1. The short facts relevant for the purpose of answering this reference could be stated as follows : The assessment year is1971-72, the accounting period being the financial year starting on April 1, 1970, and ending on March 31, 1971. The assessee was the owner of a property, the construction of which was completed in July, 1969. In relation to the previous year relevant to the preceding accounting year, i.e., 1970-71, that property was not let out at all. A part of the property was, however, let out for the first time on March 1, 1971. In the assessment year 1970-71, the Commissioner of Income-tax allowed no vacancy remission following the decision of the Calcutta High Court in Liquidator, Mahmudabad Properties Ltd. v. CIT : 83ITR470(Cal) . A copy of the order of the Commissioner for the assessment year 1970-71, asking the Income-tax Officer to withdraw vacancy allowance granted for the assessment year 1970-71, is annexure A. In appeal, the Tribunal took the view that the Calcutta High Court's decision was not applicable inasmuch as the construction of the property had been completed only in July, 1969, and, therefore, the property was not vacant for the full previous year, i.e., April 1, 1969, to March 31, 1970 ; hence, the vacancy allowance could not be denied to the assessee. By the order of the Tribunal, a copy of which is annexure B, the order of the Income-tax Officer was restored. A question of law arising out of the Tribunal's order was referred to and answered by this court. For the assessment year 1971-72, the assessee claimed a loss of Rs. 5,061 from the house property. This was arrived at by taking one month's rent for part of the property let out and claiming vacancy allowance for the period the property remained vacant. The Income-tax Officer accepted the loss and completed the assessment. A copy of the assessment order is annexure C. The Commissioner of Income-tax interferred with the assessment order under Section 263 of the Income-tax Act. As far as part of the property which was vacant throughout the year was concerned, the Commissioner held that the reasons given for the year 1970-71 held good and no vacancy allowance could be allowed and, as such, the full letting value of the portion had to be brought to tax. The Commissioner was also of the opinion that as far as the portion which was let out for one month was concerned, no vacancy allowance could be granted. According to his reasoning, it was where the property was first let out and then remained vacant that such allowance was permissible under the provisions of Section 24 of the Act. In the present case, (part of) the property was vacant for 11 months in the previous year and was then let out for one month and, therefore, vacancy allowance, he held, was not admissible. He directed the Income-tax Officer to alter the assessment on the basis of his findings. Annexure D is the copy of that order. The matter was taken in appeal to the Tribunal by the assessee. For the earlier year, as far as the portion of the property which was totally vacant was concerned, he held that no full vacancy remission should be allowed. A further reason on which reliance was placedwas that unless a property after construction was occupied by the assessee for his own use or was let out, no notional income could be taken. The Tribunal, therefore, came to the conclusion that the assessee should be permitted to claim vacanc)' allowance for the second part also. A copy of the Tribunal's order is annexure E. The question referred to this court at the instance of the Revenue pursuant to the direction of this court in the judgment in O.P. No. 2868 of 1977-G dated July 18, 1979, reads as follows :
' Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the assessee is entitled to vacancy allowance under Section 24(1)(ix) of the Income-tax Act, 1961 ?'
Section 24(1)(ix) of the Act provides as follows :
'24. Deductions from income from house property.--(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 the property was vacant precedes or follows the period during which it is let.'
We would for the sake of convenience extract the reasoning of the Tribunal as stated in paragraph 4 of annexure E (pages 12 and 13 of the paper book) :
'The fact that part of the property was let out from March 1, 1971', and the other part of the property was not at all let out is not disputed. Therefore, the only question to be considered is whether vacancy allowance is allowable or not and that brings me to the provisions of Section 24(1)(ix) of the Income-tax Act. Since the Cochin Bench, in its order referred to above, had already interpreted that provision and I have gone through the reasonings expressed by the Bench in that order and as I am in agreement with the said views, I also hold that it is not necessary that the property should have been let out for claiming vacancy allowance. I will further add that the income from property is computed, as is noticed from the provisions, where the property is let out or where the property is in theoccupation of the owner for the purpose of his own residence, A third category, where the house is not at all occupied for the purpose of residence or for the purpose of letting out, is not contemplated. The emphasis in the provisions is noticed in the use of the word 'occupation' in Section 24(ii). In other words, some act must have been done to use the property either for occupation as own residence or for being let out. In this case, while one part of the house was not at all let out throughout the year, the other part was let out only from March 1, 1971. Therefore, applying the scheme of the Act, relating to income from property also, I am of the view that no notional income can be taken in respect of the period till it was occupied by the assessee for his own residence or it was let out. '
The two reasons advanced by the Tribunal for reaching the conclusion that the assessee would be eligible to claim vacancy allowance are : (1) it was not necessary that the house property should have been let out, and (2) no notional income could be taken in respect of the period till it was occupied by the assessee for his own residence or it was let out.
2. Having considered the scheme of the Act and the wording of the section, we have little doubt in our mind that both, the reasons stated by the Tribunal are untenable. A close analysis of the wording in Section 24(1)(ix) of the Act would go to show that it is only where the property was let out for part of the year at least, vacancy allowance could be claimed. This view we express finds support in the Full Bench decision of this court in CIT v. Pradeepkumar M. Shah 0065/1978 : 130ITR118(Ker) . Now turning to the next question whether notional income could be taken in respect of the period till it was occupied by the assessee for his own residence or was let out, we are afraid, the view taken by the Tribunal is due to making a wrong approach to the question. There is absolutely no warrant in the section for the proposition that no notional income could be taken in respect of the period till it was occupied by the assessee for his own residence or it was let out. The Explanation to Clause (ix) to Section 24(1) introduced by the Finance (No. 2) Act, 1977, with effect from April I, 1977, makes this position clear. It could possibly be said that the Explanation had not been on the statute book during the assessment years with which we are concerned in this case, but for the fact that from the wording of the section and the tenor of the Explanation, it has to be construed that the Explanation amounts only to a declaration of a pre-existing position ; and therefore, it should be deemed that it existed from the very inception of the clause. This position has been clarified by a Division Bench of this court in Joy P. Jacob's case : 151ITR19(Ker) .
3. In the view that we have expressed above, the order of the Tribunal cannot be sustained. The counsel for the assessee, Shri Sivarajan, contendedthat even if the second limb of Clause (ix) alone is applicable, the assessee is entitled to substantial relief inasmuch as the clause provides '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' which would mean that vacancy allowance would relate to the portion of the annual value appropriate to the vacant part which is proportionate to the period during which such part was wholly unoccupied. This view is supported by the decision of this court in Joy P. Jacob's case : 151ITR19(Ker) . We are of the opinion that there is substance in this contention : and that, though the assessee might not be entitled to relief In terms of the first limb of Clause (ix) of Section 24(1) of the Act, he would nevertheless be entitled to relief in terms of the second limb of Clause (ix). The quantum of deduction permissible is a matter to be worked out by the Tribunal.
4. The result, therefore, is that the question of law referred to us is answered in the above lines as stated in para. 4 supra.
5. A copy of this judgment under the signature of the Registrar and seal of the court may be forwarded to the Income-tax Appellate Tribunal, Cochin Bunch.