$ 23 & 26 * IN HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 03.11.2017 + ITA 931/2017 ANSAL HOUSING & CONSTRUCTION LIMITED .... Appellant versus ASSISTANT COMMISSIONER OF INCOME TAX Respondent + ITA 934/2017 ANSAL HOUSING & CONSTRUCTION LIMITED Appellant versus DEPUTY COMMISSIONER OF INCOME TAX ... Respondent Advocates who appeared in this case: For Appellant : Mr Ajay Vohra, Senior Advocate with Mr Gaurv Jain, Advocate. For Respondent : Mr Ashok Manchanda and Mr Raghvendra Singh, Advocates. CORAM:- HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON BLE MR. JUSTICE SANJEEV SACHDEVA S. RAVINDRA BHAT, J. (OPEN COURT) C.M. 39547/2017 (exemption) in ITA 931/2017 C.M. 39549/2017 (exemption) in ITA 934/2017 Allowed, subject to all just exceptions. ITA 931/2017 & 934/2017 Page 1 of 14 ITA 931/2017 & ITA 934/2017 1. present appeals by assessee, under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act ), arise out of common order dated 28.03.2017 passed by Income Tax Appellate Tribunal (ITAT) with respect to Assessment Years (AYs) 2005-06 and 2006-07. 2. assessee is aggrieved by findings of ITAT, which accepted revenue s appeal and held that unsold inventory of built- up residential houses/flats were subject to provisions of Section 22 read with Section 23 of Act and accordingly notional annual letting value was taxable in hands of Assessee under heads Income from House Property 3. assessee s contention that since flats/spaces occupied by it, were for purposes of its business (the profits of which were chargeable to Income Tax under profits and gains of business and profession), no notional annual letting value could be assessed/charged to tax under Section 23 of Act, was rejected by ITAT, relying on decision of this Court dated 31.10.2012 in assessee s own case ITA No. 18/1999 titled CIT Delhi versus M/s Ansal Housing Fin. Leasing Limited and other connected appeals. ITAT noticed that Assessee s claim that its property was stock- in- trade under head Income from Business , had been decided against it. 4. ITAT also noticed that Division Bench by judgment 26.07.2016 in assessee s case for AY 1994-95 reported at 389 ITR ITA 931/2017 & 934/2017 Page 2 of 14 373 had rejected reliance placed by assessee on decision of Supreme Court in case of Chennai Properties & Investments Limited versus CIT, (2015) 373 ITR 673 SC on ground that main object of Assessee was not letting out properties, (as was case in respect of Assessee in Chennai Properties (supra) where main object of Assessee was holding properties and earning income by letting out properties) but some other commercial activity. Factually, ITAT noticed that assessee was held commercial and residential flats and spaces for being sold to prospective buyers as its stock- in-trade for business purposes and were in self-possession till their sale. 5. assessee s counsel argued that in view of amendment to Section 23 of Act with effect from 1st April 2002 in assessee s case, annual letting value of properties held as stock in trade was to be considered as Nil . Counsel for assessee argues that Section 23(1)(c) of Act, inserted after amendment, applies in its case and where property was vacant for whole of previous year annual letting value shall be taken to be nil. Section 23(1)(c) of Act is reproduced below: Section 23- Annual value how determined (1) For purposes of section 22, annual value of any property shall be deemed to be - (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. ITA 931/2017 & 934/2017 Page 3 of 14 6. assessee relied on decision of Mumbai bench of ITAT in Premsudha Exports (P.) Ltd. v. Additional Commissioner of Income Tax, 110 ITD 158 (Mum) to argue that since flats held as stock in trade were vacant during whole of previous year, annual letting value of property would be taken as nil. relevant portion of ITAT s decision is reproduced below: 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 ITA 931/2017 & 934/2017 Page 4 of 14 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. 7. It is clear that ITAT concluded that only when property is held for letting out and efforts were made to let it out, would Section 23(1) (c) apply, to assist assessee. In present case, it is clear that neither properties held as stock in trade were for purpose of letting out, nor were efforts made to let them out and hence even going by ratio in Premsudha (supra), assessee s case would not be covered under Section 23(1) (c). More importantly however, this Court notices that ITAT s decision in Premsudha (supra) goes against decision of Andhra Pradesh High Court in Vivek Jain v. Assistant Commissioner of Income Tax, (2011) 337 ITR 74 (AP). In that case, Andhra Pradesh High Court, faced with task of interpreting Section 23(1)(c) of Act held: ITA 931/2017 & 934/2017 Page 5 of 14 7. Section 23(1) deals with three distinct situations enumerated in Clauses (a) to (c) thereunder. Under Clause (a) annual value of property is deemed to be sum for which property may reasonably be expected to let from year to year. Under