2022 (6) TMI 1524 - AT - Income Tax

Vacant unlet property income calculated under Section 23(1)(a), Annual Lettable Value determination remanded for Rent Control Act verification

Mr. Arihant Patni, Mrs. Shruti Patni, Versus The Income Tax Officer, Ward-7 (2), Pune, The DCIT, Circle-7, Pune.

ITAT Pune dismissed appellant's challenge to income computation under house property provisions. The tribunal held that for vacant, unlet property, income ... Addition under the head ‘income from house property' - HELD THAT:- In this case, it is an admitted undisputed fact that the property was vacant throughout the year and it was not let out. Therefore, as held in the case of Smt. Godavaridevi Saraf [1977 (9) TMI 24 - BOMBAY HIGH COURT] the decision of Hon’ble High Courts of other States are binding on this Tribunal (Pune Bench). Therefore, respectfully following in the case of Vivek Jain [2011 (1) TMI 897 - ANDHRA PRADESH HIGH COURT] and Sushma Singla [2016 (12) TMI 1298 - PUNJAB AND HARYANA HIGH COURT] we hold that the assessee’s rent for the said property shall be calculated as per provisions of Section 23(1)(a) of the Act and Section 23(1)(c) will not be applicable in the case of assessee for the said property. Ground No.1 of the Appellant assessee is dismissed. Annual lettable value (ALV) calculation - AO has calculated ALV based on the fair rent for FY 2013-14 - AR submitted that the ALV shall be calculated based on Municipal lettable value - None of the Lower Authorities have discussed whether Rent Control Act is applicable to the relevant property or not. As in the case VIMAL R. AMBANI [2015 (4) TMI 407 - BOMBAY HIGH COURT] has held that “Accordingly, while determining the annual letting value in respect of properties which are subject to rent control legislation and in cases where the standard rent has not been fixed, the AO shall determine the same in accordance with the relevant rent control legislation. If the fair rent is less than the standard rent, then it is the fair rent which shall be taken as annual letting value and not the standard rent. This will apply to both, self-acquired properties and general cases where property is let out. While carrying out the exercise u/s 23(1) of the Act, the Departmental authorities shall follow these guidelines reproduced above provided in the Full Bench decision of the Delhi High Court and followed by a Division Bench of this court in the case of Tip Top Typography [2014 (8) TMI 356 - BOMBAY HIGH COURT]”. Therefore, this issue is set-aside to the file of the AO for verifications. If the property is under Rent Control Act, then the AO shall determine the Annual Value as per the guidelines given by the Hon’ble Bombay High Court in the above referred decision. If the impugned property is not under Rent Control Act, then Municipal Valuation shall be considered as Annual Lettable Value. Accordingly, this Ground No.2 is allowed for statistical purpose. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:1. Whether the addition of Rs. 1,10,87,608 under the head 'income from house property' was justified, particularly in relation to the application of Section 23(1)(c) versus Section 23(1)(a) of the Income Tax Act.2. The appropriate method for calculating the Annual Lettable Value (ALV) of the property, specifically whether it should be based on the fair rent or the Municipal lettable value.ISSUE-WISE DETAILED ANALYSIS1. Addition of Rs. 1,10,87,608 under 'income from house property'Relevant legal framework and precedents:The legal framework involves the interpretation of Section 23(1) of the Income Tax Act, which deals with the determination of the annual value of a property for taxation purposes. The key sections considered are Section 23(1)(a), which deals with properties not let out, and Section 23(1)(c), which applies to properties that were let out but remained vacant for part of the year. The judgment also references the precedent set by the Andhra Pradesh High Court in Vivek Jain vs. ACIT.Court's interpretation and reasoning:The Tribunal considered whether the property in question, owned by Blackpool Realty Pvt. Ltd., could have its annual value deemed as 'Nil' under Section 23(1)(c) due to efforts made to let it out. The Tribunal relied on the Andhra Pradesh High Court's interpretation in Vivek Jain, which requires that a property must be actually let out to qualify for the vacancy allowance under Section 23(1)(c). The Court held that mere intention and efforts to let out the property do not suffice.Key evidence and findings:The property was never let out during the relevant assessment year or the preceding year. The assessee had appointed a broker to find a tenant but discontinued the agreement due to costs. Despite efforts, no tenant was found, and the property remained vacant.Application of law to facts:The Tribunal applied the interpretation provided by the Andhra Pradesh High Court, concluding that since the property was never actually let out, Section 23(1)(c) could not be applied. Instead, the annual value had to be determined under Section 23(1)(a), which considers the notional rent.Treatment of competing arguments:The assessee argued that the intention to let out should suffice for Section 23(1)(c) to apply. However, the Tribunal rejected this argument, adhering to the strict interpretation of the statute as per the Andhra Pradesh High Court's ruling.Conclusions:The Tribunal upheld the addition of Rs. 1,10,87,608 as income from house property under Section 23(1)(a), dismissing the applicability of Section 23(1)(c).2. Calculation of Annual Lettable Value (ALV)Relevant legal framework and precedents:The calculation of ALV involves determining whether the property is subject to rent control legislation, which would affect the method of calculating the ALV. The Bombay High Court's decision in Kokilaben D. Ambani vs. CIT provides guidance on determining ALV in relation to rent control legislation.Court's interpretation and reasoning:The Tribunal noted that the applicability of the Rent Control Act to the property had not been discussed by the lower authorities. The Bombay High Court's decision mandates that if a property is under rent control, the ALV should be determined according to rent control legislation, otherwise, the municipal valuation should be used.Key evidence and findings:The Tribunal found that there was no evidence presented regarding the applicability of the Rent Control Act to the property in question.Application of law to facts:The Tribunal set aside the issue to the Assessing Officer for verification. If the property is under rent control, the AO should determine the ALV as per rent control guidelines. If not, the municipal valuation should be considered.Treatment of competing arguments:The assessee argued for the municipal valuation to be used in the absence of rent control applicability. The Tribunal agreed to this approach pending verification.Conclusions:The Tribunal allowed the ground for statistical purposes, requiring further verification by the Assessing Officer.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:The Tribunal quoted the Andhra Pradesh High Court: 'The words 'where the property is let' cannot be read as 'where the property is intended to be let'. The provisions of a tax statute must be strictly construed.'Core principles established:1. Section 23(1)(c) applies only when a property is actually let out and remains vacant, not merely when there is an intention to let out.2. The calculation of ALV must consider rent control legislation if applicable; otherwise, municipal valuation is appropriate.Final determinations on each issue:The Tribunal dismissed the appeal regarding the addition under 'income from house property' but allowed the appeal regarding ALV calculation for statistical purposes, requiring further verification by the Assessing Officer.