PREMSUDHA EXPORTS (P) LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX
[Citation -2007-LL-0531-8]

Citation 2007-LL-0531-8
Appellant Name PREMSUDHA EXPORTS (P) LTD.
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX
Court ITAT
Relevant Act Income-tax
Date of Order 31/05/2007
Assessment Year 2003-04
Judgment View Judgment
Keyword Tags income from house property • memorandum of association • letting out of property • annual letting value • business of export • business activity • notional interest • receivable amount • vacancy allowance • sister concern • standard rent • annual value • monthly rent • actual rent • annual rent • alv
Bot Summary: Clause of sub-section of section 23 deals with those type of situations where the property is let out and according to this clause annual value of any property shall be deemed to be, where the property is let and the annual rent received or receivable by the owner in respect thereof, is in excess of sum referred to in clause, the amount so received or receivable. According to clause of section 24, the vacancy allowance is to be allowed and according to this clause, the income chargeable under the head 'Income from house property' shall be computed after making the deduction 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 part, that portion of the annual value appropriate to any vacant part, which is proportionate to the period, during which such part is wholly unoccupied, be allowed. The second situation deals where the property or any part of property is let and the actual rent received or receivable by the owner in respect thereof is in excess of sum referred to in clause the amount so received or receivable would be the ALV. The third situation deals 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 rent received or receivable by the owner in respect thereof is less than sum referred to in clause the amount so received or receivable would be the ALV. In the instant case, since the property remained vacant for the whole year and no rent was received, the ALV should be computed at NIL as per clause of sub-section 23(1) of the Act. Whereas, according to assessee, the intention of letting out of property is to be seen for invoking clause for computing the annual letting value of the property. Even if we interpret it so, it may lead to undesirable result because in some cases, if the owner has let out a property for one month or for even one day, that property will acquire the status of let out property for the purpose of this clause for the entire life of the property even without any intention to let it out in the relevant year. From a careful perusal of these documents, it has become evident that during the whole year, assessee made its continuous efforts to let out the properties and under these circumstances, this property can be called to be let out property in terms of our observations in foregoing paras. Since the property has been held to be let out property, its annual letting value can only be worked out as per sub-clause of section 23(1) of the I.T. Act and according to this clause, the rent received or receivable during the year is NIL and as such the same be taken as the annual value of the property in order to compute the income from house property.


These appeals are preferred by assessee against Order of CIT(A) on various grounds, but, all grounds relate to common issue in these appeals as to what would be annual letting value of property when remained vacant for whole year. Since common issue is involved in these appeals, we heard these appeals simultaneously and are being disposed off by this consolidated order. For reference, we take up facts of case in case of Premsudha Exports (P.) Ltd. v. Asstt. CIT [2007] 17 SOT 293 (Mum.). 2. brief facts available on record are that assessee-company engaged in business of export of diamonds and filed its return of income for assessment year 2003-04 on 14-10-2003 declaring total loss at Rs. 9,024. assessee had purchased property i.e., flat from Vissanji Estate Private Limited, Nariman Point, Mumbai and during year relevant to assessment year, this flat remained vacant. Therefore, Assessing Officer chose to assess income from house property by invoking provisions of section 23(1)(a). Relying upon appellate order in case of M/s. Llardo Finance, Assessing Officer determined standard rent at 8.5 per cent on total amount of Rs. 42,03,062. Though he has determined standard rent as ALV at 8.5 per cent at Rs. 42,087, he adopted ALV at Rs. 53,25,000 on basis o f monthly rent receivable/received by assessee sister concern at Rs. 4,25,000 per month for part period and at Rs. 4,50,000 per month for balance period of year for other identical flat owned by it in same building which was let out to High Commissioner of Canada in India Shri Peter Walker. Therefore, Assessing Officer has adopted ALV at Rs. 53,25,000 and determined income from this property at Rs. 36,97,478 after deducting municipal taxes etc., and also allowing 30 per cent on ALV as deduction under section 24 of Act. assessee preferred appeal before CIT(A) and CIT(A) restricted ALV to 8.5 per cent of investment cost and ALV was reduced from Rs. 53,25,000 to Rs. 42,03,062. Now assessee has preferred appeal before Tribunal. 