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Facts
The assessee appealed against an order related to assessment year 2015-16 concerning house property income. The core issue was whether vacancy allowance under Section 23(1)(c) of the Income Tax Act should be granted for a property that was held for letting out but remained vacant due to the non-availability of a tenant.
Held
The Tribunal held that if a property is held with the intention to let out and efforts are made to let it out, it should be considered a 'let out property' for the purpose of Section 23(1)(c), even if it remained vacant during the entire year. The annual letting value should be determined based on this provision, and if no rent is received, it should be taken as nil.
Key Issues
Whether vacancy allowance under Section 23(1)(c) is admissible for a property held for letting out but remaining vacant due to non-availability of a tenant?
Sections Cited
23(1)(c), 143(3), 234C
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Income Tax Appellate Tribunal, “A’’ BENCH: BANGALORE
Before: SHRI GEORGE GEORGE K. & SHRI CHANDRA POOJARI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of CIT(A)-11 Bangalore dated 17.11.2023 for the assessment year 2015- 16. The assessee has raised following grounds of appeal:-
1. The order passed by the Learned Commissioner (Appeals) u/s 250 of the Income Tax Act, 1961 '(Act)' to the extent which is against the appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case.
2. The order of the learned assessing officer passed u/s 143(3) of the Act, in so far it is prejudicial the interest of the appellant is bad, erroneous in law, addition made is excessive and contrary' to the facts and circumstances of the case and the Ld. Commissioner (Appeals) erred in upholding the same. 3. As regards the first house: a. The Ld. Officers below misinterpreted the provisions of Section 23(1)(c) and failed to appreciate the application of Section 23(1)(c) to the present case.
Amanda Joy Puravankara, Bengaluru Page 2 of 7 i. The Ld. Officers below erred failed to appreciate that the first house was continuously let out ever since it was acquired in 2011 and it could not be let out from October 2013 to May 2015 despite best of the efforts of the Appellant. ii. The said house property was never remained under the self-occupation of the Appellant. iii. The vacancy was not deliberate and no sooner the tenant could be traced, the house was let out immediately in the succeeding year. Therefore, the Appellant had rightly computed the 'Annual Let out Value' u/s 23(1)(c) of the Act at 'Nil' for the first property. Hence, the conclusion of the Ld. Officers below that vacancy allowance cannot be given unless the property is let out for some part of the year is totally incorrect. b. The Ld. Officers below erred in law and on facts by failing to appreciate that the first house remained vacant due to non- availability of a tenant and ought to have allowed the vacancy allowance.
4. As regards the second house: The Ld. Officers below erred in law and on facts by not appreciating the fact that the second house was purchased only on 27.06.2014, and thereafter the Appellant had to carry out the customization works till December 2014 and hence he could not have derived any income during the relevant period. Hence considering the same as self-occupied for the entire year and taxing the first house as deemed let out is contrary to the facts.
As regards taxinq the hypothetical income: a. The Ld. Officers below erred in law and in facts in taxing the hypothetical income contrary to the basic cannon of taxation and circumstances. b. The Ld. Officers below erred in taxing the unearned income in the light of Memorandum to Finance Act 2001, which hitherto provided for the 'vacancy allowance( Thus, the Ld. AO failed to interpret the provisions of S. 23 "purposively”.
As regards arbitrary order: a. At any rate, the rent of Rs. 60,000/- p.m. of rental income adopted by the Ld. AO was contrary to law, exceedingly high and arbitrary. The Ld. AO erred in law and in facts in levying tax without bringing any evidence on record about the basis for adoption of purported market rate. b. At any rate, computing the let-out period for entire 12 months was exceedingly high and arbitrary under the facts.
Amanda Joy Puravankara, Bengaluru Page 3 of 7 7. As regards the non-adherinq to the CBDT Instruction: The case was admittedly taken up for limited scrutiny assessment for verification of a. Purchase of property, b. Foreign bank account. However, the Ld. AO expanded the scope of scrutiny and made addition purportedly u/s 23(1)(c) of the Act, without adhering to the CBDT instruction Dt. 26.09.2014, 29.12.2015, 14.07.2016.
