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TMI Blog1984 (9) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; --------- 2,927 --------- Pro rata for occupation from 1-1-1977 732 Less : Half for self-occupation 366 --------- 366 Less : One-sixth for repairs 61 Interest payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; 2,949 ---------- Proportionate loss for 3 months 737" ----------On appeal, the AAC confirmed the ITO's order. It is, thus, that the matter is in appeal before the Tribunal. 2. In confirming the ITO's order the AAC relied on a decision of the Tribunal in IT Appeal No. 1529 (Bom.) of 1979-80 decided in September 1979, where it was held that where a property was completed during the course of a year, interest relatable to the period from the date of completion of the property to the last day of the previous year alone can be allowed under section 24 of the Income-tax Act, 1961 ('the Act'). Since there were other decisions of the Tribunal such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the department, must have reference to a particular period. Automatically, the expenses relative to that period only can be allowed. The asset in question having come into existence on 1-1-1977, the income for the period subsequent to this date has to be worked out, the expenditure also for the corresponding period only can be deducted. Since in the present case, income for three months only is computed as a natural corollary, the interest relevant to the three months' period only can be allowed. The learned counsel for the department also has relied on this Board's Circular, dated 24-6-1983, which clarifies that interest accrues from day to day and the relevant interest occurring for the period only can be taken into account. Reference is also made to the decision of the Orissa High Court in the case of CWT v. K.B. Pradhan [1981] 130 ITR 393. 5. The issue involved is simple. The income from property is included only for a part of the year. The question is whether some of the expenses referred to in section 24 should be allowed as claimed in full or on some proportionate basis. According to the assessee, interest, which is the subject-matter of dispute in the present case, shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e through 'the annual value of property'. Legally and etymologically, annual value cannot mean monthly value, weekly value, daily or momentary value. Where property income is brought to tax, therefore, if there is no 'annual value', there is no authority for taxing the property income in the Act at all. If the Legislature wanted a taxing of property income for a shorter period, there was no purpose in utilising the expression 'annual value of property'. As pointed out earlier the concept of 'annual' period for computation of income is completely absent with reference to all other sources and heads or income. 7. The learned counsel for the department strongly stressed the point that all incomes under all heads should be taxed in the same manner. There is no justification for adopting any special method for property income. The very same argument of the learned counsel supports us in our above decision. It is noteworthy that the computation of property income under the Act is not only fictional but also contradicts the very normal conceptional idea of income. It would perhaps be absurd to say that a person who does not receive any rent or so from a property, by the mere holding of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the assessee is not the 'owner' of the property for the full year, income from property cannot be included while working out his total income. The learned counsel for the department urged that it would be shocking to note that an assessee received a substantial income from property for a good part of the year but merely because he does not own the property for the whole of the year, that income should escape. Perhaps this is a natural result of the above interpretation forced on us by the clear words of the Act. But there is no inequity in this, since, as we pointed out above, the very manner of taxing of property income is notional, full of controversy and a little artificial. This view is further strengthened by the fact that in section 23, which deals with the determination of the annual value ; " the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year ". When normally a property can be let out from month to month and in all tenancy legislation the proper concept is the monthly rent, it is certainly an intentional deviation to refer to the letting from year to year. What the Income-tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion would fit in a case where the property is in the ownership of the assessee throughout the year but is let out only for a part of the year. For instance, the municipal, etc., valuation which would come up for consideration under section 23(1)(a), say, may be Rs. 500 per month, but for the last two months of the year, the assessee could let out the property at Rs. 5,000 per month. In such a case, under the Explanation the annual value for the whole year should be taken at Rs. 60,000 (Rs. 5,000 x 12) and not at Rs. 6,000 (Rs. 500 x 12). Except for this limited modification of the computation, the Explanation does not serve any purpose. 11. On the facts of the case, though the assessee's previous year ended on 31-3-1977, he became the owner of the property and was in a position to occupy it on 1-1-1977, on which date the construction was completed. For the assessment year 1977-78, therefore, the assessee was not the owner of the property for a year so as to give 'annual value' for the property. In our view, therefore, there is no justification at all for including any property income from this property for this year. 12. The ITO, however, has worked out property income and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or referring the interest to any particular year or a proportionate disallowance of the same in section 24 which deals with deductions from house property income. After the introduction of this Explanation, this position has been modified. The interest payable for all previous years is allowed to be spread over five years. As pointed out by the learned counsel for the assessee, the interest for the succeeding years would be allowable in the respective years. Certainly when the Legislature has taken care to allow even the interest paid prior to the previous year though on an instalment basis, there is no logic in not allowing the interest payable during the previous year when the property was constructed. The only way to reconcile this provision would be to allow the interest for the period of construction or acquisition in computing property income for the earliest assessment year subsequent to the acquisition, when the property income is brought to tax. 14. We have clarified above the general principles for computing the property income of an assessee for inclusion in his total income. These may be summarised as under : 1. Property income under the Act can be included in the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a notional basis--annual value--irrespective of whether it produces income or not, but where the basis of actual rent received for computing the income will yield a higher figure, it would be computed on such actual rent basis [section 23(1)(b) and clauses (a) and (b) of the Explanation to the said sub-section], subject to certain reliefs provided on account of its lying vacant for any part of the year, vide sections 23(3) and 24(1)(ix). It must follow as a corollary that there can be no charge in respect of income from property for a period less than a year. Computation of loss of either the assessee or the ITO, adopting a proportionate basis for a period of three months, has, according to me, therefore, no statutory sanction. 3. However, having regard to the scope of the appeal before us, where we cannot put the assessee in a worse position than he already is, and the fact that neither party disputed the charge for the year and both agree that computation may be made for the full year, the annual loss computed by the ITO has to be adopted and allowed to be set off against the other income. There is no warrant for restricting the allowance of interest as held to accrue only aft ..... X X X X Extracts X X X X X X X X Extracts X X X X
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