1. The assessee owns a house which has been let out to corporation bank on a monthly rent of Rs. 600. But, the assessee is occupying the same house as manager of the bank. In other words, the bank has become the assessee's tenant and the assessee is occupying his own house as a sub-tenant of the bank which has provided rent-free accommodation to him as its employee. As a result of this arrangement, the assessee came to be assessed on the rental income received from the bank and also on the perquisite enjoyed by him by occupying the house free of rent as an employee of the bank. The assessee's claim before the ITO for allowing statutory deduction allowable to owners of house property occupying their own property was turned down. The assessee went in appeal. The AAC, however, held that as the assessee is the owner of the property and since the property is self-occupied, the benefit of deduction under Section 23(2) of the Income-tax Act, 1961 ('the Act') was available to the assessee. The revenue is in appeal.
2. The learned departmental representative contended that the benefit of Section 23(2) is available to an assessee who occupies his own house as the owner of that house. In the present case the assessee has let out the property. Once the property is let out, it cannot be said that the assessee is occupying it. His occupation is in the capacity of a sub-tenant. Therefore, the provisions of Section 23(2) are not applicable. He pleaded that the order of the AAC should be reversed.
The learned counsel for the assessee, on the other hand, submitted that the revenue is bringing in extraneous conditions for allowance of deduction under Section 23(2). Nowhere in the Act it is stated that the capacity in which the assessee is occupying a house should be taken into consideration. The only two conditions which are to be satisfied for allowing statutory deduction under Section 23(2) are (1) the assessee should be the owner of the property, and (2) he should occupy it. The basic conditions having been satisfied, there are no grounds, it was argued, for reversing the order of the AAC.3. We have heard the rival submissions. Section 23(1) reads as follows : (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 is let and the annual 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 : Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted in determining the annual value of the property.
(i) a house in the occupation of the owner for the purposes of his own residence, the annual value of such house shall first be determined in the same manner as if the property had been let and further be reduced by one-half of the amount so determined or one thousand and eight hundred rupees, whichever is less; A reading of the above provision clearly shows that Section 23(2) is applicable to an assessee when he resides in his own house as owner and not as a tenant. This is clear from the words 'as if the property had been let'. Therefore, it is essential that the property should not have been let out if the deduction under Section 23(2) is to be available.
Otherwise, the Legislature would not have used the words 'as if the property had been let'. It is clear from the facts of the case that the assessee had let out the building. The bank, the employer, has provided him with a rent-free residence. Assuming that the bank had taken on lease some other house and allotted it to the manager, the employee would still be assessed on the perquisite. The fact that the employee happens to be the owner of the building which has been leased out to the bank makes no difference. The choice for the assessee is clear. If he wants deduction under Section 23(2), he should not let out the property. Otherwise, the property income will be taxed as in the case of any other let out property. In this view of the matter, we reverse the order of the AAC, and allow the appeal filed by the revenue.