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TMI Blog2007 (10) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... f possible instances for determining the ALV : 1.23(1)( a ) : where the property was vacant during the year as evident from the words "might reasonably be expected to let". 2.23(1)( b ) : where the property was let out during the year as evident from the words "where the property is let". 3.23(1)( c ) : deals with the properties which were let and vacant during the year. 4.This is clear from the words "the property is let and was vacant during the whole or any part of the previous year". The word "and", appearing in between, gives clear indication that the ALV in respect of property which was both let and was vacant during the year is to be computed as per the provisions of section 23(1)( c ). Since the property in question was vacant during the whole year, its ALV is to be computed as per the provisions of section 23(1) ( a ) and not as per section 23(1)( c ) as adopted by the assessee. In the light of these facts, the claim of the assessee is not accepted and ALV is to be determined under section 23(1)( a ) and is to be taxed accordingly. During the course of assessment proceedings the assessee submitted, vide letter dated 3-9-2004, the copy of NDMC order assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." It is evident from above that owner of any building and land appurtenant to such building is liable to be charged to income-tax under this head on what is known as annual value of property. The annual value is computed for purposes of taxation as per section 23 of the Income-tax Act, which is as under:- "23. Annual value how determined. (1) For the purposes of section 22, the annual value of any property shall be deemed to be ( a )the sum for which the property might reasonably be expected to let from year to year; or ( b )where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause ( a ), the amount so received or receivable; or ( c )where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause ( a ), the amount so received or receivable: Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of rent based upon fraud, emergency, relationship and such other considerations may take it out of the bounds of reasonableness." Above approach was followed by Their Lordships in the case of Smt. Padma Debi 3 SCR 49. Interpreting the word "reasonably" in the section, Their Lordships held that landlord of a building could not receive from the tenant more than the standard rent. This situation was not altered when instead of actual there was merely hypothetical tenant. The Court held as under: "A combined reading of the said provisions leaves no room for doubt that a contract for a rent at a rate higher than the standard rent is not only not enforceable but also that the landlord would be committing an offence if he collected a rent above the rate of the standard rent. One may legitimately say under those circumstances that a landlord cannot reasonably be expected to let a building for a rent higher than the standard rent. A law of the land with its penal consequences cannot be ignored in ascertaining the reasonable expectations of a landlord in the matter of rent. In this view, the law of the land must necessarily be taken as one of the circumstances obtaining in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Debi ( supra ) and similar other decisions that it was not lawful (having regard to the word "reasonable") for a landlord to recover more than the standard rent, and that it was penal for the landlord to receive any rent higher than the standard rent fixed under the Act, Courts took the view that even under the Income-tax Act, only standard rent could be assessed and any rent received or recovered by the landlord beyond the standard rent being unlawful, could not be assessed under the Income-tax Act. The Legislature changed above position, and amended section 23 and clause ( b ) was inserted through the Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1976 to assess rent received or receivable, although it was more than the fair rent. The provision of section 24 allowed deduction for vacancy and for un-realized rent. But this scheme did not work and accordingly Statute was amended and sub-section (1) of section 23 was substituted by a new section. The purpose and role of the new substituted provision is explained by Central Board of Direct Taxes in their Circular No. 14 of 2001 as under : "29. Rationalization of provisions relating to income from house property 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been suitably modified. 29.4 The section also provides that the taxes levied by a local authority in respect of the property shall be deducted in determining the annual value for that previous year in which such taxes are actually paid, irrespective of the previous year in which the liability to pay such taxes was incurred by the owner. Under the existing provisions, this deduction was allowable only in respect of property, which was in the occupation of a tenant. As per the amended provisions, however, the deduction is available in every case where annual value is determined under sub-section (1) including the case of a second self-occupied house not falling under sub-section (2) of the section. 29.5 Under the existing provisions contained in section 24, the income chargeable under the head "Income from house property" was computed after making deductions of one-fourth of the annual value in respect of repairs of, and collection of rent from the property, interest on capital borrowed for acquiring, constructing, repairing, renewing or reconstructing the property, as also a number of other deductions on account of insurance premium, ground rent, annual charge, etc. The vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent people who have houses at more than one places and none of them is let out, although they mainly carry on business from a particular place but retain houses in hill stations, on beaches, religious places or other places of interest to them. The owner has no intention to let out the house and may not occupy the same for large part of a particular year or for years together. Their servants or agents maintain the house on behalf of the owner. Such houses, although not in actual physical possession of the owner, are deemed to be under self-occupation. A distinction is drawn between such type of houses and houses, which remain vacant in spite of best efforts of the owner. First category of houses, subject to case law and policy of Government, would be assessed and their ALV determined as per clause ( a ) of section 23(1) of Income-tax Act. (2)The houses of other category are maintained by the owner for letting out. The owner has intention to earn rental income from the house. The rent received or receivable in such cases, being in excess of the reasonable sum assessable under clause ( a ) of section 23(1), is liable to be assessed under clause ( b ) of sub-section (1) of section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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