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Commissioner of Income-tax Vs. Joy P. Jacob - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 81 and 82 of 1979
Judge
Reported in(1984)43CTR(Ker)110; [1985]151ITR19(Ker)
ActsIncome Tax Act, 1961 - Sections 24(1)
AppellantCommissioner of Income-tax
RespondentJoy P. Jacob
Cases Referred(Bom) and Central Bank of India v. Their Workmen
Excerpt:
.....year - both events must have occurred within same year - in case a part of building let out during relevant year while other part or parts remain unoccupied during that year benefit of remission accrued to assessee - two floors let out and other two floors unoccupied during relevant year - nature of building not known question referred not answered - tribunal to consider question afresh. - - the nature of the construction, the separateness of the floors from each other, the manner in which each floor is treated by the corporation or other civic bodies for the purpose of taxes or rates, the independent identity of the tenements and the like, are matters which must be considered by the appropriate authority in evaluating the nature of the building in a given case for the purpose of..........the other two floors were let out on april 1,1971, and april 22, 1972, within the previous years relevant to the assessment years 1972-73 and 1973-74, respectively. with these two years we are not concerned in this case. for the assessment years 1970-71 and 1971-72, the assessee claimed vacancy remission, in terms of section 24(1)(ix) of the i.t. act, in respect of the two floors let out on october 12, 1969, for the period from april 1, 1969, to october 11, 1969. in respect of the other two floors which were not let out in the relevant accounting years, namely, 1970-71 and 1971-72, the assessee claimed vacancy remission for the entire period from april 1, 1969, till march 31, 1971. the claim of the assessee was allowed by the ito. however, by his orders dated september 30, 1975.....
Judgment:

Kochu Thommen, J.

1. The following question has been referred to us, at the instance of the Revenue, by the Income-tax Appellate Tribunal, Cochin Bench.

' Whether, on the facts and in the circumstances of the case, and in view of the fact that the property in question was vacant throughout the year, the Income-tax Appellate Tribunal is right in law in holding that the assessee is entitled to vacancy allowance under Section 24(1) of the Income-tax Act, 1961 ?'

2. The assessee constructed a building which was completed on December 30, 1968. The building has four floors. The ground floor arid the first floor were let out to the State Bank of Travancore and they were occupied as from October 12, 1969, within the period relevant to the assessment year 1970-71. The other two floors were let out on April 1,1971, and April 22, 1972, within the previous years relevant to the assessment years 1972-73 and 1973-74, respectively. With these two years we are not concerned in this case. For the assessment years 1970-71 and 1971-72, the assessee claimed vacancy remission, in terms of Section 24(1)(ix) of the I.T. Act, in respect of the two floors let out on October 12, 1969, for the period from April 1, 1969, to October 11, 1969. In respect of the other two floors which were not let out in the relevant accounting years, namely, 1970-71 and 1971-72, the assessee claimed vacancy remission for the entire period from April 1, 1969, till March 31, 1971. The claim of the assessee was allowed by the ITO. However, by his orders dated September 30, 1975 (annexures A & A1), the officer reopened the proceeding under Section 147 and completed the same under Section 143(3). He held that in so far as the vacancy of the ground floor and first floor preceded the date of letting out of those two floors and also in so far as the other two floors had not been let out at all in the relevant accounting years, the vacancy benefit in terms of Section 24(1)(ix) was not available. Against these orders, the assessee appealed to the AAC. The appeals were allowed by him. Thereupon, the Revenue appealed to the Tribunal.

3. It was contended on behalf of the Revenue that in a case where the vacancy did not follow letting out, but preceded it, the benefit of the first limb of Section 24(1)(ix) would not be available. Nor would the second limb beattracted in a case where a part or parts of the building in respect of which remission is claimed had not been let out in the relevant accounting years. The Revenue pointed out that before remission was granted, the assessee had to prove that the building in question had been let out before it fell vacant during the relevant accounting year. The same principle would apply in relation to a part or parts of the building where remission is claimed. The assessee had to prove that vacancy arose subsequent to the letting out of those parts. This argument was rejected by the Tribunal by its order dated February 24, 1978. Hence, the present question, at the instance of the Revenue.

4. Before we read the relevant clause, it must be stated that there is no direct authority on the construction of this clause in regard to the points arising for decision. In Mahamudabad Properties P. Ltd. v. CIT : [1980]124ITR31(SC) , the Supreme Court stated that vacancy remission would not be available in a case where a building had not been let out during the year previous to the relevant assessment year. To this, effect, a Full Bench of this court stated in CIT v. Pradeep kumar M. Shah 0065/1978 : [1981]130ITR118(Ker) . (See also Mangaldas H. Verma v. CIT : [1980]124ITR185(Bom) ). But, in none of these cases, the question now directly posed before us was considered. The question is whether or not the benefit of remission would accrue in respect of a building which was vacant for a part of the year preceding the letting out and also in respect of parts of that building which had not been let out in the relevant accounting year.

