When property let out earlier was vacant for a year then addition of notional rent income is not allowed
Facts and Issues of the case
The assessee’s source of income is rental receipts However, in between for the assessment year 2012-13 to 2014-15 the assessee did not receive any rental income as the whole commercial property was lying vacant. The assessee has filed its return of income for the assessment year 2013-14 on 29.09.2013 admitting loss of Rs.74,61,184/- under the head ‘income from house property’.
During the course of assessment proceedings, the Assessing Officer noticed that the assessee has adopted gross annual value at Nil for the property, as the same was vacant throughout the year, therefore, after considering relevant submissions of the assessee computed annual value of the property as per provisions of section 23(1)(a) of the Income Tax Act, 1961, and determined gross annual value of Rs.1,15,94,161/- and computed income from house property at Rs.23,91,146/- .
Observations by the Court
The Court has heard both the parties, perused material available on record and gone through orders of the authorities
It is very clear that provisions of section 23(1) (c) of the Income Tax Act, 1961 does not apply, in case below. As per provisions of section 23(1) of the Act, for the purpose of section 22, annual value of any property shall be deemed to be sum for which property might reasonably be expected to let from year to year and 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 the owner in respect thereof is less than sum referred to in clause (a) amount so received or receivable will be annual value of the property. As per plain reading of section 23(1)(c), if any property was let and was vacant during whole or any part of previous year, then annual value of said property should be computed in terms of provisions of section 23(1)(c) of the Act.
In this case, there is no dispute with regard to fact that property owned by the assessee was let right from assessment year 2008-09 to 2011- 12, however, same was vacant due to non-availability of tenants for the assessment year 2012-13 to assessment year 2013-14. But, same property was again let out from the assessment year 2015-16 onwards. The assessee has computed Nil annual letting value of the property in terms of provisions of section 23(1) (c) of the Act, whereas the Assessing Officer has determined annual value in terms of provisions of section 23(1) (a) of the Act. According to Assessing Officer, in order to apply provisions of section 23(1) (c) of the Act, property must be let out during the previous year and it should be vacant for any part of the previous year.
However, if the property is let out for two or more years and was vacant for whole or any part of the previous year, then said property would come within ambit of provisions of section 23(1)(c) of the Income Tax Act, 1961. In this case, property was let out earlier; however, it was vacant during the impugned assessment year owing to non- availability of tenants.
It is not the case of the Assessing Officer that property was not at all let out. In fact, the Assessing Officer has admitted fact that property was let out, but was vacant for the impugned assessment year alone. Further, the assessee has made his best efforts to let out the property which is evident from e-mail correspondence between the assessee and agents however, could not get tenants for relevant period.
We are of the considered view that the Assessing Officer has erred in computing annual letting value of the property in terms of section 23(1)(a) of the Act.
The provisions of section 23(1) (c) are applicable when the property was let out for two or more years but not when it was vacant for the whole previous year. Thus, income tax on rental income on a notional basis does not apply.Asfa-Technologies-BPO-Pvt.-Ltd.-Vs-ITO-ITAT-Chennai
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