2013 (11) TMI 1481 - AT - Income Tax

Notional Rental income - Taxable under the head income from house property - Vacant property - Held that - The assessee was not carrying out any business, but he was in occupation of the property. The AO has also alleged that the property had been kept vacant by the assessee for long time deliberately though it was a valuable property which was usable - As per section 22 since the assessee despite occupying the property for the purpose of business did not carry on any business, the profits of which are chargeable to income tax will not qualify the benefit of exception provided u/s 22 - Income from house property of the said property falling within the provision of section 22 of the Act will be determined as per the provisions of section 23(1)(a) of the Act, the sum for which the property might reasonably be expected to let from year to year - Decided against assessee. Rental rate adopted - Held that - The prevailing rental rate in the locality was around Rs. 60/- per sq. ft. and the rates during the financial year 2007-08 were approximately Rs. 40/- per sq. ft. The AO has not considered the contention of the assessee that the property could not be let out without prior permission of NOIDA authority that too for the agreed purpose of manufacturing color television receiver set of boxes Videocon and that water and electricity connections were not available in the property - The issue was set aside for fresh consideration of lettable value.

Summary

Issues involved:
1. Whether the property qualifies as "income from house property" under section 22 of the Act.
2. Whether the property falls under the exception provided in section 22 regarding occupation for business purposes.
3. Determination of annual letting value (ALV) of the property.

Analysis:

Issue 1: Property Qualification under Section 22
The assessee contested the addition of Rs. 7,74,720 under "income from house property," arguing that the property was not a house property but an industrial plot allotted for manufacturing. The AO calculated ALV based on the property's potential rental income. The assessee claimed the property was not in a lettable condition due to lack of amenities and unauthorized occupation. The AR argued that the property did not fall under section 22 as the assessee was a limited owner under a lease deed with restrictions on usage, suggesting it was not a beneficial owner.

Issue 2: Exception under Section 22
The AR further contended that if the property was considered under section 22, the assessee fell within the exception as the property was used for the manufacturing business, making it exempt from taxation under "income from house property." The AR provided evidence from the lease deed and income tax returns to support this claim.

Issue 3: Determination of ALV
Regarding the determination of ALV, the AR argued that the rental rate adopted by the AO was arbitrary and unsupported by the property's actual condition and restrictions on subletting. The AR emphasized the need to consider comparable properties in the vicinity and the property's unique circumstances, such as lack of basic amenities and difficult access due to vendors nearby. The Tribunal found the AO's calculation flawed and remanded the matter for fresh consideration after hearing the assessee.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a reassessment of the ALV based on the property's actual condition and unique circumstances.