5. Section 24(1) in so far as it is material reads :

'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 the property was vacant precedes or follows the period during which it is let.``

6. The Explanation was added to this clause by the Finance Act, 1977, with effect from April 1, 1977. Counsel for the Revenue contends that the Explanation is not intended to be retrospective. Sri Narayanan Poti, appearing for the assessee, submits that the Explanation is insertedex abundanti cautela. He points out that it applies in terms to the instant case, not because it is retrospective, but because it is clarificatory of the law as embodied in Clause (ix). It says that the law has always been so. Its object is to remove any doubt as to the meaning of Clause (ix).

7. Clause (ix) says ' where the property is let and was vacant during a part of the year...... ' This part of the clause, as stated by the SupremeCourt and by this court in the cases referred to above, shows that in order that the clause is attracted, the property in question must have been let and also vacant during a part of the year. Both the events must have occurred within the same year. If the property had been let, not in the relevant year, but in an earlier year, the clause will not be attracted. Nor would it be attracted if the property was let in the relevant accounting year but became vacant in a subsequent year. It is, however, not, in our view, necessary that letting must precede vacancy. The benefit will accrue equally if the order is reversed as in the present case. Where a building was vacant for a part of the year and was let out for the remaining part of that year, the clause is attracted in full force. This is in fact what is clarified by the Explanation which, although not retrospective, is clarificatory of the law as it always has been ever since the clause was enacted. See the principle stated in Abdul Latif v. Mt. Abadi Begam, ; West Derby Union v. Metropolitan Life Assurance Society [1897] AC 647 (HL), CWT v. Mahavirprasad Bubna : [1980]122ITR570(Bom) and Central Bank of India v. Their Workmen : [1960]1SCR200 .

8. The second limb of the clause refers to a property which is let out in parts and a portion or portions thereof remain vacant. This means that if a part of the building is let out during the relevant year while the other part or parts remain unoccupied during that year, the benefit of remission would accrue to the assessee.

9. Accordingly, the assessee can deduct that part of the annual value which is proportionate to the period during which the property is wholly unoccupied, or, in a case, 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.

10. Where the whole property has been let out and a remission is claimed in respect of the period of vacancy, there is no difficulty in applying the first limb of the clause for the purpose of remission. As we have stated earlier, remission would be available whether the letting preceded or followed the vacancy. But where the property is let out in parts, and the benefit of the second limb of the clause is claimed, the question may arise as to what is the property in regard to which remission is available. Thesecond limb of the clause refers to the property which is let out in parts. The property mentioned in Clause (1) of the section is house property, meaning a building. But there may be many house properties in one building where the building is divided horizontally or vertically into parts which are independent units and let out or intended to be let out as separate house properties. In the case of a building having several floors or where several houses are attached to each other, it may be possible to consider each floor or house as an independent unit or a house property forming part of the whole building. In a city, where tall buildings having many floors or houses inseparably built from each other are common, each floor or house may be treated as an independent and separate unit constituting by itself a house property for the purpose of the section. In such cases, the benefit of Clause (ix) would not accrue except in regard to the separate house property in question. Merely because one independent floor of a building, which is a separate house property, is vacant during a part of the year and the other floors remain vacant throughout the year, the second limb of Clause (ix) would not be attracted. In order to attract that, the property must be of such a nature as we have described. This is a question of fact which has to be considered in each case. The nature of the construction, the separateness of the floors from each other, the manner in which each floor is treated by the Corporation or other civic bodies for the purpose of taxes or rates, the independent identity of the tenements and the like, are matters which must be considered by the appropriate authority in evaluating the nature of the building in a given case for the purpose of applying Clause (ix).

11. In the present case, the question posed before us cannot be answered in the form in which it has been raised, for, during the relevant year, only two floors were let out and the other two floors were unoccupied. Even if the question is recast on the basis of those facts, it would still not admit of an easy answer in the absence of a clear finding as to the nature of the building. In the circumstances, we do not answer the question referred, but we make it clear that the answer must necessarily depend upon a proper determination of the relevant facts. In the circumstances, it is open to the Tribunal to consider the question afresh by determining the relevant facts in the light of what is stated above. We direct the parties to bear their respective costs in these tax referred cases.

12. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.


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