2025 (4) TMI 140 - AT - Income Tax

Vacant commercial mall units should have annual value determined as 'Nil' under section 23(1)(c) when genuine letting efforts shown.

Classic Mall Development Company Ltd. Market City Resources Pvt. Ltd. Versus Asst. Commissioner of Income Tax, Circle 6 (2) (1), Mumbai

ITAT Mumbai held that vacant commercial mall units should have annual value determined as 'Nil' under section 23(1)(c). The assessee demonstrated genuine ... Addition under the head “income from house property” in respect of vacant units of a commercial mall during the year pursuant to provisions contained in section 23(1) - annual let out value for these eight units for the year under consideration is to be determined at “Nil” u/s. 23(1)(c) - HELD THAT:- Assessee would have taken sufficient efforts to let out the property. No reasonable business person would not want to let out its premise at the loss of revenue, if any opportunity exists. Accordingly, AO's assumption that the properties were not intended to be let out was held to be erroneous one. It was also noted that the vacant premises were let out in the subsequent year thus, concluded that the premises were intended to be let out. It was also concluded that since the property were vacant for the whole year, in view of the provisions contained in section 23(1)(c), assessee is entitled to vacancy allowance and thus, the addition made by the ld. AO was deleted. In the present case, the actual rent received or receivable by the assessee is Nil on account of vacancy, there being no tenant for the property. Thus, based on elaborate discussion made in the above paragraphs and in accordance with the conditions prescribed in clause (c) to section 23(1), this ‘Nil’ when compared with sum referred to in clause (a), leads to the annual value of eight units at ‘Nil’ for the year. Accordingly, under the deeming provision of section 23(1)(c), in the case of a property which is vacant for whole of the year, its annual value is taken at ‘Nil’. Claim of the assessee to determine annual value of eight units which remained vacant for whole of the year is held to be computed by taking recourse to section 23(1)(c) as ‘Nil’. Accordingly, addition made by the ld. AO is deleted. Appeal of the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment is whether the vacant units of a commercial mall, owned by the assessee, should be subject to deemed rent under section 23(1)(a) of the Income-tax Act, or if they qualify for a vacancy allowance under section 23(1)(c) for the Assessment Year 2016-17.ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents:The relevant legal framework is section 23(1) of the Income-tax Act, which deals with the determination of the annual value of property for taxation purposes. The subsections considered are:Section 23(1)(a): The annual value is the sum for which the property might reasonably be expected to let from year to year.Section 23(1)(c): If the property is let and was vacant during the whole or any part of the previous year, and owing to such vacancy, the actual rent received or receivable is less than the sum referred to in clause (a), the amount received or receivable is the annual value.Court's interpretation and reasoning:The Tribunal interpreted section 23(1)(c) as applicable to properties that were intended to be let but remained vacant for the entire year. It emphasized that the legislative intent behind section 23(1)(c) was to factor in vacancy and unrealized rent in computing the annual value. The Tribunal noted that the phrase 'vacant for the whole year' should not be rendered nugatory and that the intention to let is crucial.Key evidence and findings:The assessee demonstrated intent to let the vacant units through letters of intent and subsequent lease agreements. The units were let out in subsequent years, indicating continuous efforts to find tenants. The Tribunal found that the assessee's business involved leasing units, and it was reasonable to assume efforts were made to lease the vacant units.Application of law to facts:The Tribunal applied section 23(1)(c), concluding that the annual value of the vacant units should be 'Nil' since they were vacant for the whole year and the assessee had demonstrated intent to let them. The Tribunal rejected the Assessing Officer's application of section 23(1)(a) and the computation of deemed rent.Treatment of competing arguments:The Tribunal considered the Assessing Officer's reliance on the Andhra Pradesh High Court decision in Vivek Jain vs. ACIT, which held that if a property is not let out, notional income must be shown. However, the Tribunal distinguished this case based on the facts and the legislative intent behind section 23(1)(c). It also considered the non-jurisdictional nature of the Andhra Pradesh High Court decision and relied on the jurisdictional High Court's precedents and other ITAT decisions.Conclusions:The Tribunal concluded that the annual value of the eight vacant units should be determined as 'Nil' under section 23(1)(c), and the addition made by the Assessing Officer was deleted.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning:The Tribunal emphasized that 'the phrase 'vacant for the whole year' cannot be allowed to be rendered nugatory or redundant.' It also stated, 'the word 'let' used in the said section has to be interpreted as intended to be let or available to let.'Core principles established:The legislative intent of section 23(1)(c) is to allow for vacancy allowance for properties intended to be let but remaining vacant for the whole year.The phrase 'vacant for the whole year' is significant and must be considered in determining the annual value.Non-jurisdictional High Court decisions are not binding but have persuasive value.Final determinations on each issue:The Tribunal determined that the annual value of the eight vacant units should be 'Nil' under section 23(1)(c), and the addition of deemed rent by the Assessing Officer was deleted. The appeal of the assessee was allowed.