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ivory Mart Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1983)5ITD56(Delhi)
Appellantivory Mart
Respondentincome-tax Officer
Excerpt:
.....assessed the income in respect of the aforesaid property under the head 'income from house property'. while computing its income under the said head, the ito disallowed the claim for 'vacancy allowance' claimed by the assessee on the ground that the property was not let at any time in the year under consideration. secondly, the property remained vacant not because of a tenant but it was deliberately kept vacant with the intention of selling the property.4. aggrieved by the said assessment, the assessee brought the matter by way of appeal before the commissioner (appeals), who relying on the ratio of the following decisions, has held that since the assessee in the year under consideration remained the legal owner of the aforesaid property, its income for the year under.....
Judgment:
1. The assessee in appeal is Ivory Mart, New Delhi, a registered firm.

The year of assessment involved is 1977-78 for which the previous year ended 31-3-1977.

2. Grounds 2, 3 and 4 reading as under were not pressed at the time of hearing of the appeal: 2. The Commissioner (Appeals) should have straightaway allowed weighted deduction under Section 35B of the Act in respect of entire expenditure as per trading and profit and loss account.

4. It is contended that the section charging penal interest is not at all attracted in the present case.

As such and for the reasons stated by the Commissioner (Appeals), with which we agree, we uphold his order on the points involved in the above grounds of appeal.

3. Admittedly, the assessee in the year under consideration was the owner of the property bearing No. X-25, Hauz Khas, New Delhi. Vide agreement to sell dated 7-10-1976, the assessee agreed to sell the said property to Mr. Ved Prakash. It is also an admitted position that the possession of the said property was handed over to Ved Prakash on 7-10-1976. The sale deed in respect of the said house was executed and registered in favour of Ved Prakash by the assessee on 19-11-1977 which falls beyond the end of the year under consideration. It is also an admitted position that in between 1-1-1976 to 6-10-1976 the said property was lying vacant. The ITO, while making the assessment of the assessee for the year under consideration, assessed the income in respect of the aforesaid property under the head 'Income from house property'. While computing its income under the said head, the ITO disallowed the claim for 'vacancy allowance' claimed by the assessee on the ground that the property was not let at any time in the year under consideration. Secondly, the property remained vacant not because of a tenant but it was deliberately kept vacant with the intention of selling the property.

4. Aggrieved by the said assessment, the assessee brought the matter by way of appeal before the Commissioner (Appeals), who relying on the ratio of the following decisions, has held that since the assessee in the year under consideration remained the legal owner of the aforesaid property, its income for the year under consideration had been rightly assessed by the ITO under the head 'Income from house property'. He also rejected the vacancy allowance claimed by the assessee by observing as under: It is stated that as per amendment of Section 24(1)(ix) of Income-tax Act, the vacancy allowance is allowable for assessment year 1977-78 and subsequent years irrespective of whether the period during which the property remained vacant precedes or follows the period during which it is let out. In other words, the condition that the vacancy should recur after the property is let out has been waived. Against this, it is stated that 'if a man owns a house for his own occupation, ready for him to live in when he chooses to do so... he is assessable, or further that a house occupied by the owner, i.e., kept in such a manner that he can enter into residence at any time and not let, is such vacant unless dismantled and shut up, The contesting terms are more appropriately 'user' or 'non-user' rather than 'occupation' and 'vacancy'. The provision in Clause (ix) is meant for let [out] houses. The owner of a house who occupies it himself and keeps it as a guest house cannot claim an allowance for vacancies on the ground that no one resided in the house-Maharajadhiraja of Dharbhanga v. CIT 5 ITC 35 (Pat.). The Explanation added to Clause (ix) w.e.f. 1-4-1977 makes this allowance admissible irrespective of the fact whether the vacancy proceeds or follows the period during which property is let.

