2018 (1) TMI 895 - AT - Income Tax

Computation of House Property Income - determining letting value as per provisions of Section 23(1) (a) in place of provisions of 23(1)(c) - CIT(A)) confirming the addition of deemed gross rent as against the actual casual gross rent received during the short period - Held that - In case of a property which remained vacant for a part of the year, then Annual Letting Value (ALV) shall be deemed to be the actual rent received by the assessee in case the same is lower than the reasonable rent receivable. In the instant case of assessee, the said office premises were vacant for the major part of the year and the assessee was in receipt of actual rent of ₹ 70,000/-. Accordingly, the annual letting value should be determined u/s. 23(1)c) of the IT Act. Restore the matter back to the file of the AO for deciding afresh as per law after giving due opportunity to the assessee. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Addition of deemed gross rent in computation of House Property Income.
2. Determination of letting value as per provisions of Section 23(1)(a) instead of Section 23(1)(c).

Issue 1: Addition of Deemed Gross Rent in Computation of House Property Income:

The appellant contested the addition of deemed gross rent of ?7,92,000 as against the actual casual rent received of ?70,000, resulting in an addition of ?5,05,400. The appellant argued that the premises were leased for a short period and remained vacant for the rest of the year, thus the Annual Letting Value (ALV) should be the actual rent received. The appellant cited judicial decisions to support their claim and contended that the ALV for the vacancy period cannot exceed the Municipal Ratable Value. The AO assessed rent income based on rates in the area, disregarding the actual rent received. The CIT(A) upheld the AO's decision, leading to the appeal.

Issue 2: Determination of Letting Value as per Provisions of Section 23(1)(a) instead of Section 23(1)(c):

The appellant argued that since no agreement was made for leave and license due to a casual lease, and the premises remained vacant after the contractor left, no notional rent income should be added under Section 23. The appellant contended that the ALV should be the actual rent received of ?70,000 as per Section 23(1)(c). Judicial decisions were cited to support this argument. The appellant relied on a Co-ordinate Bench decision and a Mumbai Tribunal observation emphasizing the importance of municipal valuation for properties not let out or vacant. The DR supported the lower authorities' decision to compute rental income under Section 23(1)(a).

In the judgment, it was noted that the property was vacant for a significant part of the year, and the actual rent received was ?70,000. Therefore, the ALV should be determined under Section 23(1)(c) of the IT Act. The matter was remanded back to the AO for fresh consideration in accordance with the law and after providing the appellant with an opportunity to present their case. The appeal of the assessee was allowed for statistical purposes.