2.1 facts in other case i.e., Premshree Gems Pvt. Ltd. are also identical with slight difference in figures. 3. During course of hearing, learned counsel for assessee has raised preliminary objection to mode of computation of ALV adopted by Assessing Officer and CIT(A). He has invited our attention to his letter dated 13-3-2006 filed before Assessing Officer inviting his attention that property in question remained vacant for whole year, as such, ALV is to be computed as per provisions of section 23(1)(c) of Act. But, Assessing Officer did not even examine scope of clause (c) and he has restricted himself to provisions of clauses (a) and (b) of section 23(1). Similar was position before CIT(A), but, none of authorities have taken any pain to even consider clause (c) of section 23(1). They have deliberated on clauses (a) and (b) of section 23(1) in light of various judicial pronouncements. 4. learned counsel for assessee has further invited our attention to amendments brought in sections 23 and 24 of Act. Sections 23 and 24 were amended by Finance Act, 2001 with effect from 1-4-2002. Prior to this amendment section 23 dealt with only 2 types of situations enshrined in clauses (a) and (b). As per clause (a) of section 23(1), annual value of any property shall be deemed to be sum for which property might reasonably be expected to let from year to year. This clause was examined in series of judgments and it has been repeatedly held by Apex Court and various High Courts that standard rent determined under Rent Control Act shall be rent on which property might reasonably be expected to let from year to year and standard rent should be considered to determine annual value. Clause (b) of sub-section (1) of section 23 deals with those type of situations where property is let out and according to this clause annual value of any property shall be deemed to be, where property is let and annual rent received or receivable by owner in respect thereof, is in excess of sum referred to in clause (a), amount so received or receivable. Having considered both these clauses, it has been held by various High Courts that where property is not let out standard rent determined/determinable under Rent Control Act shall be deemed to be annual value of property and in case where property is let out, annual rent received or receivable if it is in excess of aforesaid standard rent, said received or receivable amount shall be annual value of property. If rent received or receivable is lesser than standard rent, then in that case, standard rent would be deemed to be annual value of any property. In old provisions of section 23(1), no third situation was dealt with and it was confined only to two type of situations viz., one where property is not let out and second, where property is let out. While computing income from house property, deductions stated in section 24 are to be allowed. According to clause (ix) of section 24, vacancy allowance is to be allowed and according to this clause, income chargeable under head 'Income from house property' shall be computed after making deduction where property is let and was vacant during part of year, that part of annual value which is proportionate to period during which, property is wholly unoccupied or where property is let out in part, that portion of annual value appropriate to any vacant part, which is proportionate to period, during which such part is wholly unoccupied, be allowed. As per old provisions of sections 23 and 24, ALV computed under section 23 is to be reduced by deduction claimed in section 24 in order to compute income from house property. deduction with regard to vacant portions or unoccupied property was generally called to be vacancy allowance which was allowed to assessee for computing income from house property. After amendment with effect from 1-4-2002 one more clause was inserted in sub- section (1) of section 23. Clauses (a) and (b) remained under statute with slight modifications and new clause (c) was inserted in sub-section (1). Clause (c) deals with computation of ALV where property or any part of property remained vacant for whole or any part of previous year. With insertion of clause (c) in sub-section (1), clause (ix) of section 24(1) dealing with vacancy allowance was omitted. After this amendment clause 24 contains only few type of deductions. 5. learned counsel for assessee further contended that after amendment, section 23 deals with computation of ALV in three type of situations. first situation pertains determination of ALV on basis of sum for which property might reasonably be expected to let from year to year. second situation deals where property or any part of property is let and actual rent received or receivable by owner in respect thereof is in excess of sum referred to in clause (a) amount so received or receivable would be ALV. third situation deals where property or any part of property is let and was vacant during whole or any part of previous year and owing to such vacancy, rent received or receivable by owner in respect thereof is less than sum referred to in clause (a) amount so received or receivable would be ALV. In instant case, since property remained vacant for whole year and no rent was received, ALV should be computed at NIL as per clause (c) of sub-section 23(1) of Act. lower authorities do not examine this aspect and they have confined their deliberation on clauses (a) and (b). Since all three clauses are independent clauses and assessee falls within clause (c), determination of ALV should be as per clause (c) of section 23(1). 