IN THE ITAT MUMBAI BENCH ‘C’

Premsudha Exports (P.) Ltd.

v.

Assistant Commissioner of Income-tax, Central Circle 10, Mumbai

SUNIL KUMAR YADAV, JUDICIAL MEMBER

AND A.K. GARODIA, ACCOUNTANT MEMBER

IT APPEAL NOS. 6277 AND 6278 (MUM.) OF 2006

[ASSESSMENT YEAR 2003-04]

MAY 31, 2007

Section 23 of the Income-tax Act, 1961 - Income from house property - Annual value - Assessment year 2003-04 - Whether words, ‘property is let’ as appearing in section 23(1)(c) mean actual letting out of property - Held, no - Whether if a property is held with an intention to let out coupled with efforts made for letting it out, it could be said that, such a property is a let out property and, therefore, its annual letting value would be worked out as per clause (c) of section 23(1) - Held, yes

Words and phrases : Words ‘property is let’ as appearing in section 23(1)(c) of the Income-tax Act, 1961

Facts

The assessee-company was engaged in the business of export of diamonds. As per the Memorandum of Association, the assessee was also entitled to purchase the property for letting it out and to earn rental income. The assessee had purchased a property. During the previous year, the said property remained vacant, though the assessee made continuous efforts to let out the property. The assessee submitted that the Annual Letting Value (ALV) of the property should be computed as per provisions of clause (c) of section 23(1), and that since the property remained vacant for the whole year, the ALV of the property had to be taken as nil. The Assessing Officer did not deliberate on the submission of the assessee and computed the ALV of the impugned property as per clause (a) of section 23(1) and determined it at 8.5 per cent of the cost of property.

On appeal, the Commissioner (Appeals) upheld the action of the Assessing Officer.

On second appeal :

Held

It was the case of the revenue that clause (c) of section 23(1) can only be invoked in those cases where the property was let out in earlier years or in the present year. The assessee, on the other hand, contended that the intention of letting out the property was to be seen for invoking clause (c) of section 23(1) for computing the annual letting value of the property and it was irrelevant whether the property is/was let out. [Para 11]

Therefore, the sole dispute, in the instant case, was regarding the interpretation of the words ‘property is let’ in clause (c) of section 23(1). One interpretation suggested by the revenue was that the property should be actually let out in the relevant previous year. This interpretation was not correct, because as per clause (c) of section 23(1), the property can be vacant during whole of the relevant previous year. Hence, both these situations cannot co-exist that the property is actually let out also in the relevant previous year, and that the property in the same year is vacant also during whole of the same year. [Para 12]

The second interpretation suggested by the revenue was that the property should be actually let out during any time prior to the relevant previous year and then only, it could be said that the property is let out and clause (c) would be applicable. The tense of the verb used prior to the word ‘let’ is present tense and not past tense. It means that the provisions of clause (c) talk regarding the relevant previous year and not of any earlier period and if that be so, the contention of the revenue was not acceptable. [Para 13]

Now the question arose as to what would be the correct and workable interpretation of the words ‘property is let’ in clause (c) of section 23(1). For this, it is to be determined as to whether actual letting out is a must for a property to fall within the purview of clause (c) of section 23(1). [Para 15]

From a reading of the provisions of sub-section (3) of section 23, it appears that the Legislatures in their wisdom have used the words ‘house is actually let’. This shows that the words ‘property is let’ cannot mean actual letting out of the property because had it been so, there was be no need to use the word ‘actually’ in sub-section (3) of section 23. Regarding the scope of referring to actual letting out in preceding period, there was no force in the contention of the revenue, as the Legislature has used the present tense. Even if it is interpreted 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 would acquire the status of ‘let out property’ for the purpose of clause (c) of section 23(1) for the entire life of the property, even without any intention to let it out in the relevant year. Not only that, even if the property was let out at any point of time even by any previous owner, it could be claimed that the property is let out property because the clause talks about the property and not about the present owner and since the property was let out in past, it is a let out property, although the present owner never intended to let out the same. Therefore, it is not at all relevant as to whether the property was let out in past or not. These words do not talk of actual let out also but talk about the intention to let out. If the property is held by the owner for letting out and efforts are made to let it out, that property is covered by clause (c) and this requirement has to be satisfied in each year that the property was being held to let out but remained vacant for whole or part of the year. Above discussion shows that meaning and interpretation of the words ‘property is let’ cannot be ‘property actually let out’. Thus, if a property is held with an intention to let out in the relevant year coupled with efforts made for letting it out, it could be said that such a property is a let out property and the same would fall within the purview of clause (c) of section 23(1). [Para 16]

In the instant case, the assessee-company was entitled to purchase the property for its let out and to earn rental income. Copy of resolution of board of directors was also placed on record, where from it was evident that one of the directors was authorized to take necessary steps to let out the property in question. The assessee had also fixed the monthly rent and the security deposits of the property. Consequent to the resolution, the assessee had approached various Estate and Finance Consultants for letting out the property and the request was also duly acknowledged by the Estate and Finance Consultants. Unfortunately, during the year under appeal, the assessee could not get the suitable tenant on account of hefty rent and security deposits. Thus, during the whole year, the assessee made continuous efforts to let out the property and under these circumstances, this property could be called to be let out property in terms of observations made in foregoing paras. Since the property had been held to be let out property, its annual letting value could only be worked out as per clause (c) of section 23(1) and since the rent received or receivable from the said property during the year was nil the same was to be taken as the annual value of the property in order to compute the income from house property. [Para 18]