2009 (11) TMI 348 - HC - Income Tax

Income from House Property- The Assesee valued the unlet portion at Rs. 2.25 per square foot per month. The Assessing officer assessed the rent in respect of the vacant portion of the building at Rs. 12 per square foot per month and completed the assessment. The Tribunal held that the income offered by the assessee at Rs. 2.25 per square foot per month in respect of the vacant portion of the building was proper. Held that- when the building was not occupied it was for the Assessing Officer to fin out what would be the standard rent under the Tamilnadu Building (Lease and Control) Act, 1960, and what would be the probable market rent if it had been let out in the vicinity. The Assessing Officer had not taken note of the two aspects. Therefore, the matter was remanded to the Assessing Officer to pass fresh order of assessment keeping in view the standard rent to be fixed under the 1960 Act and also the market value at Rs. 3 per square foot as pleaded by the assessee in respect of a building let out by the corporation.

Summary

Issues:
1. Challenge to the order passed by the Income-tax Appellate Tribunal for the block assessment period 1988-99.
2. Dispute over the valuation of the unlet portion of a property for tax assessment.
3. Claim for vacancy allowance under section 24(1)(ix) of the Income-tax Act.

Analysis:
1. The Revenue challenged the Tribunal's order regarding the valuation of the unlet portion of a property for tax assessment during the block assessment period 1988-99. The assessee, a co-owner of a property in Madras, declared only a portion of the rent received from State Bank of India, not including the vacant portion's value. The Assessing Officer initially assessed the vacant portion's rent at Rs. 12 per sq. ft. per month, rejecting the assessee's declared value of Rs. 2.25 per sq. ft. The Commissioner of Income-tax (Appeals) partially allowed the appeal, and the Tribunal further adjusted the valuation to Rs. 2.25 per sq. ft. The Revenue contended that the Tribunal erred in accepting the lower valuation and that the assessment should have considered the Tamilnadu Buildings (Lease and Rent Control) Act, 1960. The High Court set aside all previous orders and remanded the matter for a fresh assessment, considering the standard rent under the Act and the market value pleaded by the assessee for a nearby building let out by the Corporation of City of Chennai.

2. The second issue revolved around the claim for vacancy allowance under section 24(1)(ix) of the Income-tax Act. The Tribunal had allowed the vacancy allowance despite the property not being entirely let out during the year. The Revenue challenged this decision, arguing that the Tribunal's acceptance of the lower notional value for the unlet portion was incorrect. The High Court did not directly address this issue but remanded the case for a fresh assessment, leaving all contentions open for further consideration.

3. The legal arguments presented by both parties focused on the proper valuation of the unlet portion of the property and the applicability of relevant legal provisions. The Revenue contended that the actual rent received from the let-out portion should determine the valuation of the unlet portion, while the assessee argued for a lower valuation based on factors such as the property's location and condition. The High Court emphasized the need to consider the standard rent under the Tamilnadu Buildings (Lease and Rent Control) Act, 1960, and the market value of nearby properties while determining the correct valuation for tax assessment. The judgment highlighted the failure of the authorities to address these crucial aspects, leading to the decision to remand the matter for a fresh assessment.