SONU REALTORS P.LTD,MUMBAI vs. DCIT 14(3)(2), MUMBAI

The present appeals filed by the assessee for A.Y 2011-12 and A.Y 2012-13 are directed against the respective orders passed by the CIT(A)-22, Mumbai, dated 22.01.2016 and 27.09.2016. As a common issue is involved in the aforementioned appeals, thus, the same are being taken up and disposed off together by way of a consolidate order. We shall first take up the appeal of the assessee for A.Y 2011-12. The assessee assailing the order passed by the CIT(A) has raised before us the following grounds of appeal :

Briefly stated, the assessee company which is engaged in construction business had filed its return of income for A.Y 2011-12 on 25.09.2011, declaring Nil income. Subsequently, the case of the assessee was taken up for scrutiny assessment under Sec. 143(2) of the Act.

During the course of the assessment proceedings, it was observed by the A.O that the „balance sheet‟ of the assessee revealed investments of Rs. 3,54,81,980/- in immovable properties on 01.04.2010. On being called upon to explain that as to why the deemed rental income of the aforesaid properties may not be brought to tax under the head “Income from house property”, the assessee objected to the same. It was the claim of the assessee that the Unit No. 401 & 425 of project “Balaji Bhawan” had remained vacant for the entire year as the licensee viz. M/s Sterling Construction System Pvt. Ltd. had vacated the premises and no rent, whatsoever, had thereafter been received. The A.O found the aforesaid claim of the assessee as factually correct. It was observed by the A.O that the assessee, vide agreement dated April, 2007 had let out Unit No. 401 & 425 of project Balaji Bhavan to M/s Sterling Construction P. 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. However, it was also noticed by the A.O, that after the expiry of the license period the licensee had vacated the property and conveyed its intention of not getting the license agreement renewed any further. The assessee in order to drive home its contention that the „annual value‟ of the property was to be taken at Nil, submitted that its case was covered by Sec. 23(1)(c) of the Act. However, the A.O after deliberating on the contentions advanced by the assessee did not find favour with the same. The A.O was of the view that as per Sec. 23(1)(a)

Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating at length on the contentions advanced by the assessee was however not persuaded to accept the same and sustained the order of the A.O in context of the issue under consideration.

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorised representative (for short „A.R‟) for the assessee, at the very outset of the hearing of the appeal submitted that the Ground of appeal No. 3 was not being pressed by him. In the backdrop of the concession of the ld. A.R the Ground of appeal No. 3 is dismissed as not pressed. The ld. A.R took us through the facts of the case and drew our attention to the relevant observations of the A.O and that of the CIT(A) in context of the issue under consideration. The ld. A.R took us through Para C of the „Leave and License agreement‟, dated 22.04.2007 (Page 149) of the assessees „Paper book‟ (for short „APB‟). On a perusal of the aforesaid extract of the agreement, it emerged that the property under consideration viz. Unit No. 401 & 425 of project Balaji Bhavan was given by the assessee on leave and license basis for a period of 36 months commencing from 10.04.2007, and the same thereafter was renewable for a further period of 24 months with an enhanced license fees of 25%. It was submitted by the ld. A.R that a perusal of the agreement revealed that the assessee had intended to let out the property even for the year under Sonu Realtors Pvt. Ltd. Vs. DCIT-14(3)(2), Mumbai 4 & A.Ys 2011-12 & 2012-13 consideration viz. A.Y 2011-12. The ld. A.R submitted that the lower authorities had misconstrued or rather misconceived the scope and gamut of the provisions of Sec. 23(1)(c) of the Act. The ld. A.R relying on a decision of a coordinate bench of the Tribunal viz. ITAT, Pune bench „A‟ in the case of Vikas Keshav Garud Vs. ITO, Ward 1(2), Nashik (2016) 160 ITD 7 (Pune), submitted that Sec. 23(1)(c) clearly contemplated a situation where a property was vacant during the whole year. The ld. A.R taking support of the aforesaid order submitted that the word „let‟ and „vacant‟ are mutually exclusive terms, and a situation cannot exist where the property is let during the year and is also simultaneously vacant for the whole year. It was the contention of the ld. A.R that the lower authorities had failed to appreciate that the aforesaid statutory provision was to be viewed with regard to the intention, together with the efforts put by the assessee in letting out the property, and the gross „annual value‟ of the property was to be determined only after considering the said factors. The ld. A.R in order to buttress his aforesaid contention took support of sub-section (3) of Sec. 23 of the Act. It was submitted by the ld. A.R that the usage of the term „house is actually let‟ in sub-section (3) of Sec. 23, unlike the expression „property is let‟ used in Sec. 23(1)(c), clearly revealed that as and where the legislature had required actual letting of the property, there had been a conscious, purposive and intentional usage of the term “actually”, which however was absent in Sec. 23(1)(c). On the basis of his aforesaid contentions, it was submitted by the ld. A.R that the lower authorities had misconstrued the scope of Sec. 23(1)(c) and had wrongly read the requirement of actual letting of the property during the year in the same. Further, the ld. A.R in order to support his aforesaid interpretation of Sec. 23(1)(c), relied on the following orders of the coordinate benches of the Tribunal:

Per contra, the ld. Departmental representative (for short „D.R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the property under consideration viz. Unit No. 401 & 425 of project Balaji Bhavan had remained vacant during whole of the year under consideration, thus, the lower authorities had rightly concluded that the provisions of Sec. 23(1)(c) would not be applicable and had rightly determined the „annual value‟ by pressing into service Sec. 23(1)(a) of the „Act‟.

We have heard the authorised representatives of both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal has been sought for adjudicating as to whether the „annual value‟ of the property owned by the assessee viz. Unit No. 401 & 425 of project Balaji Bhavan, had rightly been determined by the assessee by taking recourse to Sec. 23(1)(c) of the „Act‟ at Rs. Nil, or the same was liable to be determined u/s 23(1)(a) as held by the lower authorities. We find that it is an admitted fact that though the assessee had vide agreement dated April, 2007 let out the Unit No. 401 & 425 of project Balaji Bhavan to M/s 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. We further find from a perusal of the records before us 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 in the case of the present assessee,

Thus it can safely be concluded that the requirement „house is actually let‟ during the year is not a prerequisite for bringing the case of an assessee within the sweep of Sec. 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 said property for the purpose of letting out. We are in agreement with the aforesaid observations of the coordinate bench that the usage of the term „Property is let‟ in Sec. 23(1)(c) had purposively been used to exclude those properties from the ambit of the clause which are held by the owner for self occupation purposes, because even though the „ALV‟ of one self occupied property so chosen by the assessee is taken at Nil, however the „ALV‟ of all the remaining self occupied properties are to be determined in terms of Sec. 23(1)(a) of the „Act‟. Thus to our understanding the term „Property is let‟ used in Sec. 23(1)(c) is solely with the intent to avoid misuse of determination of the „ALV‟ of self occupied properties by the assesses by taking recourse to Sec. 23(1)(c), however the same cannot be stretched beyond that and the „ALV‟ 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‟. Thus in light of the aforesaid order of the coordinate bench of the Tribunal and the reasonings flowing there from, we are of the considered view that the assessee in the present case had rightly determined the „ALV‟ of the property at Rs. Nil by taking recourse to Sec. 23(1)(c) of the „Act‟. In this regard we are further of the view that the CIT(A) had misconceived the judgment of the Hon‟ble High Court of Andhra Pradesh in the case of Vikas Jain (supra), and on a perusal of the said judgment therein find that the Hon‟ble High Court in the concluding Para 14 & 15 had though concluded that 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, would however 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. Thus we are of the view that now when in the case of the present assessee the property under consideration had remained let out upto 04.12.2008, and thereafter though could not be let out and had remained vacant during whole of the year under consideration, but also had never remained under the self occupation of the assessee, the Sonu Realtors Pvt. Ltd. Vs. DCIT-14(3)(2), Mumbai 8 & A.Ys 2011-12 & 2012-13 computation of the „ALV‟ u/s 23(1)(c) of the „Act‟, had rightly been carried out in light of the aforesaid judgment of the Hon‟ble High Court. 7.2 That in light of our aforesaid observations the Ground of appeal