5. In the appeal before the Tribunal, the representative for the assessee, Mr. Ganesan, took us through the decision of the Supreme Court in Liquidator of Mahamudabad Properties (P.) Ltd. v. CIT [1980] 124 ITR 31 at page 39, the observations of the author of the 7th edition (Mr. Justice S. Ranganathan) at pages 1046-1047 of the book Sampat lyengar on Income-tax as also the Notes on Clauses leading to the incorporation of the Explanation to Section 24(1)(ix) of the Income-tax. Act, 1961 ('the Act') and urged that it was not a condition precedent, in view of the aforesaid Explanation, for the allowance of the 'vacancy allowance' that the property in question should be let for a part of the year. These arguments are controverted by the departmental representative, who has relied on the order of the Commissioner (Appeals), which according to him finds support from the ratio of the decision of the Full Bench of the Kerala High Cour in CIT v. Pradeepkumar M. Shah [1981] 130 ITR 118.

6. We have given consideration to the above arguments. Section 24(1) (ix) together with the Explanation, as in the year under consideration, reads as under: 24. (1) Income chargeable under the head 'Income from house property' shall, subject to the provisions of Sub-section (2) be computed after making the following deductions, namely: (ix) where the property is let and was vacant during a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out in parts, that portion of the annual value appropriate to any vacant part, which is proportionate to the period during which such part is wholly unoccupied.

Explanation: The deduction under this clause shall be made irrespective of whether the period during which the property or, as the case may be, part of property was vacant precedes or follows the period during which it is let; It is an admitted position that the main provision of Clause (ix) of Sub-section (1) of Section 24 had come up for consideration before the Supreme Court in the case of Mahamudabad Properties (supra). Therein their Lordships have laid down that : ...Consequently, when reading Section 24(1)(ix), which speaks of property which is let and which was vacant during a part of the year, we must read it to mean property which was let during the previous year and was vacant during a prat of the year. It cannot refer to property which was not let at all during the previous year....The High Court, in our opinion, rightly rejected the claim.

The Explanation to Section 24(1)(ix) was added by the Finance (No. 2) Act, 1977. The relevant extract of the Notes on Clauses in this behalf is in the following terms: Clause 8 seeks to insert an Explanation in Clause (ix) of Sub-section (1) of Section 24. The Explanation seeks to provide that the deduction in respect of vacancy allowance under the said clause shall be made irrespective of whether the period during which the property, or, as the case may be, part of the property was vacant precedes or follows the period during which it is let.

This amendment will take effect from 1st April, 1977 and will accordingly apply in relation to the assessment year 1977-78 and subsequent years. [1977] 107 ITR 152 (St.).

The Memo explaining the aforesaid Clause 8 of the Finance (No. 2) Bill, 1977 in this behalf is at serial No. 67 in the following terms: 67. Vacancy allowance in computing income from house property:- Under the existing provisions of the Income-tax Act, a deduction by way of vacancy allowance is granted in cases where a house property which is let out remains vacant for a part of the year. The existing provisions have been construed to imply that the deduction by way of vacancy allowance can be granted only where the vacancy occurs after the house has been let out by the assessee. It is proposed to make a provision clarifying that the deduction in respect of vacancy allowance shall he granted irrespective of whether the period during which the property was vacant, during the relevant year precedes or follows the period during which it is let out. [1977] 107 ITR 185 (St.)] It is thus clear not only from the language of the Explanation read in conjunction with the main provision contained in Section 24(1)(ix) that before a 'vacancy allowance' can be claimed, the property in question should be let, as laid down by the Supreme Court in the case of Mahamudabad Properties (supra) for a part of the year and the vacancy for which the 'vacancy allowance' is claimed, in view of the Explanation added, may precede or follow the period during which the property is let out in a particular year. The proposition propounded by the representative for the assessee, Mr. Ganesan, is, in our opinion, amply answered by Notes on Clauses and the Memo explaining the provisions in the 1977 Bill, relating to the incorporation of the Explanation to Section 24(1)(ix).

7. Since admittedly the property in question was not let for any period during the year under consideration, the tax authorities were justified in not allowing the 'vacancy allowance' claimed by the assessee for the period 1-4-1976 to 6-10-1976. We hold likewise.

8. In the result, the appeal by the assessee fails and is hereby dismissed.


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