2015 (3) TMI 1355 - AT - Income Tax

Tribunal upholds calculation of notional rental income for unlet properties, rejects assessee's appeals

Susham Singla Versus Assistant Commissioner of Income-tax, Central Circle, Patiala

The Tribunal affirmed the CIT (Appeals)'s decision, ruling that notional rental income must be calculated for properties owned by the assessee, even if ... Determination of Annual value - income from house property - Undisclosed rental income in view of the provisions of section 23(1) - HELD THAT:- CIT (Appeals) correctly decided the issue. He has clearly met with the contention that different view has not been taken in the case of Shri Manoj Singla. CIT (Appeals) has reproduced the contents of the appellate order in the case of Manoj Singla in para 7 and reading of the same clearly shows that in the case of Manoj Singla the learned CIT (Appeals) observed that B-7 Preet Vihar property is commercial property and is not covered by the provisions of section 23(4) of the Act. As far as Bombay flat is concerned, since the assessee has shown rental income in the earlier years, therefore, the income has to be charged. As observed by the learned CIT (Appeals), therefore, it becomes clear that even in the case of Manoj Singla it was never held that if the property was never let out, then no income can be charged. Once the expression 'might' is used in section 23(1)(a), it becomes clear that what is required to be charged is the notional income because the basis of the charge of income is annual value. See BIMAN BEHARI SHAW SHEBAIT. [1967 (7) TMI 29 - CALCUTTA HIGH COURT] It is not necessary that the property has been let out for computing the annual value because what is required under section 23(1)(a) of the Act is a sum for which property might be let out. In case of let out properties section 23(1)(b) of the Act is applicable which talks of annual rent received or receivable. Where the property remains vacant for the whole year, in that case, nil value is to be computed or notional value of rent is to be computed? - As pointed out by the learned CIT (Appeals), section 23(1(c) of the Act clearly stipulate the situation where the property has been let out that being if some property is rented out and the tenants leaves, then section 23(1)(c) of the Act would get activated. But ff the property has never been let out, then the provisions cannot be invoked because section 23(1)(c) of the Act is clearly applicable where the property was let out. Therefore, in our opinion, the learned CIT (Appeals) has rightly interpreted the provisions of section 23(1)(c) of the Act. Clearly, the property for which notional income has been computed by the Assessing Officer was never let out by the assessee, therefore, section 23(1)(c) of would not be applicable. Dispute seems to be the value on which the notional value is to be computed whether this should be municipal ratable value or the standard rent as per the Local Rent Control Act, whichever, is higher. Therefore, the facts were quite distinguishable and in our opinion this decision is not applicable. We find nothing wrong with the order of the learned CIT (Appeals) and confirm the same Issues Involved:1. Whether the rental income should be computed for properties owned by the assessee but not let out.2. Applicability of section 23(1)(c) of the Income Tax Act regarding properties that remained vacant.3. Determination of the annual value of properties under section 23(1)(a) of the Income Tax Act.4. Consistency in the treatment of similar cases by the CIT (Appeals).Detailed Analysis:1. Computation of Rental Income for Non-Let Out Properties:The core issue was whether the rental income should be computed for properties owned by the assessee but not let out. The Assessing Officer (AO) observed that the assessee owned multiple properties and had not shown any rental income. The AO computed notional rent for these properties, as the assessee was the owner of more than one house property, invoking the provisions of section 23(1)(4) of the Income Tax Act. The AO determined the annual value of the properties and computed the rental income accordingly.2. Applicability of Section 23(1)(c) for Vacant Properties:The assessee contended that since the properties were not let out and remained vacant, no annual value could be determined under section 23(1)(c) of the Act. The CIT (Appeals) examined the submissions and upheld the AO's addition, noting that section 23(1)(c) applies only if the property was let out and then remained vacant. The Tribunal concurred, stating that section 23(1)(c) does not apply to properties that were never let out.3. Determination of Annual Value under Section 23(1)(a):The Tribunal emphasized that section 23(1)(a) requires the annual value to be determined based on the notional rent the property might reasonably be expected to fetch. The Tribunal referred to the Hon'ble Calcutta High Court's observation in CIT v. Biman Behari Shaw Shebait, which clarified that even if a property is not let out, the notional income based on reasonable expected rent must be included in the annual income of the owner. The Tribunal upheld the AO's determination of the annual value, finding it reasonable and logical.4. Consistency in Treatment of Similar Cases:The assessee argued that a different view was taken in the case of a co-owner, Shri Manoj Singla. The Tribunal reviewed the CIT (Appeals)'s order in the case of Manoj Singla and found that the property in question was commercial and not covered by section 23(4). Additionally, the Bombay flat had shown rental income in earlier years, justifying the income charge. The Tribunal concluded that the CIT (Appeals) did not take a different view in similar cases and upheld the consistency in the treatment of the assessee's case.Conclusion:The Tribunal confirmed the CIT (Appeals)'s order, holding that the notional rental income must be computed for properties owned by the assessee, even if they were not let out. Section 23(1)(c) was deemed inapplicable as the properties were never let out. The annual value determined by the AO was upheld as reasonable. The Tribunal dismissed all appeals of the assessee, maintaining consistency in the application of the law.