1996 (5) TMI 113 - AT - Income Tax

Summary

Issues Involved:
1. Determination of the annual letting value of the property.
2. Allowability of deduction for damages recovered by FCI under section 24 of the Income-tax Act.
3. Consideration of alternative claims under section 24(1)(ix) and section 24(1)(x) for vacancy allowance and unrealized rent.

Issue-wise Detailed Analysis:

1. Determination of the Annual Letting Value of the Property:

The primary issue was the determination of the annual letting value of the property. The respondent, a specified family trust, had let out two godowns to the Food Corporation of India (FCI) at an agreed rent of Rs. 0.55 per sq. ft. The gross rent for the assessment year 1988-89 was Rs. 1,96,581. The assessee claimed a deduction of Rs. 65,527 for damages to wheat stored in the godowns, which was deducted by FCI. The Assessing Officer computed the annual letting value at Rs. 1,96,581, while the CIT(A) directed the Assessing Officer to compute the income from house property by adopting the net rent of Rs. 1,30,159 as the annual letting value.

The Tribunal held that the actual rent received or receivable for the relevant previous year was Rs. 1,96,581, and the deduction for damages claimed by the FCI was an application of income rather than a reduction in the actual rent received or receivable. Therefore, the annual letting value should be Rs. 1,96,581.

2. Allowability of Deduction for Damages Recovered by FCI under Section 24:

The assessee claimed a deduction of Rs. 65,527 for damages recovered by FCI, asserting that it should be deducted from the rental income. The Assessing Officer disallowed this deduction, stating that it was not permissible under the head 'Income from House Property.' The CIT(A) allowed the deduction, but the Tribunal reversed this decision, stating that the damages recovered by FCI were an application of income and not a permissible deduction under section 24.

3. Consideration of Alternative Claims under Section 24(1)(ix) and Section 24(1)(x):

The assessee made alternative claims under section 24(1)(ix) for vacancy allowance and section 24(1)(x) for unrealized rent. The Tribunal rejected the claim under section 24(1)(ix), stating that the property was not vacant for any part of the year as FCI continued to occupy the premises. The claim under section 24(1)(x) was also rejected because the rent was applied to settle the damages, and the conditions for unrealized rent deduction under Rule 4 of the Income-tax Rules were not satisfied.

Conclusion:

The Tribunal concluded that the annual letting value of the property should be Rs. 1,96,581, and the deduction of Rs. 65,527 for damages recovered by FCI was not allowable. The CIT(A)'s decision was set aside, and the Assessing Officer's order was restored. The appeal of the revenue was allowed.