That in light of our aforesaid observations the Ground of appeal No. 1 and 2 of the assessee are allowed and the determination of the „annual value‟ of the property under consideration viz. Unit No. 401 & 425 of project Balaji Bhavan at Rs. 81,99,360/- by the A.O by taking recourse to Sec. 23(1)(a), which thereafter was sustained by the CIT(A), is vacated. The order of the CIT(A) is set aside in terms of our aforesaid observations.

The appeal of the assessee is allowed.

During the course of the assessment proceedings it was observed by the A.O that the „balance sheet‟ of the assessee revealed investments of Rs. 3,43,36,083/- in immovable properties. On being called upon to explain that as to why the deemed rental income of the aforesaid properties may not be brought to tax under the head “Income from house property”, the assessee objected to the same. It was the claim of the assessee that the Unit No. 401 & 425 of project “Balaji Bhawan” had remained vacant for the entire year as the tenant viz. M/s Sterling Construction System Pvt. Ltd. had vacated the premises and no rent, whatsoever, had thereafter been received. The A.O found the aforesaid claim of the assessee as factually correct. It was Sonu Realtors Pvt. Ltd. Vs. DCIT-14(3)(2), Mumbai 11 & A.Ys 2011-12 & 2012-13 observed by the A.O that though the assessee had let out Unit No. 401 & 425 of project Balaji Bhavan to M/s Sterling Construction P. Ltd. for 36 months, vide agreement dated April, 2007 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. The assessee in order to drive home its contention that the „annual value‟ of the property was to be taken at Nil, submitted that its case was covered by Sec. 23(1)(c) of the Act. However, the A.O after deliberating on the contentions advanced by the assessee did not find favour with the same. The A.O was of the view that as per Sec. 23(1)(a) of the Act, the sum for which the property might reasonably be expected to be let from year to year was to be taken as the deemed „annual value‟ of the property under Sec. 22 of the Act. Further, the A.O held a conviction that the provisions of Sec. 23(1)(c) could be pressed into service only when the property is actually let and had remained vacant for some period during the year. Thus, the A.O was of the view that as the property under consideration viz. Unit No. 401 & 425 of project Balaji Bhavan was not at all let out during whole of the year under consideration, hence the provisions of Sec. 23(1)(c) would not be applicable in its case. On the basis of his aforesaid observations the A.O computed the „annual value‟ of the property as per Sec. 23(1)(a) at Rs. 90,19,296/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating at length on the contentions advanced by the assessee was however not persuaded to accept the same and upheld the order of the A.O in context of the issue under consideration.

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that as the facts and the issues involved in the present appeal of the assessee for A.Y 2012-13 remains the same as were there before us in the appeal of the revenue for AY 2011-12, as had been adjudicated by us hereinabove, thus, our order passed while disposing off the appeal of the assessee for A.Y 2011-12 shall apply mutatis

That as we have accepted the claim of the assessee that the „annual value‟ of the property under consideration viz. Unit No. 401 & 425 of project Balaji Bhavan was rightly computed by it at Nil under Sec. 23(1)(c) of the Act, thus, the Grounds of appeal nos. 2 and 3 wherein the quantification of the „annual value‟ by the A.O has been assailed before us, having been rendered as infructuous are dismissed.

The appeal of the assessee is allowed.

That both the appeals of the assessee i.e and A.Y 2011-12 and A.Y 2012-13 are allowed.