Self-occupied house property loss can be set off against other income where Section 23(2) governs annual value computation.

The Explanation to Section 23(2) was construed to mean that, where a residential unit is in the owner's personal occupation, the second proviso to Section 23(1) does not apply in computing annual value. On that reading, the restriction that income from such a unit shall in no case be a loss was held not to govern self-occupied property falling within Section 23(2). The prohibition was treated as confined to property not covered by Section 23(2), so the house property loss could be set off against other income and the disallowance was incorrect.

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Issues: Whether the loss from a self-occupied house property could be set off against other income, and whether the second proviso to Section 23(1) of the Income-tax Act, 1961 applied where Section 23(2) and its Explanation governed the computation.

Analysis: The Explanation to Section 23(2) provides that where a residential unit referred to in the second proviso to Section 23(1) is in the owner's occupation for personal residence, nothing in that proviso applies in computing the annual value of the unit. On that construction, the restriction in the second proviso to Section 23(1) that the income in respect of such residential unit shall in no case be a loss does not govern self-occupied property falling under Section 23(2). The prohibition was held to operate only for property not covered by Section 23(2).

Conclusion: The assessee was entitled to set off the house property loss against other income, and the disallowance made by the authorities below was incorrect.

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