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Issues: (i) Whether the annual value of property under section 22 of the Income-tax Act, 1961 is chargeable even where no actual rent is received or accrued because the owner occupies the property; (ii) Whether vacancy allowance under section 24(ix) of the Income-tax Act, 1961 is admissible where the property was never let out.
Issue (i): Whether the annual value of property under section 22 of the Income-tax Act, 1961 is chargeable even where no actual rent is received or accrued because the owner occupies the property.
Analysis: Income from house property is computed under sections 22 to 27 of the Income-tax Act, 1961 on the basis of annual value. Under section 23(1)(a), annual value is the sum for which the property might reasonably be expected to let from year to year. The mode of computation does not change merely because the owner is in occupation of the property and no actual income is received.
Conclusion: The first question was answered in the affirmative and against the assessee.
Issue (ii): Whether vacancy allowance under section 24(ix) of the Income-tax Act, 1961 is admissible where the property was never let out.
Analysis: Vacancy allowance applies only where the property is let out and remains vacant for part of the year. Where the property was never let out and was occupied by the owner, the statutory condition for allowance is not satisfied.
Conclusion: The second question was answered in the affirmative and against the assessee.
Final Conclusion: The reference was decided wholly in favour of the Revenue, with both referred questions answered against the assessee.
Ratio Decidendi: For income from house property, the charge is based on the property's annual value determined by its reasonable expected letting value, not on actual receipt of rent; vacancy allowance is available only when a property has been let out and is vacant for part of the year.
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