Notional annual value cannot be taxed where an incomplete flat is not yet habitable and incapable of being let.

Jurisdiction was upheld because the assessment was made by an officer to whom valid jurisdiction had been assigned under section 127, and the challenge was untenable in light of the statutory framework governing income-tax authorities and jurisdictional objections. The notional annual value addition was deleted because the flat was found incomplete, without electricity or water connection, and not yet habitable, so it was not reasonably capable of being let under sections 22 and 23(1)(a) of the Income-tax Act, 1961.

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Issues: (i) Whether the assessment order was without jurisdiction because it was passed by the Addl. CIT, Special Range, Amritsar. (ii) Whether the annual value of the assessee's flat, which was alleged to be incomplete and not habitable, could be brought to tax under the head "Income from house property".

Issue (i): Whether the assessment order was without jurisdiction because it was passed by the Addl. CIT, Special Range, Amritsar.

Analysis: The jurisdiction over the case had been transferred by the competent authority under section 127 of the Income-tax Act, 1961. The statutory scheme under sections 116, 117 and 120 of the Income-tax Act, 1961 recognises that income-tax authorities derive jurisdiction from lawful assignment of functions, and section 2(7A) includes a Joint Commissioner, while section 2(28C) includes an Additional Commissioner within that framework. The objection was also considered in the light of section 124(3) and 124(4), which regulate challenges to jurisdiction. On the facts, the assessment was made by the officer to whom valid jurisdiction had been assigned, and the objection did not survive.

Conclusion: The jurisdictional challenge was rejected and this issue was decided against the assessee.

Issue (ii): Whether the annual value of the assessee's flat, which was alleged to be incomplete and not habitable, could be brought to tax under the head "Income from house property".

Analysis: Section 22 of the Income-tax Act, 1961 charges annual value of property consisting of buildings or lands appurtenant thereto, while section 23(1)(a) requires the property to be one which might reasonably be expected to let from year to year. The evidence accepted by the Tribunal showed that the flat had no electricity or water connection and remained incomplete in material respects, so it had not reached a habitable stage and was not reasonably capable of being let. On that footing, the property was treated as inherently incapable of being let out, and the notional annual value could not be computed as income from house property.

Conclusion: The addition on account of annual value was deleted and this issue was decided in favour of the assessee.

Final Conclusion: The assessment was sustained only on the jurisdiction point, but the house-property addition was deleted, resulting in relief to the assessee on the substantive tax issue.

Ratio Decidendi: A property that is inherently incapable of being let out because it has not reached a habitable stage cannot be subjected to notional annual value under sections 22 and 23(1)(a) of the Income-tax Act, 1961.

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