1970 (7) TMI 20 - HC - Income Tax

Computing the income from property - property is in a state of disrepair - whether there is an annual value of premises - whether it is to be taken into account under section 22 of the Income-tax Act, 1961.

Summary

Issues Involved
1. Determination of the annual value of the property.
2. Eligibility for vacancy remission.
3. Eligibility for municipal tax deductions.
4. Eligibility for insurance premium deductions.

Detailed Analysis

Determination of the Annual Value of the Property
The primary issue was whether the property at 3, Gun Foundry Road, Calcutta, had an annual value that should be considered under section 22 of the Income-tax Act, 1961. The Tribunal initially held that the property was outside the scope of section 22 because it was not in a habitable condition and could not be reasonably expected to be let out. The Court disagreed, emphasizing that the annual value is based on a hypothetical tenancy and must consider the property as it stands, in its present condition, rebus sic stantibus. The Court stated that the property must be assessed for its annual value even if it is in disrepair, as the concept of annual value under section 23 is hypothetical and considers what a reasonable tenant might pay under the current conditions.

Eligibility for Vacancy Remission
The second issue was whether the assessee was entitled to vacancy remission under section 24(1)(ix) of the Income-tax Act, 1961. The Court held that vacancy remission could not be granted because the property was not let during the relevant year. The statutory language requires the property to be let and vacant during part of the year to qualify for vacancy remission. Since the property was not let at all during the assessment year, the assessee was not entitled to this deduction.

Eligibility for Municipal Tax Deductions
The third issue involved the deduction of municipal taxes. The Court noted that under the proviso to section 23, municipal tax deductions are permissible only if the property is in the occupation of a tenant. Since the property was not let and thus not in the occupation of a tenant, the assessee could not claim deductions for municipal taxes. Furthermore, the Court pointed out that claiming both vacancy remission and municipal tax deductions simultaneously is contradictory, as the vacancy remission implies a period during which the property was unoccupied.

Eligibility for Insurance Premium Deductions
The final issue was the eligibility for insurance premium deductions. The Court held that under section 24(1)(ii), the assessee is entitled to deduct the insurance premium paid to insure the property against risk of damage or destruction. The records showed that the assessee paid a fire insurance premium of Rs. 689, which is clearly deductible from the annual value.

Conclusion
The Court concluded that the Tribunal erred in holding that the property had no annual value and was outside the scope of section 22. The property does have an annual value that should be considered for assessment. The assessee is entitled to a deduction for the insurance premium but not for vacancy remission or municipal taxes. The Tribunal was directed to dispose of the case conformably to this judgment and the principles enunciated herein under section 260 of the Income-tax Act, 1961. There was no order as to costs in this reference.