The Ld. AO erred in law and on facts in levying interest u/s 234C of the Act though the conditions for levy have not been fulfilled.
Each of the above grounds is without prejudice to one another and the appellant craves leave of the Hon'ble Tribunal to add, delete, amend or otherwise modify one or more of the above grounds either before or at the time of hearing of this appeal.
The crux of above grounds is with regard to non-granting of benefit u/s 23(1)(c) of the Income Tax Act, 1961 (in short “The Act”) towards vacancy allowances. 2.1 The ld. A.R. submitted that the impugned residential house has been let out in the earlier assessment years. Only in the assessment year under consideration, it was kept vacant due to non- availability of tenant and this issue has been considered by various Tribunals and decided in favour of the assessee.
Admittedly, this issue came for consideration in assessee’s own case in assessment year 2007-08 in dated 22.12.2011, wherein held as under: “8. We have considered the submission of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that the properties in question were earlier let out but remained vacant and could not be let out for the year under consideration since those were inhabitable. A similar issue has been adjudicated by the ITAT, Lucknow Bench ‘B’ in the case of Smt. Indu Chandra Vs. DCIT (supra). In the said case, one of us (AM) is the signatory. In the case of Smt. Indu Chandra (supra), addition which was made in similar circumstances, was deleted by following the decision of the ITAT, Mumbai Bench ‘C’ in the case of Premsudha Exports (P) Ltd. Vs. ACIT (2008) 110 ITD 158 (Mum) and the relevant findings have been given in para 11 and 11.1 of the order dated 29.4.2011 which are reproduced as under :
Amanda Joy Puravankara, Bengaluru
Page 4 of 7 “11. After" considering the submissions of both the parties and the material on record, it is noticed that the property in question remained vacant and claim of the assessee was that she made all the efforts to let out the property, but the same could not be let out because the property was situated at 5th floor and the lift was not working. On a similar issue, the I.T.A.T. Mumbai Bench 'C' in the case of Premsudha Exports (P) Ltd. Vs. ACIT, CC 10, Mumbai (supra), has held as under: "It was the case of the revenue that clause (c) of section 23 (1) can only be invoked in those cases where the property was let out in earlier years or in the present year. The assessee, on the other hand, contended that the intention of letting out the property was to be seen for invoking clause (c) of section 23 (1) for computing the annual letting value of the property and it was irrelevant whether the property is/was let out. [Para II] Therefore, the sole dispute, in the instant case, was regarding the interpretation of the words 'property is let' in clause (c) of section 23(1). One interpretation suggested-by the revenue was that the property should be actually let out in the relevant previous year. This interpretation was not correct, because as per clause (c) of section 23(1), the property can be vacant during whole of the relevant previous year. Hence, both these situations cannot coexist that the property is actually let out also in the relevant previous year, and that the property in the same year is vacant also during whole of the same year. [Para 12] The second interpretation suggested by the revenue was that the property should be actually let out during any time prior to the relevant previous year and then only, it could be said. that the property is let out and clause (c) would be applicable. The tense of the verb used prior to the word 'let' is present tense and not past tense. It means that the provisions of clause (c) talk regarding the relevant previous year and not of any earlier period and if that be so, the contention of the revenue was not acceptable. [Para 13] Now the question arose as to what would be the correct and workable interpretation of the words 'property is let' in clause (c) of section 23 (1). For this, it is to be determined as to whether actual letting out is a must for a property to fall within the purview of clause (c) of section 23(1). [Para 15] From a reading of the provisions of sub-section (3) of section 23,it appears that the Legislatures in their wisdom have used the words 'house is actually let'. This shows that the words '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 subsection (3) of section 23. Regarding the scope of referring to actual letting out in preceding period, there was no force in the contention of the revenue, as the Legislature has used the present tense. Even if it is interpreted so, it may lead to undesirable result because in some cases, if the owner has let out a property for one month or for even one day, that property would acquire the status of 'let out property'
Amanda Joy Puravankara, Bengaluru
