the assessee.

13.2. We note that a similar issue has been decided by the co-ordinate bench of the Tribunal in the case of DCIT vs. Dhaval D Patel in IT(SS) No. 207 & 1461/AHD/2018 for the AY 2013-14 & 2014-15 oder dated 10/11/2022 in which the judgement of Vivek Jain v. Asstt. CIT [2011] 14 taxmann.com 146/202 Taxman 499/337 ITR 74 (AP) & SushamSingla v. CIT [2016] 76 taxmann.com 349/[2017] 244 Taxman 302 (Punj. &Har.)has been considered and decided in favour of the assesse. The relevant part of the judgement is as under:-

8.

We have heard the rival contentions and perused the material on record. In this respect, it would be useful to reproduce the relevant part of section 23 of the Act, for ready reference: Annual value how determined. 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be— (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable : 8.1 In the case of Asfa Technologies & BPO (P.) Ltd. v. ITO [2022] 143 taxmann.com 170 (Chennai - Trib.), the ITAT has held that if property is let out for two or more years and was vacant for whole or any part of previous year, then said property would come within ambit of provisions of section 23(1)(c).The ITAT further held that where property owned by assessee was let right from assessment years 2008-09 to 2011-12, however, same was vacant due to non-availability of tenants for impugned assessment year alone, Assessing Officer had erred in computing annual value of property in terms of section 23(1)(a) and, thus, he was to be directed to delete addition made towards income from house property. While passing the order, the ITAT held as below: • As per provisions of section 23(1), 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

11 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani

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). In the instant case, there is no dispute with regard to fact that property owned by the assessee was let right from assessment years 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), whereas the Assessing Officer has determined annual value in terms of provisions of section 23(1)(a). According to the Assessing Officer, in order to apply provisions of section 23(1)(c), property must be let out during the previous year and it should be vacant for any part of the previous year. • There is no merit in the reasons given by the Assessing Officer for simple reason that in order to attract section 23(1)(c), 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; and (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) does not apply, in case 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). In the instant 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 the 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, the assessee has rightly computed annual letting value of the property as per provisions of section 23(1)(c). The term 'property is let' used in section 23(1)(c) is solely used with intent to avoid misuse of 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 under section 23(1)(c). 8.2 In the case of ITO v. Metaoxide (P.) Ltd. [2018] 92 taxmann.com 302/170 ITD 235 (Mumbai - Trib.), the ITAT held that in order to avail benefit of clause (c) of section 23(1), it is not necessary that property should have been actually let out in relevant previous year or during any time prior to relevant previous year. 8.3 In the case of Vikas KeshavGarud v. ITO [2016] 71 taxmann.com 214/160 ITD 7 (Pune - Trib.), the ITAT held that where assessee intended to let property and took appropriate efforts in letting property but ultimately failed to let same, in terms of section 23(1)(c) its ALV had to be treated as nil being less than sum referred to in section 23(1)(a) of the Act. The ITAT made the following observations while passing the order:

12 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani Section 23(1)(c) by its literal wording include a situation where a property which was vacant during the whole year by saying that 'when a property is let and was vacant during the whole or part of the previous year actual rent received or receivable by the owner is less than sum referred to in clause (a), the amount so received or receivable'. It goes without saying that a situation cannot co-exist wherein the property is let during the previous year and is also simultaneously vacant for the whole year. The word 'let' and 'vacant' are mutually exclusive. To appreciate it further, the underlying principle of this provision has to be viewed with regard to the intention together with efforts put by assessee in letting out the property, etc. and then gross annual value is required to be determined. 8.4 In the case of Ms.Priyananki Singh Sood v. Asstt. CIT [2019] 101 taxmann.com 45/174 ITD 371 (Delhi - Trib.), the ITAT held that where assessee intended to let out property and took appropriate efforts in letting property, however, due to fall in property prices failed to let out same year after year because of which property remained vacant, assessee was entitled to claim benefit under section 23(1)(c) of the Act. 8.5 In the case of Sachin R. Tendulkar v. Dy. CIT [2018] 96 taxmann.com 253/172 ITD 266 (Mumbai - Trib.), the ITAT held that where assessee owned a house property which remained vacant throughout relevant year as he could not find a suitable tenant despite writing various letters to concerned builder, he was eligible to claim vacancy allowance under section 23(1)(c) and, thus, rental income from said property was rightly declared at nil. 8.6 In the case of Sonu Realtors (P.) Ltd. v. Dy. CIT [2018] 97 taxmann.com 534/173 ITD 82 (Mum. - Trib.), the ITAT held that though term 'property is let' used in section 23(1)(c) is solely with intent to avoid misuse of determination of 'annual value' of self-occupied properties by assessee by taking recourse to section 23(1)(c), however, same cannot be stretched beyond that and, thus, 'annual value' of a property which is let, but thereafter remains vacant for whole year under consideration, subject to condition that same is not put under self-occupation of assessee and is held for purpose of letting out of same, would continue to be determined under section 23(1)(c). 8.7 In the case of Kamal Kumar v. ACIT [2022] 140 taxmann.com 106/195 ITD 572 (Delhi -Trib.), the ITAT held that where commercial property of assessee remained vacant during whole of previous year due to facts that property was unauthorized property and Government was having a sealing drive on unauthorized property, provisions of section 23(1)(c) would not be applicable and tax authorities below had thus fallen in error in taxing assessee on basis of notional rent. 8.8 Now coming to the instant facts, we observe that the counsel for the assessee has submitted that the properties under question were let out in earlier years, but due to reasons beyond the control of the assessee, the same could not be let out during the year under consideration. The counsel for the assessee placed on record various documents in support of the contention that the assessee had made substantial efforts by way of newspaper advertisements etc. to lease out the properties, however, despite best efforts, the properties could not be let out during the year under consideration. We are of the considered view that in light of the judicial precedents highlighted above, the provisions of section 23(1)(a) of the Act cannot be invoked in case the properties have been let out in some earlier year, however, the same were lying vacant for the entire year under consideration, despite efforts being made by the assessee. The provisions of section 23(1)(a) of the Act can be invoked in the event the properties are lying vacant all throughout

