1982 (12) TMI 47 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Appellate Tribunal was justified in holding that each residential unit should be considered separately for relief under section 23(1), second proviso, clause (b) of the Income-tax Act, 1961.
2. Whether the Appellate Tribunal was justified in holding that the assessee was not entitled to claim any deduction for any of the three floors under section 23(1), second proviso, clause (b) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

Issue 1: Separate Consideration of Each Residential Unit
The Income Tax Officer (ITO) assessed that the assessee had income from house property where the third floor flats were occupied by the assessee from April 1972. The assessee claimed deductions under section 23(1), second proviso, clause (b) of the Income-tax Act, 1961, for six residential units let out and for the third floor occupied by the assessee. The ITO held that the deduction under this section was allowable for each residential unit of the building if it was let out, not for the building as a whole. The ITO's view was that the applicability of the section came into force as soon as the residential unit was completed and let out. This view was upheld by the Appellate Assistant Commissioner (AAC) and the Tribunal, which both held that the first and second floors consisting of six residential units were completed by the financial year 1968-69, and the relief for these units could only be claimed up to the assessment year 1971-72. The Tribunal concluded that the second proviso to section 23(1) referred to each residential unit separately, not the entire building.

Issue 2: Entitlement to Deduction for Three Floors
The ITO found that the third floor was completed in the financial year 1972-73 and was occupied by the assessee for self-dwelling, thus not eligible for the deduction under section 23(1), second proviso, clause (b). The AAC agreed, noting that the construction of the house up to the second floor was completed by the end of the financial year 1968-69, making the assessee ineligible for deductions for the six residential units let out. The Tribunal upheld this view, emphasizing that the second proviso to section 23(1) clearly referred to the completion of each residential unit and not the building as a whole. The Tribunal concluded that the assessee was not entitled to claim any deduction for any of the three floors under section 23(1), second proviso, clause (b) of the Act.

Conclusion:
The High Court analyzed the provisions of section 23 of the Income-tax Act, 1961, and the relevant clauses and explanations. The Court noted that the statute should be read as a whole, and the intention of the Legislature should be given effect to. The Court recognized that the proviso to section 23(1) used the terms "building" and "residential unit," which were not defined in the Act. The Court concluded that the assessee's contention that the entire building should be considered as a whole was correct. However, the Court also acknowledged that the first Explanation to sub-section (2) of section 23 stipulated that where a residential unit is in the occupation of the owner, the second proviso to sub-section (1) does not apply in computing the annual value of that residential unit.

Therefore, the Court held that the assessee was entitled to relief for the relevant assessment year, but the relief should be computed after deducting the annual value of the residential unit occupied by the assessee. The Tribunal's decision was thus partially upheld and partially overturned. The assessee was entitled to relief for the entire building except for the residential unit occupied by the assessee.

Final Judgment:
- Question 1: The Tribunal was wrong in not allowing relief to the assessee for the entire building. The relief should be computed after deducting the annual value of the residential unit occupied by the assessee.
- Question 2: The assessee is entitled to relief for the relevant assessment year, not for the entirety of the building but after deducting the annual value of the residential unit occupied by the assessee.

The Court did not grant leave to appeal to the Supreme Court, citing that the construction of the section had become academic after 1971. Each party was ordered to bear its own costs.

(Note: The names of the parties and individuals have been omitted to maintain privacy.)