6. learned counsel for assessee further contended that property could not be let out in this year, because assessee could not get reasonable tenant during that year. Since no sum was received or receivable by assessee, there was no question of bringing any amount to tax as ALV of property was NIL. learned counsel for assessee has invited our attention to definition of word 'receivable' with reference to Black's Law Dictionary in which word 'receivable' had been defined as awaiting receipt of payment. It has also been defined as subject to call for payment or amount earned, but, not yet receipt. word 'receivable' was also explained by Bombay High Court in case of CIT v. J.K. Investors (Bombay) Ltd. [2001] 248 ITR 723 in which it has been held that under section 23(1)(b) word 'receivable' denotes payment of annual rent to assessee. However, if in given year portion of actual annual rent is in arrears, it would still come within section 23(1)(b) and it is for this reason that word 'receivable' must be read in context of word 'received' in section 23(1)(b). Their Lordship further held that in light of above interpretations, notional interest could not form part of actual rent as contemplated by section 23(1)(b) of Act. learned counsel for assessee further contended that under no circumstances, annual letting value determined by Assessing Officer and learned CIT(A) can be considered as receivable within meaning of section 23(1)(b) or (c) of Act. Whatever judgments were considered by Assessing Officer and CIT(A), they all pertains to old provisions of section 23. amended provisions of section 23 were not considered in any of those cases. In light of these facts, ALV of this property should be computed at NIL. 7. learned DR besides placing heavy reliance upon Order of lower authorities has submitted that provisions of clause (c) of section 23(1) can only be invoked when property is let during year and remained vacant for any part of previous year. impugned property was never let out, as such, provisions of clause (c) cannot be invoked. ALV rather to be computed under clause (a) of section 23(1) which Assessing Officer did. While determining ALV lower authorities have kept in mind amended provisions though they have not discussed clause (c) in their orders. 8. Having given thoughtful consideration to rival submissions and from careful perusal of record, we find that Assessing Officer has computed t h e ALV of impugned property as per clause (a) of section 23(1) and determined at 8.5 per cent of cost of property. Assessing Officer as well as CIT(A) did not examine scope of clause (c) of sub-section 23(1) though assessee has raised plea since beginning. During course of assessment proceedings, assessee has taken specific plea vide its letter dated 13-3-2006 before Assessing Officer that ALV should be computed as per provisions of clause 23(1)(c) of Act and since property remained vacant for whole year, annual value of property to be taken as NIL, but, Assessing Officer did not deliberate on this arguments of assessee i n his order. Through its letter dated 13-3-2006, Assessing Officer has explained three situations under which ALV is to be computed under section 23(1). Similar was position before CIT(A), but, none of lower authorities has examined this aspect while computing ALV of property and they have considered old provisions of section 23(1). 9. Section 23(1) was amended and substituted by new provision with effect from 1-4-2002 by Finance Act, 2001. impugned assessment year is 2003-04 and therefore amended section of 23 is applicable to present case and t h e amended section 23(1) contains three clauses dealing with different situations to compute annual value of any property. These three clauses are independent clauses and deals three type of situations. Clauses (a) and (b) are almost similar to old provisions with slight modifications and deal with two type of situations i.e., (1) determination of annual value for which property might reasonably be expected to let from year to year; (2) determination of annual value where property is let and annual rent received or receivable is in excess of this sum referred to in clause (a). old section 23(1) did not deal with that type of situation where annual rent received or receivable is lower than sum referred to in clause (a) on account property remained vacant during whole or any part of year. In order to remove this anomaly, clause (c) was inserted in new provision of section 23(1) and according to this clause (c) where property or any part of property is let and was vacant during whole or any part of previous year and in such case, actual rent received or receivable by owner in respect thereof, is less than sum referred to in clause (a), amount so received or receivable. 