13 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani and have not been let out either in the prior or succeeding assessment years and also the assessee has made no effort to let out the same. Further, notably the words used in section 23(1)(c) of the Act are "the property is let and was vacant during the whole…of the year", which necessarily implies that the same property cannot be "let out" and yet remain "vacant" during the same assessment year. Therefore, as noted above, the reasonable construction/interpretation of section 23(1)(c) of the Act would be that if the property has been let out in any of the previous years, but the same could not be let out despite the best efforts by the assessee, the assessee would be entitled to avail the benefits of section 23(1)(c) of the Act. Accordingly, in our considered view, the Ld. CIT (Appeals) has not erred in facts and in law in allowing the assessee's appeal on this issue.

13.3. As per the Assessing Officer words "where the property is let" cannot be read as "where the property is intended to be let". For this proposition, the Assessing Officer has heavily relied upon the decision of the Hon'bleAndhra Pradesh High Court in the case of Vivek Jain (supra). The Assessee ardently contested the action of the AO before CIT(A) and claimed that in view of S. 23(1)(c), the annual letting value (ALV) ought to have been determined at nil having regard to the fact the property could not be let out and remained vacant for the whole year.We are not inclined to agree with the interpretation suggested by the Revenue that property should be actually let out in relevant to previous year. This interpretation does not appear consistent with the phraseology mandated in Section 23(1)(c) which includes a situation where the property can remain vacant during the whole of the relevant previous year. Hence, both situations namely 'property is let' and remained vacant for the whole year cannot coexist during the financial year. We also note from a reading of another provision i.e. sub-section (3) of section 23 of the Act, where the legislatures in their wisdom have used the word 'house is actually let'. This also shows that the expression 'property is 'let' cannot mean actual letting out of the property because had it been so, there was be no need to use the word 'actually' in sub-section (3) of section 23 of the Act. Applying the purposive interpretation, the expression 'property is let' has to be read in contrast to 'property is self

14 IT(IT)A No. 1125/Bang/2022 Shri Haresh Udhav Buxani occupied' to arrive at its true purport. We simultaneously note on facts that the property has been actually let out in the previous & subsequent financial year as noted above. It cannot be reckoned to be in the control of the assessee to let out the property throughout necessarily. Therefore, in the totality of the circumstances and having regard to the provisions of the Act, we are of the view that the ALV of the property at 11thflorrVayudooth Chambers which remained vacant for the whole year has to be assigned Nil value in terms of section 23(1)(c) of the Act. Respectfully following the above judgement in the case of DCIT vs Dhaval D Patel cited supra, the ground raised by the assesse on this issue is allowed.

14.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 31st March, 2023.

Sd/- Sd/- (George George K.) (Laxmi Prasad Sahu) JudicialMember Accountant Member Bengaluru, Dated: 31st March, 2023

Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -12, Bengaluru 4. The CIT - (Intl. Taxn.), Benga 5. The DR, ITAT, Bengaluru 6. Guard File By Order //True Copy// Assistant Registrar ITAT, Bengaluru n.p.

More judgments on Section 23(1)(c)

All 136 judgments and leading authorities on Section 23(1)(c) →

Recent GST High Court judgments

Search GST case law →