Residential property deduction cannot be denied merely because eligible flats were let out for commercial use

Relief under the second proviso to section 23(1) of the Income-tax Act cannot be denied merely because residential units constructed within the prescribed period are let out for commercial use. The Tribunal reasoned that the provision contains no express restriction requiring actual residential occupation, and its object is to encourage timely investment in residential property. The revenue's reliance on section 23(2) was held inapposite because the issue arose under section 23(1). Accordingly, eligible flats qualified for the deduction and the disallowance was set aside.

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Issues: Whether deduction under the second proviso to section 23(1) of the Income-tax Act, 1961 could be denied merely because residential units constructed within the statutory period were let out for commercial use.

Analysis: The statutory language of the second proviso to section 23(1) contained no express prohibition against non-residential user of the constructed residential units. The provision was intended to encourage investment in residential property within a limited period, and the words of the statute could not be stretched to confine relief only to units actually occupied for residence. The distinction drawn by the revenue based on section 23(2) was held to be inapposite, as the question before the Tribunal arose under section 23(1) and not section 23(2).

Conclusion: Deduction could not be denied on the ground that the flats were let out for commercial purposes, and relief was directed to be allowed for all the eligible flats.

Final Conclusion: The assessee was held entitled to the claimed relief in respect of all the residential units constructed within the statutory period, and the disallowance made by the lower authorities was set aside.

Ratio Decidendi: In the absence of an express statutory restriction, relief under section 23(1) cannot be denied merely because residential units constructed within the prescribed period are let out for non-residential use.

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