Clause (b) where property, or any part thereof, 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 shall be actual value of property. While situation to which Clause (a) relates is where property has not been let out, (for it is in such event alone would question of sum for which property might reasonably be expected to be let from year to year arise), situation to which Clause (b) relates is when property, or any part thereof, has been let out. Clause (b) does not relate to situation where rent actually received, or receivable, is less than sum for which property may reasonably be let from year to year. While pre-amended Section 23 did not provide for such eventuality, Section 23 was amended by Finance Act, 2001 with effect from 01.04.2002, and Clause (c) was inserted to Section 23(1) to deal with such situation. Section 23 of Income Tax Act, which fell for consideration in Liquidator of Mahamudabad Properties Private Limited v. Commissioner of Income Tax, West Bengal-II, Calcutta (1980) 3 SCC 482, was as it stood prior to its amendment by Finance Act, 2001 with effect from 01.04.2002. assessment year, in present case, is 2002-2003 and it is amended Section 23 which is applicable, and not pre-amended provision. Under amended Section 23(1)(c) where property, or any part thereof, 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 shall be annual value of property. notes on clauses relating to amendment to Section 23(1) reads thus: Clause 14 seeks to substitute new section for Section 23 ITA 931/2017 & 934/2017 Page 6 of 14 of Income Tax Act relating to determination of annual value of house property. existing provision of said Section provides for determination of annual value of property in certain circumstances including where property is let, or is self-occupied, or is vacant, or is partially let, or is let for part of year. annual value so determined is subject to deductions allowable under Section 24, including deductions on account of vacancy for any part of year in respect of property let, and on account of rent which cannot be realized. It is proposed to substitute said section so as to provide for determination of annual value in certain circumstances specified in proposed new section after allowing deductions in computing annual value on account of vacancy and unrealized rent. This amendment will take effect from 1st April, 2002 and will, accordingly, apply in relation to assessment year 2002-03 and subsequent years. 8. effect of substitution of Section 23 has been elaborately dealt with in Departmental Circular No. 14 of 2001, relevant portion of which reads as under: 29.2. substituted Section 23 retains existing concept of annual value as being sum for which property might reasonably be expected to let from year to year i.e., annual letting value (ALV). However, in case of let out property, concept of "annual rent" has been removed. new section provides that where property or any part of property is let and actual rent received or receivable is in excess of ALV, amount so received or receivable shall be annual value. This will be case even if property (or part of property) was vacant for part of year, but actual rent received, or receivable during year is higher than ALV. Where property or any part of ITA 931/2017 & 934/2017 Page 7 of 14 property is let and was vacant during whole or any part of previous year and owing to such vacancy, actual rent received or receivable is less than ALV, sum so received or receivable shall be annual value. In case actual rent received or receivable during year is less than ALV, but not because of vacancy, it is ALV which shall be taken to be annual value. (emphasis supplied) 9. effect of amendment has been succinctly explained in Sampath Iyengar's Law of Income Tax (10th edition) as under: .... new section provides that higher of amount as between what is actually received or receivable and annual value in relation to what property might reasonably fetch if let from year to year would be adopted as annual value for purposes of determination of property income. In result, even where property is vacant for part of year, if rent received for remaining part is higher than annual value, it is such annual value which will be adopted because for component of actual rent what is receivable or received during year whichever is higher will have to be adopted, though it is not so expressly spelt out. But if actual rent received or receivable is less than annual letting value, but not because of vacancy, actual receipt will be annual value. This impact is more implied than express. But in view of Board's Circular No. 14 of 2001, this is matter which is required to be borne in mind, since such interpretation would dispense with need for zseparate deduction for vacancy allowance, though interpretation as now placed may not take into consideration, where property is vacant for major period during year. ITA 931/2017 & 934/2017 Page 8 of 14 (emphasis supplied) 10. While interpreting statute, Court may not only take into consideration purpose for which it had been enacted, but also mischief it seeks to suppress. (Sneh Enterprises v. Commissioner of Customs, New Delhi 2006 7 SCC 714.) It is evident that Clause (c) has been inserted as protection to Assessee in cases where, on account of vacancy, rent received or receivable on property which has been let out is less than sum referred to in Clause (a). Prior to its amendment, even in such cases it was sum referred to in Clause (a) which was to be taken as annual value of property. 