2024 (7) TMI 89 - AT - Income Tax

Income from house property - determination of annual value - property was let out in earlier years but the same has remained vacant for the whole of the current year - HELD THAT - Having regard to the evidence available in the records, we are of the considered view that the AO/CIT(A) were not justified in holding that the property was not actually leased out during 16.03.2016 to 15.04.2016. Their view is solely based on suspicion and surmises. The law is settled. However strong suspicion may be, it can never partake the character of evidence. Having accepted the rental income offered to tax by the assessee in his income tax return, the Ld. AO/CIT(A) cannot deny that the property was leased out in both the AYs, though for short period. Accordingly, we hold that it is factually correct that the property under consideration was let out in both the AYs presently involved. Contention of the assessee is that even if it is assumed that the impugned property was not let out for any part of the previous year relevant to assessment year concerned as held by the Ld. AO, still annual value of the property will have to be determined as per the provisions of section 23(1)(c) and the addition made is not justified - AR submitted that the contention of the Ld. AO is that if property is not let out for any part of the current year i.e. if was vacant for the whole year, then provisions of section 23(1)(c) are not attracted. AR argued that this interpretation placed by the Ld. AO is directly contradictory to the clear wordings of section 23(1)(c). If the legislature intended so, it would never have used the words was vacant during the whole or any part of the previous year in section 23(1)(c). Thus, the interpretation adopted by the Ld. AO, shall render the word whole used in section 23(1)(c) as otiose or redundant and hence, such an interpretation which goes against the plain language of the provision may be avoided. We find merit and substance in the above argument of the Ld. AR. Clause (c) of section 23(1) does not apply to situations where the property has either not been let out at all during the previous year or, even if let out, was not vacant during the whole or any part of the previous year. None of the situation applies to the facts of the assessee s case wherein as held by us the part of the property was let out during the relevant previous year for a period of 15 days and it was vacant during the whole of the remaining part of the previous year(s). Thus we hold in assessee s case the provisions of section 23(1)(c) of the Act apply in both the AYs involved. Accordingly, we decide ground Nos. 1 to 4 in favour of the assessee and direct the Ld. AO to allow the benefit of section 23(1)(c) of the Act to the assessee and amend the assessment order(s) accordingly.

Issues Involved:

1. Determination of annual value of the property under section 23(1)(a) vs. section 23(1)(c) of the Income Tax Act.
2. Eligibility for vacancy allowance under section 23(1)(c).
3. Consideration of municipal ratable value and deduction of municipal taxes.

Detailed Analysis:

1. Determination of Annual Value of the Property:

The primary issue was whether the annual value of the property at Devs Arcade Mall, Ahmedabad should be determined under section 23(1)(a) or section 23(1)(c) of the Income Tax Act. The assessee contended that the property was let out in earlier years and for a short period during the assessment years 2016-17 and 2017-18, thus section 23(1)(c) should apply. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) (CIT(A)) determined the annual value under section 23(1)(a), adding Rs. 52,83,945 towards deemed rent, arguing the property was not let out during the year.

The Tribunal noted that the property was indeed let out for 15 days in each relevant year and remained vacant for the rest of the period. Therefore, all conditions under section 23(1)(c) were met, making the application of section 23(1)(a) by the AO and CIT(A) incorrect.

2. Eligibility for Vacancy Allowance under Section 23(1)(c):

The AO rejected the assessee's claim for vacancy allowance under section 23(1)(c), stating that the property was not let out during the year. The Tribunal disagreed, emphasizing that the property was let out for a part of the year, and the vacancy allowance under section 23(1)(c) should apply. The Tribunal cited several judicial precedents supporting that properties let out in earlier years but remaining vacant during the current year should have their annual value considered as nil under section 23(1)(c).

3. Consideration of Municipal Ratable Value and Deduction of Municipal Taxes:

The assessee argued that if section 23(1)(a) were to apply, the municipal ratable value should be adopted as the annual value, and deductions for municipal taxes paid should be allowed. However, since the Tribunal ruled in favor of applying section 23(1)(c), these grounds became academic and required no further adjudication.

Conclusion:

The Tribunal concluded that the property was let out during the relevant assessment years for a short period and remained vacant for the rest of the time. Therefore, the provisions of section 23(1)(c) applied, and the annual value should be considered as nil for the vacant period. The appeals for both assessment years 2016-17 and 2017-18 were allowed, and the AO was directed to amend the assessment orders accordingly.

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