TaxTMI 
TaxTMI 
2008 (9) TMI 622
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....ng correctly the provisions of law, that under section 24(b) there is no such restriction, that no interest will be allowed because there remained no rental income, and the payment of interest under section 24(b) will be allowed only in respect of property referred to in sub-section 2 of section 23." ITA No. 233/Agr./2007 (by the revenue) "1. That the learned Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on facts in deleting the addition of Rs. 6,86,435 made on account of capital gains on sale of plots ignoring the facts mentioned in the assessment order. 2. That the decision of learned Commissioner of Income-tax (Appeals)-II, Agra being erroneous in law and on facts deserves to be quashed and that of the Assessing Officer deserves to be restored." ITA No. 171/Agr./2007 (by the assessee) 3. The facts in relation to the assessee's grounds, being inter-related, concern as they do with the maintainability of the assessee's claim of interest expenditure incurred (Rs. 1,06,175), under section 36(1)(iii) of the Income-tax Act, 1961 ('the Act' hereinafter) or, alternatively, under section 24(b), in the facts and circumstances of its case, are that the Assessing O....
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....ion 23(4)(a), being the residential house at Shalimar Enclave, Agra. 4.2 The relevant provisions of the Act are as under :- "22. Income from house property.-The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property". 23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be- ( a)the sum for which the property might reasonably be expected to let from year to year; or ( b)where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or ( c)where the property or any part of 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 by the owner in respect thereof is less than the sum referr....
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....on 23, the amount of deduction shall not exceed thirty thousand rupees : Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1-4-1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees." 4.3 Both the authorities below have taken a view that though section 24(b) does not draw any distinction between a property that is self-occupied and one that is not, the assessee having not disclosed any income (annual value) thereagainst, and which can only be in respect of one house property, which stands already specified by him (the residential property at Shalimar Enclave, Agra), the assessee's claim for deduction under section 24(b) is not maintainable. The ld. A.R., before us, was at pains to emphasize that though, admittedly, the annual value of the impugned self-occupied property could not be taken as nil, in view of the clear provision of section 23(4)(a), the assessee's case falls under section 23(4)(b), and which provision has ....
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.... of sub-section (1) of section 23 - representing independent and distinct situations, as also borne out by the fact of the said clauses, being marked or separated by the word 'or' so that the law contemplates either of the three scenarios as obtaining for a given property during the year or part thereof. As such section 23(1)(c) is not an adjunct to, or a sub-set of, section 23(1)(b) and, therefore, the qualifying condition therefor, i.e., of the rent received or receivable being in excess of the fair rental value (FRV), would not be applicable to, or hold for, a property which, though let, remains vacant (for the whole or part of the year) and, consequently, falls under, or is covered by, section 23(1)(c). Secondly, even so, the property falling under section 23(4)(b), being only deemed to have been let out, and not actually so, how could it be presumed to have been let at less than its FRV, i.e., it may well be presumed at more than the FRV, so that the condition for the application of section 23(1)(b) stands theoretically met to, of course, no consequence, as the entire rental income is unrealized on account of the property being vacant and, thus, stands to be adjusted in full i....
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.... the present one the property remains vacant throughout, i.e., since the assumption of its ownership by the assessee, so that how could it be said to have been let at any time during the year, or, for that matter, at any point of time of its ownership. And which brings us to the next objection, which argues of the state of letting as being only one by virtue of the legal fiction of section 23(4)(b), and which should, therefore, be taken to its logical end by presuming a rental value. True, but then the deemed rental value, that would logically follow the condition of deemed letting would only be equal to the FRV, i.e., as postulated by section 23(1)(a) - neither less nor more, so that in case of a deemed letting under section 23(4)(b), as in the present case the annual value of the relevant house property would necessarily have to be computed under section 23(1)(a). And this is only for the reason that the property being not actually let out, rather stands prescribed for being so, but only deemed to be so, in terms of the provisions of the Act, there is no basis for presuming either a lesser or a higher rental value than its FRV, i.e., the sum for which the property might reasonab....
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.... residence, on account of employment or business being at same other place), no benefit is derived by him therefrom, and which (one property) the assessee may specify at his option. Not so doing, and placing an interpretation as advanced by the assessee/ld. AR would, besides being inconsistent with the express provisions of section 23, be defective of the provisions of sub-sections (2), (3) and (4) of section 23, which together with section 23(1) we find as internally consistent, inasmuch as the assessee could avail of nil annual value for any number of self-occupied house properties with reference to the fact of their being vacant, even as there is in fact no actual letting or theoretical possibility thereof. Besides, it is trite, even as explained recently in the case of Ishikawajma-Harima Heavy Industries Ltd. v. DIT [2007] 288 ITR 408 (SC), that a deeming provision, section 23(1) read with section 23(4)(b) in the present case, has to be interpreted in light of the object of the provision. 4.7 The proper course for the revenue in the facts and circumstances of the present case, having as it appears, admitted the assessee's claim under section 24(b) that stood not preferred as p....
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....dmitted the assessee's claim and adjudicated thereon on merits, and we duly explaining the reason for our reference to the said admission while discussing the matter in the order as a part of the adjudication of the issue at large. Secondly, in our view, the said reliance is even otherwise misplaced. The said Circular only speaks of a suo motu allowance by the revenue of undisputed reliefs or refunds to which the assessee is otherwise clearly entitled to, though omits to claim the same, presumably out of ignorance, as the Assessing Officer is only expected to extend all reasonable help to the assessee, the proceedings under the Act being not adversarial proceedings, in determining his correct tax liability under the Act, and does not extend to claims which the revenue seriously disputes on merits, as in the present case. The question here is of the competence of the assessee to claim the same; it having not disclosed any income under Chapter IV-C ('Income from house property') of the Act. It is one thing to press a claim, though not sustainable or valid, as where (say) the assessee returns the annual value of the newly purchased house property at nil value by placing an interpretat....
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....on of his business income, even as done by him for the preceding years, whereat the property stood purchased, stood rejected by the Assessing Officer on the ground that the assessee had diverted his borrowed business funds to finance the said capital assets, and the assessee's business continued to be that of purchase and sale of medicines only. 5.2 In appeal, the ld. CIT(A) was of the view that the deciding factor in such a case being the nature of the transaction, it was a mixed question of law and fact, to be determined after taking into consideration all the facts and circumstances of the case. In the present case, it cannot be denied that the two properties under question were of commercial nature; stood acquired, even if in part, through borrowed funds, and were sold within a short period thereof. The assessee had his own office as well as residence, so that it could not be that the same stood acquired for either of the said purposes. Even though the assessee had never dealt in such transaction in the past, which would not preclude him from doing so now and neither is the regularity of transaction of significance, as even a solitary transaction can constitute a transaction i....