Decided by: ITAT, AGRA BENCH, AGRA
In The case of: Ramesh Chand v. ITO
Appeal No. : ITA NO. 171/AGR/2007
Decided on: SEPTEMBER 12, 2008
SUMMARY OF CASE LAW
The annual value of the house property in question would necessarily have to be computed under section 23(1)(a) of the Income-tax Act because the property being not actually let out, 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 reasonably be expected to be let from year to year; the moment the assessee has more than one house property falling under section 23(2) read with section 23(3), he is required to specify one of them for the purposes of the said sub-section, so that the others would, or could, be treated at par with a property that is let, irrespective of the fact whether it is actually let or not.
RELEVANT PARAGRAPHS:
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) there-against, 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 u/s. 24(b) is not maintainable. The Id. 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(4X8), the assessee’s case falls under section 23(4)(b), and which provision has not been considered by the authorities below. Deeming the second (Lawyer’s Colony, Agra) property to have been let u/s. 23(4)(b), the provision of section 23(1) (i.e., for determination of the annual value in its respect), would come into operation. Section 23(1)(c) clearly provides for the adjustment of the annual value of a property (or a part of a property) which is let, for the period for which the same remains vacant, and as a result of which the rent actually received or receivable falls short of the amount that could be realized there-from, i.e., but for the vacancy. Once the property is deemed to be let, its annual value would have, without doubt, to be determined considering it as so, i.e., as let, so that the provision of section 23(1)(c) would also apply in equal measure thereto, i.e., as to a property which stands actually let out and, therefore, being vacant for the entire period of its ownership during the relevant previous year, its annual value u/s. 23(1) would be nil. Thai precisely states me assessee’s case.
4.4 We, however, are unable to agree with the assessee’s claim. The provision of section 23(l)(c) applies only to a property which is let, in whole or in part, i.e.. failing u/s. 23(1)(b) of the Act, and which (the latter) provision becomes operational only where the amount of actual rent received or receivable upon letting is in excess of the sum referred to in s. 23(1)(a), i.e.. the fair rental value (FRV) (defined as the sum for which the property might reasonably be expected to be let from year to year), and not otherwise, in which (latter) case, the annual vaiue__of even a let out properly would be computed u/s. 23(1)(a) at its FRV. This basic or qualifying condition for the attraction of section 23(1)(b) being not met or satisfied in the present case, the further question of applicability of s. 23(I)(c) does not arise. Put differently, the annual value of a let out property, depending on the facts of the case, could be computed under any of the clauses of s. 23(1), and it is not necessary that the same would be computable only with reference to section 23(l)(b) or section 23(l)(c), as the case may be.
4.5 It may well be argued, however, that section 23(1)(b) represents an independent or distinct provision, i.e., from section 23(l)(c); each of the three clauses - (a), (b) and (c) of sub-section (I) of section 23 - representing independent and distinct situations, as also borne out by the fact of the said clause 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(l)(c) is not an adjunct to, or a sub-set of, section 23(l)(b) and, therefore, the qualifying condition therefore, 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 u/s. 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 FRK ie., 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 in the computation of its annual value, and which would therefore work to nil amount. In other words, the annual value, irrespective of the amount at which it is reckoned, is only notional; the property being vacant throughout, and thus immaterial i.e.. even if its quantum were to be taken as relevant for the purpose of application of s. 23(l)(c).
The argument(s), though appearing attractive at first blush, is not at all warranted by the provision of s. 23(1) of the Act. Section 23(1)(b) applies only to a property (or part thereof) that stands let for rent, while section 23(1)(c) applies to one that though let, remains vacant for the whole or part of the year. As such, the two provisions are, by definition, linked. Only a property that is let, could be vacant, so that the concept of vacancy is intrinsically linked with the state of actual letting, or only applicable to a property imbued with the character or condition of being let while sub-sections 23(2) and 23(3), under which the property under reference falls, only refer to a property that is self-occupied by the assessee, with rent (which would arise only from actual letting) or any other benefit being not derived there-from, so that the provision of section 23(l)(b) or s. 23(1)(c) could not apply thereto, i.e., to a property falling under section 23(2) read with
section 23(3) and this underscores the fallacy in the assessee’s argument/case. Section 23(1)(c), thus, represents or provides for a further qualification qua the property that is actually let, as contemplated under section 23(1)(b), yielding benefit to its owner, though, whose annual value, for the purposes of section 23, would have to be computed by factoring in the factum of its vacancy during the year. This, to our mind, sums up the scope of s. 23(1)(c), which only provides for the manner of computation of the annual value, under the condition of the property being qualified to be so valued. As such, to contend that clauses (b) and (c) of sub-section 23(1) would apply also to a property falling u/s. 23(4Xb) (implying antecedent satisfaction of sub section 23(2) and 23(3)), or that the condition for the application of s. 23(l)(b) would not apply to one covered u/s. 23(l)(c) would be presumptuous and inconsistent with the express provisions of the Act. It needs to be appreciated that in cases like 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 paint of time of its ownership.
And which brings us the to next objection, which argues of the stale of letting us 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 FRY, i.e., as postulated by s. 23(l)(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 properly would necessarily have to be computed u/s. 23(l)(a). And this is only for the reason that the property being not actually let out, rather stands proscribed 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 reasonably be expected to be let from year to year. In our opinion, in fact, inherent in the mandate of section 23(1)(a) is the state of deemed letting, with the clauses (h) and (c) of section 23(1) covering the state of actual letting.
Further, it is wrong to suggest that the Revenue has only considered the provision of 23(4)(a) while the assessee’s case falls u/s. 23(4)(b). The two clauses, `(a)’ and `(b)’ of section 23(4) are only two limbs of the same provision, which sub-section would be incomplete or inchoate without either, so that the question of the non-consideration of s. 23(4)(b) does not arise. The moment the assessee has more than one house property falling u/s. 23(2) r/w s. 23(3), he is required to specify one of them for the purposes of the said sub-section, so that the others would, or could, be treated at par with a property that is let, irrespective of the fact whether it is actually let or not, so that section 23(4)(b) is only an enabling provision. However, that would not mean that a condition that is incapable of being met being associated only with the condition of actual letting, i.e., vacancy, would be deemed to be satisfied. In fact, an actual letting, even if presumed (though it could not be a matter of presumption) , i.e., for the sake of argument, so as to validate the notion of vacancy, would at once take it (the relevant property) outside the ambit of 23(4).