2019 (7) TMI 306 - HC - Income Tax

Income from house property - ALV u/s 23 (1) of property prior to Occupancy Certificate (OC) - HELD THAT - Revenue appears to be raising a contention that since the Assessee in any case leased out the property with effect from 1st April, 2009 without waiting for OC, the entire period during which the Assessee could have let this property, tax on notional basis should be charged. In our opinion, this is fallacious contention. In plain terms, between 1st January, 2009 to 31st March, 2009, the property was legally not occupiable and not occupied. Charging of tax on notional rental basis and the question of interpretation of Section 23 (1) (a) did not arise at all. The issue perhaps arose because the Assessee computed the notional rental receipts for the said period of three months and claimed the vacancy allowance, which in our opinion was under mistaken belief of law. - Decided in favour of the Appellant

Summary

Issues:
Interpretation of Section 23(1)(c) of the Income Tax Act, 1961 regarding the annual value of a property for the relevant previous year.

Analysis:
The appellant, an assessee, purchased a commercial property with the intention to earn rental income. The property was not legally occupiable until the Occupancy Certificate (OC) was issued in May 2009. The appellant leased out the property from April 1, 2009, and the Assessing Officer levied tax on notional rental income for the period between January 1, 2009, and March 31, 2009. The appellant declared the amount as notional rent but claimed vacancy allowance, which was rejected by the Assessing Officer. The Commissioner and the Tribunal upheld the decision, relying on the interpretation of Section 23(1)(c) and a previous case from the High Court of Andhra Pradesh.

Upon hearing the appeal, the High Court focused on the factual circumstances and statutory provisions rather than delving into the interpretation of Section 23(1)(c). The court noted that during the period in question, the property was neither legally occupiable nor occupied by the appellant or any lessee. The appellant had only executed a lease deed for furniture and fixtures, not for commercial use. The Revenue's argument to tax notional rental income for this period was deemed fallacious by the court. The court emphasized that charging tax on notional basis and interpreting Section 23(1)(a) did not apply when the property was legally unoccupiable and unoccupied.

The court rejected the Revenue's contention that tax should be charged on notional basis for the entire period when the property could have been leased out, emphasizing that between January 1, 2009, and March 31, 2009, the property was legally unoccupiable and unoccupied. The appellant's mistaken belief in claiming vacancy allowance for this period led to the issue at hand. Ultimately, the court ruled in favor of the appellant, reversing the Tribunal's judgment and allowing the appeal.