1978 (8) TMI 18 - HC - Income Tax

Summary

Issues:
Interpretation of Section 24(1)(ix) of the Income-tax Act, 1961 regarding allowance for vacancy in determining income under the head 'Property'.

Detailed Analysis:

The case involved the interpretation of Section 24(1)(ix) of the Income-tax Act, 1961, concerning the allowance for vacancy in determining income under the head 'Property'. The assessee owned a property with two floors, letting out the ground floor while occupying the first floor. The first floor remained vacant as it was neither used by the assessee nor let out to anyone. The primary issue was whether the assessee was entitled to any allowance for the vacancy in that portion of the property. The Income Tax Officer (ITO), Appellate Assistant Commissioner (AAC), and Tribunal did not allow any deduction for vacancy in the computation of the assessee's income from the property for the relevant years (1962-63 and 1964-65).

The Tribunal held that for the deduction under Section 24(1)(ix) to be available, two conditions must be fulfilled: the property must have been actually let out for some time, and it must have been vacant during a part of the accounting period. Since the first floor was never let out, the Tribunal concluded that the assessee was not entitled to the deduction as per Section 24(1)(ix). The question referred to the High Court was whether the assessee was entitled to the allowance for vacancy under Section 24(1)(ix) based on the facts and circumstances of the case.

The High Court analyzed the provisions of Section 24(1)(ix) which allow a deduction for vacancy only if the property was let and subsequently became vacant. In this case, the first floor was never let out before the relevant accounting periods. The Court emphasized that prior letting is a prerequisite for claiming a deduction under Section 24(1)(ix). Therefore, even though the property was available for letting, since it was never let out before the accounting periods, no deduction was permissible.

The Court referred to a decision by the Calcutta High Court, emphasizing that the expression "property is let and was vacant" in Section 24(1)(ix) should be interpreted in a straightforward manner. If the property was not let out at all during a specific year, no deduction for vacancy would be allowed. Additionally, the Court dismissed the relevance of a provision added by the Finance (No. 2) Bill, 1977, stating that it was not applicable to the assessment years in question (1962-63 and 1964-65).

In conclusion, the High Court answered the referred question in the negative and in favor of the revenue, stating that the assessee was not entitled to the allowance for vacancy under Section 24(1)(ix) due to the absence of prior letting of the property. The assessee was directed to pay the costs of the revenue.