10. Having applied these three situations to facts of case, we are of view that assessee's case falls within third situation and annual value of property is to be computed as per sub-clause (c) of Act because property remained vacant for whole year. Since we have to deal with third situation, we feel it proper to reproduce clause (c) of sub-section 23 of Act and same is as under: Section 23(1)(c) "(c) Where property or any part of property is let and was vacant during whole or any part of previous year and owing to such vacancy actual rent received or receivable by owner in respect thereof is less than sum referred to in clause (a), amount so received or receivable." 11. During course of hearing, revenue has raised dispute that this clause (c) can only be invoked in those cases where property was let out in earlier years or in present year. Whereas, according to assessee, intention of letting out of property is to be seen for invoking clause (c) for computing annual letting value of property. It is irrelevant whether property is/was let out. 12. Now sole dispute is regarding interpretation of words 'property is let' in above clause (c). One interpretation suggested by learned DR is that property should be actually let out in relevant previous year. We find that this interpretation is not correct because as per this clause, property can be vacant during whole of relevant previous year. Hence, both these situations cannot co-exist that property is actually let out also in relevant previous year and property in same year is vacant also during whole of same year. We, therefore, reject this contention of learned DR of revenue. 13. second interpretation suggested by learned DR is that property should be actually let out during any time prior to relevant previous year and than only, it can be said that property is let and this clause will be applicable. Now, we examine this contention. First of all, we find that tense of verb used prior to word 'let' is present tense and not past tense. It means that provisions of above clause talk regarding relevant previous year and not of any earlier period and if that be so, this contention of learned DR is also not acceptable. Secondly, we find that even if this contention of learned DR of revenue is accepted, provisions of this clause (c) cannot be made applicable in first year, when property is acquired and same remained vacant because it could not be let out for want of tenant. This is so because there is no earlier period in that case prior to start of relevant previous year. This cannot be unsaid intention of Legislatures that provisions of this clause are not be applied in first year if property remained vacant for whole of first year in spite of efforts to let it out. Moreover, if this interpretation suggested by learned DR is accepted, it will lead to disastrous result because in that event, if property was let out in one year for any period, which can be even 1 month, than after that, such property will enjoy benefit of this clause (c) for any number of years if property remains vacant even if same was not intended to be let out in subsequent years including relevant previous year. 14. In view of above discussion, this interpretation can lead to situation, where person having several properties and all being let out for 1 month in any one year as discussed above and thereafter remained vacant with no intention to let out in subsequent years will enjoy status of let property in all such subsequent years and will become eligible for benefits of this clause in all such subsequent years and will become eligible for benefits of this clause in all such subsequent years without any actual let out in those years and even without any intention to let out in those subsequent years. This cannot be intention of Legislature. 15. We have seen that both interpretations suggested by learned DR of revenue are not workable. Now, we have to see as to what can be correct and workable interpretation of words 'property is let' in above clause (c). For this, we have to see and examine as to whether actual letting out i s must for property to fall within purview of this clause by satisfying requirement of words 'property is let' present in this clause. In this connection, we have noted above that actual let out even for day in present year and property remaining vacant for whole of present year cannot co-exist. This takes us to alternative that we should examine as to whether property was actually let out for some period in past i.e., prior to start of relevant previous year. In this context, first we examine as to whether to satisfy words 'property is let', actual let out for some period is necessary. At this juncture, we examine other sub-sections of section 23 and we find that sub-section (3) of section 23 reads as under:- "(3) provisions of sub-section (2) shall not apply- (a) house or part of house is actually let during whole or any part of previous year; or (b) any other benefit there from is derived by owner." 