1995 (4) TMI 1 - SC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the statutory allowance mentioned in section 23(2) of the Income-tax Act, 1961, should be allowed every time separately in computing the income from house property falling to the share of each of the co-owners including the assessee

Summary

Issues: Interpretation of section 23(2) of the Income-tax Act, 1961 regarding deduction for house property owners.

In this case, the Supreme Court addressed the issue of whether the statutory allowance mentioned in section 23(2) of the Income-tax Act, 1961, should be allowed separately in computing the income from house property falling to the share of each co-owner. The respondent, who owned an undivided one-third share in a house property, argued that the deduction provided for by section 23(2) should be given separately to each co-owner. The court analyzed the relevant sections of the Income-tax Act, specifically sections 22, 23, and 26, to determine the correct interpretation of the law.

The court noted that disputes regarding the interpretation of section 23(2) arose before the insertion of the Explanation in section 26 by the Taxation Laws (Amendment) Act, 1975. Section 22 of the Income-tax Act states that the annual value of property owned by the assessee shall be chargeable to income tax under the head "Income from house property." Section 23 prescribes the manner in which the annual value is determined, with sub-section (2) providing for a deduction in the case of a house occupied by the owner for his own residence.

The court highlighted that section 26, along with its Explanation inserted from April 1, 1976, clarifies the treatment of property owned by co-owners. It states that where property is owned by multiple persons with definite and ascertainable shares, each person's share of income shall be included in their total income. The Explanation further specifies that the deduction under section 23(2) should be computed separately for each co-owner.

The court emphasized that the language of section 26, even without considering the Explanation, clearly supports the respondent's claim for a separate deduction based on his definite share in the property. The court also cited similar judgments from the Delhi and Bombay High Courts supporting this interpretation. Ultimately, the court held that the respondent was justified in claiming a separate deduction under section 23(2) and dismissed the appeal by the Revenue, affirming the judgment in favor of the assessee.