1991 (4) TMI 66 - HC - Income Tax

Summary

Issues:
Interpretation of deduction under section 24(1)(ix) for vacancy allowance in income from house property.

Analysis:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, for the assessment year 1974-75 regarding the deduction for vacancy allowance in income from house property. The primary issue was whether the Tribunal correctly held that the vacancy allowance should be limited to a specific amount despite the actual rent loss being higher. The assessee, a limited company deriving income from letting out property, claimed a deduction under section 24(1)(ix) due to a part of the property remaining vacant, resulting in a rent loss of Rs. 3,49,580. The Income-tax Officer calculated the allowable deduction at Rs. 2,45,443 based on a proportionate calculation. However, the Appellate Assistant Commissioner allowed the full deduction of Rs. 3,49,880, leading to an appeal by the Department.

In the appeal, the Tribunal determined that the deduction under section 24(1)(ix) should be restricted to the annual value relevant to the vacant part of the property. The Tribunal emphasized that the expression "annual value" was defined by section 23(1) as "rent receivable minus the taxes leviable." The Tribunal reversed the Appellate Assistant Commissioner's decision and upheld the Income-tax Officer's calculation. The key argument raised by the assessee's counsel was that the deduction should be based on the proportionate value of the "gross annual value" rather than the "net annual value" calculated by the Income-tax Officer and endorsed by the Tribunal.

The Court clarified that section 24(1)(ix) does not differentiate between "gross" or "net" annual value but focuses on the proportionate deduction of the annual value based on the period of property vacancy. Section 23 defines the "annual value" of the property, outlining different methods for computing it based on whether the property is let or not. The Court highlighted that the amount arrived at through section 23(1)(b) and the proviso thereto represents the "annual value" of the property, from which a proportionate deduction for vacancy is permissible under section 24(1)(ix). Therefore, the Income-tax Officer and the Tribunal were justified in their interpretation.

Conclusively, the Court answered the reference question in favor of the Revenue, affirming the restricted deduction for vacancy allowance based on the annual value of the property.