16. From above, we find that here, Legislatures in their wisdom have used words 'house is actually let'. This shows us that words 'property is let' cannot mean actual letting out of property because had it been so, there was no need to use word 'actually' in sub-section (3) of same section 23. Regarding scope of referring to actual let out in preceding period, we find no force in contention of DR, as Legislature has used present tense. Even if we interpret it so, it may lead to undesirable result because in some cases, if owner has let out property for one month or for even one day, that property will acquire status of let out property for purpose of this clause for entire life of property even without any intention to let it out in relevant year. Not only that, even if property was let out at any point of time even by any previous owner, it can be claimed that property is let out property because clause talks about property and not about present owner and since property was let out in past, it is let out property although, present owner never intended to let out same. In our considered opinion, it is not at all relevant as to whether property was let out in past or not. According to us, these words do not talk of actual let out also but talk about intention to let out. If property is held by owner for letting out and efforts were made to let it out, that property is covered by this clause and this requirement has to be satisfied in each year that property was being held to let out but remained vacant for whole or part of year. We feel that words 'property is let' are used in this clause to take out those properties from ambit of clause in which property are held by owner for self- occupation i.e., self-occupied property (i.e. SOP) because even income on account of SOP, excluding one such SOP of which annual value is to be adopted at nil, is also to be computed under this head as per clause (a) of section 23(1) if we see combined reading of sub-sections (2) and (4) of section 23. One thing is more important because we find that where Legislatures have considered that actual letting out is required, they have used words 'house is actually let'. This can be seen in sub-section (3) of same section 23. But in clause (c) above, 'actually let' words are not used and this also shows that meaning and interpretation of words 'property is let' cannot be 'property actually let out'. In our opinion, it talks of properties, which are held for letting out having intention to let out in relevant year coupled with efforts made for letting it out. If these conditions are satisfied, it has to be held that property is let and same will fall within purview of this clause. 17. In view of this interpretation of words 'property is let' in above clause (c), now we examine facts of present case. In present case, assessee is company. company can hold property either to use it for its own business or to let out. In present case, there was no business activity and there was no intention to use same for own business. Even if that is there, in that event also, no income can be assessed under head "Income from house property" in view of exclusion in section 22. other possible use can be to let out. 18. We have carefully examined material placed on record and we find from memorandum of association that assessee is entitled to purchase property for its let out and to earn rental income. Copies of resolutions of Board of Directors are also placed before us in both cases where from it is evident that one of Director was authorized to take necessary steps to let out property in question. They have also fixed monthly rent and security deposits of both properties. Consequent to resolutions, assessee has approached to various Estate and Finance Consultants for letting out properties and request was also duly acknowledged by Estate and Finance Consultants. series of correspondence are placed before us to demonstrate efforts made by assessee for letting out of its properties, but, unfortunately during year under appeal, assessee could not get suitable tenant on account of hefty rent and security deposits. correspondence exchanged between assessee and different property consultants are placed on record at page Nos. 31 to 100. From this correspondence, it is, noticed that assessee has approached various property consultants to let out its properties and during year, it could not get suitable tenant. From careful perusal of these documents, it has become evident that during whole year, assessee made its continuous efforts to let out properties and under these circumstances, this property can be called to be let out property in terms of our observations in foregoing paras. Since property has been held to be let out property, its annual letting value can only be worked out as per sub-clause (c) of section 23(1) of I.T. Act and according to this clause, rent received or receivable during year is NIL and as such same be taken as annual value of property in order to compute income from house property. We, therefore, order accordingly. 19. In result, appeals of assessee are allowed. *** PREMSUDHA EXPORTS (P) LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX
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