11. In order to attract Section 23(1)(c), following requirements must be fulfilled (i) property, or any thereof, must be let; and (ii) it should have been vacant during whole or any part of previous year; and (iii) owing to such vacancy actual rent received or receivable by owner in respect thereof should be less than sum referred to in Clause (a). It is only if these three conditions are satisfied would Clause (c) of Section 23(1) apply in which event amount received or receivable, in terms of Clause (c) of Section 23(1), shall be deemed to be annual value of property. Clause (c) does not apply to situations where property has either not been let out at all during previous year or, even if let out, was not vacant during whole or any part of previous year. Under explanation to Section 23(1), for purposes of Clause (b) or (c), amount actually received or receivable by owner shall not include amount of rent which owner cannot realize. Self-occupation by owner of house would require annual value of such house, or part of house, to be taken as nil under Section 23(2)(a) and, where house cannot actually be occupied by owner on account of his employment, business or profession, as nil under Section 23(2)(b) provided that, in terms of Section 23(3)(a), house or part of house had not actually been let during ITA 931/2017 & 934/2017 Page 9 of 14 whole or any part of previous year. As legal fiction is created word "actually", as used in Section 23(3)(c), does not find mention in Section 23(1) of Act. 12. construction placed on Section 23(1)(e), by Sri B. Chandrasen Reddy, Learned Counsel for Petitioner, that if there is intention to let out property during relevant year, coupled with efforts being made for letting it out, it must be held property is let, would necessitate reading words into Section 23(1)(c) which do not exist. words "where property is let" cannot be read as "where property is intended to be let". Provisions of tax statute must be strictly construed. words of statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning. (Gurudevdatta VKSSS Maryadit v. State of Maharashtra 2001(4) SCC 534. legislature may be safely presumed to have intended what words plainly say. (Bhaiji v. Sub-Divisional Officer, Thandla 2003 (1) SCC 692). 14. contention that, as Clause (c) provides for eventuality where property can be vacant during whole of relevant previous year, both situations i.e., "property is let" and "property is vacant for whole of relevant previous year" cannot co-exist does not merit acceptance. Clause (c) encompasses cases where property is let out for more than year in which event alone would question of if being vacant during whole of previous year arise. property let out for two or more years can also be vacant for whole of previous year bringing it within ambit of Clause (c) of Section 23(1) of Act. 15. contention that, if owner had let out property even for day, it would acquire status of let out property' for purpose of Clause (c) for entire life of property even without any intention to let it out in relevant year is also not tenable. circumstances in which ALV of house property should be taken as NIL is as specified in Section 23(2) of Act. Under Section 23(1)(c) period for which let out property may remain vacant cannot exceed period ITA 931/2017 & 934/2017 Page 10 of 14 for which property has been let out. If property has been let out for part of previous year, it can be vacant only for part of previous year for which property was let out and not beyond. For that part of previous year during which property was not let out, but was vacant, Clause (c) would not apply and it is only Clause (a) which would be applicable, subject of course to Sub-sections (2) and (3) of Section 23 of Act. Such construction does not lead to any hardship, inconvenience, injustice, absurdity or anomaly and, therefore, rule of ordinary and natural meaning being followed cannot be departed from. (Sneh Enterprises2). We are in agreement with interpretation of Section 23(1)(c) by Tribunal, and are of opinion that benefit thereunder cannot be extended to case where property was not let out at all. 16. We find no merit in submission that words "property is let" are used in Clause (c) to take out those properties which are held by owner for self-occupation from ambit of said clause. As noted hereinabove, Section 23(2)(a) takes out self-occupied residential house, or part thereof, from ambit of Section 23(1) of Act. Likewise, under Section 23(2)(b), where house cannot actually be occupied by owner, on