2019 (3) TMI 1869 - AT - Income Tax

Tribunal Confirms ALV of Vacant Properties Should Be Based on Municipal Value, Not Market Rates.

Shri Rina Virendra Jain Versus The ACIT And DCIT, Central Circle 6 (4), Mumbai

The ITAT upheld the CIT(A)'s decision to determine the annual letting value (ALV) of vacant properties based on municipal ratable value, aligning with ... Income from house property - ALV determination - ascertainment of ALV where the flat was vacant during the year - CIT(A) holding that ALV of the property as determined by municipal authority is the yardstick for determining annual value for the purpose of determining the income from house property as against the ALV computed by the AO at a sum at which the property is expected to let out from year to year - HELD THAT:- In the case of DCIT vs. Laxmi Jain in [2014 (11) TMI 1157 - ITAT MUMBAI] by following the decision of Hon’ble Jurisdictional High Court in the case of Smitaben N. Ambani vs. CWT [2009 (1) TMI 430 - BOMBAY HIGH COURT] High Court held that the ALV of the vacant flat has to be made on the basis of municipal ratable value and thus dismissed the appeal of the Revenue. The said decision of the Tribunal was affirmed by the Hon’ble Bombay High Court in the case of Pr. CIT vs. Laxmi Jain [2018 (4) TMI 1644 - BOMBAY HIGH COURT] on the ground that there is no substantial question of law arising from the Revenue’s appeal. In the case of Harsh Jain vs. DCIT [2015 (7) TMI 1253 - ITAT MUMBAI] has held that the ALV of the property has to be computed as per municipal ratable value as deemed income from the house property. The said decision of the co-ordinate bench of the Tribunal was affirmed by the Hon’ble Bombay High Court in the case of Pr. CIT vs. Harsh Jain [2019 (2) TMI 537 - BOMBAY HIGH COURT] where the appeal of the Revenue was dismissed. We are of the view that the ALV of the vacant flat has to be determined on the basis of municipal ratable value for the purpose of assessing the income under the head “house property”. Accordingly, we are inclined to allow the appeal filed by the assessee and dismiss the appeal of the Revenue Issues Involved:- Interpretation of Section 23(1)(a) of the Income Tax Act, 1961 regarding the determination of annual value for house property.- Discrepancy between the annual letting value (ALV) calculated by the Assessing Officer (AO) and the ALV determined by the Commissioner of Income Tax (Appeals) based on municipal ratable value.- Consideration of various judicial decisions and precedents regarding the determination of ALV for vacant properties.Analysis:Issue 1: Interpretation of Section 23(1)(a) of the Income Tax Act, 1961- The primary issue in the appeals was the interpretation of Section 23(1)(a) of the Income Tax Act, 1961, specifically focusing on the determination of the annual value for house property. The dispute revolved around whether the ALV should be based on the municipal ratable value or the expected rental income from the property.Issue 2: Discrepancy in ALV Calculation- The Assessing Officer (AO) initially calculated the ALV based on market rental rates and field inquiries, resulting in a higher ALV figure. However, the Commissioner of Income Tax (Appeals) reduced the ALV by considering the municipal ratable value and annual increases, resulting in a lower ALV figure. This led to a discrepancy in the ALV calculation between the AO and the CIT(A).Issue 3: Judicial Precedents- The case involved a consideration of various judicial decisions and precedents, including decisions by co-ordinate benches of the Tribunal and the jurisdictional High Court. These decisions emphasized that the ALV of vacant properties should be determined based on municipal ratable value rather than market rent, as deemed income from house property.Conclusion:- After analyzing the facts, judicial precedents, and interpretations of relevant provisions, the Appellate Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to determine the ALV based on municipal ratable value for vacant properties. The appeals filed by the Revenue were dismissed, and those filed by the assessee were allowed based on the consistent application of the principle that ALV for vacant properties should be computed using municipal ratable value.