Page 5 of 7 for the purpose of clause (c) of section 23(1) for the entire life of the property, even without any intention to let it out in the relevant year. Not only that, even if the property was let out at any point of time even by any previous owner, it could be claimed that the property is let out property because the clause talks about the property and not about the present owner and since the property was let out in past, it is a let out property, although the present owner never intended to let out the same. Therefore, it is not at all relevant as to whether the property was let out in past or not. These words do not talk of actual let out also but talk about the intention to let out. If the property is held, by the owner for letting out and efforts are made to let it out, that property is covered by clause (c) and this requirement has to be satisfied in each year that the property was being held to let out but remained vacant for whole or part of the year. Above discussion shows that meaning and interpretation of the words 'property is let' cannot be 'property actually let out'. Thus, if a property is held with an intention to let out in the relevant year coupled with efforts made for letting it out, it could be said that such a property is a let out property and the same would fall within the purview of clause ( c ) of section 23(1). [Para 16]
In the instant case, the assessee-company was entitled to purchase the property for its let out and to earn rental income. Copy of resolution of board of directors was also placed on record, where from it was evident that one of the directors was authorized to take necessary steps to let out the property in question. The assessee had also fixed the monthly rent and the security deposits of the property. Consequent to the resolution, the assessee had approached various Estate and Finance Consultants for letting out the property and the request was also duly acknowledged by the Estate and Finance Consultants. Unfortunately, during the year under appeal, the assessee could not get the suitable tenant on account of hefty rent and security deposits. Thus, during the whole year, the assessee made continuous efforts to let out the property and under these circumstances, this property could be called to be let out property in terms of observations made in foregoing paras. Since the property had been held to be let out property, its annual letting value could only be worked out as per clause (c) of section 23 (1) and since the rent received or receivable from the said property during the year was nil the same was to be taken as the annual value of the property in order to compute the income from house property. [Para 18] " 11.1 In our opinion the aforesaid referred to case is on the same facts, so respectfully following the decision of the co-ordinate Bench in the case of Premsudha Exports (P.) Ltd. vs. ACIT, C.C.-I0,Mumbai (supra), we are of the view that since the rent received or receivable from the property in question during the year was nil, the same was to be taken as the annual value of the property in order to compute the income from house property as provided in section 23(1)(c) of the Act. We, therefore, set aside the order of the learned CIT(A) and the grounds of appeal Nos.5, 6 & 7 raised by the assessee are allowed.”
Amanda Joy Puravankara, Bengaluru In the present case, the facts involved are similar to that of Smt. Indu Chandra (supra). So, respectfully following the order of co-ordinate bench ‘B’ of ITAT, Lucknow in the aforesaid referred to case, we set aside the order passed by the learned CIT(A) and the addition made by the Assessing Officer and sustained by the learned CIT(A) is deleted.”
3.1 Similarly, this issue was considered by Mumbai Bench of Tribunal in the case of Informed Technologies India Ltd. reported in 162 ITD 153 (Mum), wherein held as under: “IT: As long as a property is let in earlier period and is found vacant for whole year under consideration, subject to condition that such vacancy of property is not for self occupation of same by assessee, ALV of said property would be determined under section 23(1)(c)”.
3.2 While adjudicating the above issue, the Tribunal considered the judgement of Hon’ble High Court of Andhra Pradesh in the case of Vivek Jain Vs. ACIT reported in 337 ITR 74 (2011) wherein observed as under: “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(l)(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 ramained 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 computation of the 'ALV' u/s 23(l)(c) of the 'Act', had rightly been carried out in light of the aforesaid judgment of the Hon'ble High Court.”
3.3 In the present case also, the said residential house was let out from 2011 to 2013 and remained vacant from 1st October, 2013 to 15th May, 2015 and the property once again was let out from May, 2015. In view of this, the facts of the present case squarely covered by the order of the Tribunal in the case of Informed Technologies India Limited cited (supra). Accordingly, this issue is decided in favour of the assessee and against the revenue.
Amanda Joy Puravankara, Bengaluru
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 10th Apr, 2024