account of his carrying on employment, business or profession at any other place requiring him to reside at such other place in building not belonging to him, annual value of property is also required to be treated as nil, thereby taking it out of ambit of Section 23(1) of Act. Section 23(3)(a) makes it clear that Section 23(2) would not apply if house, or part thereof, is actually let during whole or any part of previous year. Thus only such of properties which are occupied by owner for his residence, or which are kept vacant on account of circumstances mentioned in Clause (b) of Section 23(2), fall outside ambit of Section 23(1) provided they are, as stipulated in Section 23(3)(a), not actually let during whole or part of previous year. Clause (c) was not inserted to take out from its ambit properties held by owner for self-occupation in as much as Section ITA 931/2017 & 934/2017 Page 11 of 14 23(2)(a) provides for such eventuality. It is only to mitigate hardship faced by Assessee, and as Clause (b) does not deal with contingency where property is let and, because of vacancy, actual rent received or receivable by owner is less than sum referred to in Clause (a), was Clause (c) inserted. In cases where property has not been let out at all, during previous year under consideration, there is no question of any vacancy allowance being provided thereto under Section 23(1)(c) of Act. 8. Thus, Andhra Pradesh High Court s view is that vacancy allowance in Section 23(1)(c) is applicable where property is let out and was vacant for whole or any part of previous year and owing to such vacancy, actual rent received or receivable by owner was lesser than annual letting value in Section 23(1)(a). Thus, decision in Vivek Jain (supra) is clear on point that in case where property has been let out for more than one year, if in one of those years, owing to vacancy for entire year, rent received or receivable is lower than annual letting value, then assessee would be entitled to take benefit of Section 23(1)(c). In present case however, properties held as stock in trade were not let out for any previous years either, and hence there would be no question of availing vacancy allowance given in Section 23(1)(c). This Court is in agreement with views of Andhra Pradesh High Court in Vivek Jain (supra), that actual letting out of properties in concerned year, or any of previous years, is essential for application of Section 23(1)(c). Since none of properties held as stock in trade were actually ever let out, Section ITA 931/2017 & 934/2017 Page 12 of 14 23(1)(c) cannot come to assessee s aid. 9. Furthermore there is no dispute that effect of amendment, inserting Section 23(1)(c), would not be to change incidence of taxability of properties held as stock in trade. Therefore, this Court s finding that such properties were to be assessed as income from house property and not income from business or profession , in its judgement dated 31.10.2012, would be good law, even in view of insertion of Section 23(1)(c). That being position, in assessee s case, properties held as stock in trade will be taxable under notional annual letting value method prescribed under Section 23(1)(a), since in view of decision in Vivek Jain (supra), assessee cannot claim benefit of Section 23(1)(c) having never actually let out properties held as stock in trade. 10. Finally, this Court notices that Finance Act, 2017 has amended Section 23 of Act to insert sub-section (5), which provides: (5) Where property consisting of any building or land appurtenant thereto is held as stock-in-trade and property or any part of property is not let during whole or any part of previous year, annual value of such property or part of property, for period up to one year from end of financial year in which certificate of completion of construction of property is obtained from competent authority, shall be taken to be nil. 11. Therefore, it is clear that in assessee s factual situation, sub- section (5) would be squarely applicable, but for fact that sub- section (5) has been inserted w.e.f. 1 April 2018. Moreover, sub- ITA 931/2017 & 934/2017 Page 13 of 14 section (5) does not use language which would indicate that it has been inserted as clarification (which would make clear that it was always legal position) or by way of abundant caution. amendment therefore clearly applies prospectively and since separate sub-section was inserted in Section 23, it is clear that legislative intent is that peculiar situation in sub-section (5) was not already covered by sub-section (3). That being case, for relevant assessment years, properties held as stock in trade would be taxable on basis of notional annual letting value under Section 23. 12. In view of above, we are of opinion that no substantial question of law arises in these Appeals. 13. Appeals are accordingly dismissed. S. RAVINDRA BHAT (JUDGE) SANJEEV SACHDEVA (JUDGE) NOVEMBER 03, 2017/rs ITA 931/2017 & 934/2017 Page 14 of 14 Ansal Housing & Construction Limited v. Assistant Commissioner of Income-tax