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ACIT,Circle 47 (1), New Delhi. Vs. Dr. Prabha Sanghi,72, Janpath, 2nd Floor, New Delhi.
September, 20th 2012
                 IN THE INCOME TAX APPELLATE TRIBUNAL
                       DELHI BENCH : F : NEW DELHI

                 BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER
                                   AND
                 SHRI T.S. KAPOOR, ACCOUNTANT MEMBER

                          ITA No.2217/Del/2010
                        Assessment Year : 2004-05

ACIT,                                Vs.   Dr. Prabha Sanghi,
Circle 47 (1),                             72, Janpath, 2nd Floor,
New Delhi.                                 New Delhi.

                                           PAN : AALPS1197D

     (Appellant)                               (Respondent)

             Assessee by         :    Shri Pradeep Dinodia, Advocate
             Revenue by          :    Shri K.K. Mishra, Sr.DR


                                     ORDER

PER A.D. JAIN, JUDICIAL MEMBER

      This is an appeal filed by the department for Assessment Year
2004-05 against the order dated 18.02.2012 passed by the CIT (A)-
XXX, New Delhi, taking the following grounds:-


      "On the facts and in the circumstances of the case and in law,
      the ld. CIT (A) has erred in :-

      1. applying the provision of Section 23 (1)(c) in respect of
      property at A-6A, Maharani Bagh, New Delhi, whereas this
      property has never been let out any time during the relevant
      previous year;

      2. ignoring to apply the provision of Sec.23(4)(b) in so far as the
      assessee is the owner of three immovable properties, land
      accordingly has to give option for inclusion of income from
      house property so specified by her;

      3. selectively applying the provision of Sec.23 (1)(c) to one
      vacant property and applying Sec.23 (4) (b) to another;
                                    2                 ITA No.2217/Del/2010






      4. applying the standard rate of MCD in determining the annual
      letting value, whereas the assessee has previously herself let
      out the two properties at a much higher rent;

      5. relying upon the decision in the case of Kamal Mishra v ITO
      [2008] 19 SOT 251 (Delhi), when the facts of the case are
      distinguished from the assessee's case."


2.    Vide assessment order dated 19.12.2006, the A.O. made an
addition of ` 13,83,270/- to the income of the assessee, on account of
property income. It was observed that the assessee was owner in
possession of a number of properties, whereas she had shown income
from house property at Nil. She was asked to explain as to why the
rent received in F.Y.s 2001-02 and 2002-03 in respect of properties
bearing No.1-A and No.2, Ring Road and No.A-6 A, Maharani Bagh, be
not deemed to attract annual letting value u/s 23(4) (b) of the IT Act,
for the year under consideration. In response, the assessee submitted
that the property at 2, Ring Road was self occupied and so, it did not
have any annual letting value, whereas the other two properties had
remained vacant throughout the year, due to which, the rent received
was nil, in accordance with the provisions of Section 23 (1)(c) of the
Act. The A.O., however, opined that the provisions of section 23 (4)(b)
of the Act were attracted. As such, she (the A.O.) took the rent for the
Maharani Bagh property at ` 12,76,104/-, the rent qua this property for
Assessment Years 2000-01 and 2001-02 having been shown at `
1,06,342/- per mensem. The rent of the property bearing No.1-A, Ring
Road, was taken at ` 6,99,996/-, the rent for this property having been
shown for assessment years 2001-02 and 2002-03 at ` 58,333/- per
mensem.     The total of both the rents thus arrived at came to `
19,76,100/-. Deducting therefrom repair/renovation @ 30% amounting
to ` 5,92,830/-, the A.O. arrived at the net property income of `
13,83,270/-, which she added to the assessee's income.
                                    3                 ITA No.2217/Del/2010



3.    By virtue of the impugned order, the ld. CIT (A) deleted the
addition of ` 12,76,104/- regarding Maharani Bagh property, taking the
ALV in respect thereof to be nil.    Apropos the property at A-1, Ring
Road, the ALV was taken at ` 28,620/-, the figure determined by the
MCD and restricted the addition from ` 6,99,996/- to the said amount
of ` 28,620/-.


4.    Aggrieved, the Department is in appeal.


5.    Challenging the impugned order, the ld. DR has contended that
as regards the Maharani Bagh property, the ld. CIT (A) erred in
applying the provisions of section 23 (1)(c) of the Act, ignoring the fact
that this property was never let out during the year; that the ld. CIT
(A) erred in not applying the provisions of section 23 (4) (b) of the Act,
even though the assessee, being owner of three properties, had to give
her option for inclusion of income from house property, which was
never done; that the ld. CIT (A) erred in applying, selectively, the
provisions of section 23 (1)(c) to one vacant property and those of
section 23 (4) (b) to another; that the ld. CIT (A) further erred in
applying the standard rate of the MCD in determining the ALV of the 1-
A, Ring Road property of the assessee, ignoring the fact that the
assessee had herself earlier let out the two properties at a much
higher rent; and that the ld. CIT (A) went wrong in relying on "Kamal
Mishra vs. ITO", 19 SOT 251 (Del), though the facts of the said case are
entirely distinguishable from those in the case at hand.


6.    The learned counsel for the assessee, on the other hand, has
strongly relied on the impugned order. It has been contended that the
ld. CIT (A) has rightly taken the factual as well as legal position into
consideration while passing the order under appeal; that the A.O. had
not carried out any exercise to establish the rental value sought to be
                                     4                  ITA No.2217/Del/2010



assigned to the properties of the assessee and had merely gone by the
rentals received by the assessee in the earlier year, and had wrongly
completed the assessment on that basis, even though the properties
were never let out during the year; that apropos the Maharani Bagh
property, due to expiry of lease with the previous tenant, National
Highway Authority of India, the property was vacated on 15.10.2001
and during the year, no rent had been received by the assessee; that
the property had been lying vacant and the assessee had also moved
an application for fixing of ALV with the MCD w.e.f. 1.4.99; that on
inspection of the property, the MCD fixed its rental value at ` 34,600/-
w.e.f. 16.10.01; that the A.O., however, erroneously fixed the ALV of
the property a t ` 12,76,104, wrongly applying the provisions of section
23 (4) (b) of the Act, instead of the provisions of section 23 (1)(c) of the
Act, which were the correct provisions applicable, though the A.O.
stood duly furnished with all the facts as above, pertaining to this
property; that the A.O erroneously failed to consider that the
provisions of section 23 (1)(c) of the Act over-ride those of section 23
(4) (b) inasmuch as Section 23 (4) (b) leads back to Section 23 (1)(c),
due to which, the ALV has to be adopted at nil, since the property
remained vacant throughout the year; that concerning the 1-A, Ring
Road property, the position remained much the same as in the case of
the Maharani Bagh property; that the Ring Road property, like the
Maharani Bagh property, remained vacant during the entire year, since
the lease with the previous tenant had expired and the A.O. was duly
informed about these facts, as also of the fact that here too, the MCD
had, on the basis of inspection, fixed the rental value at ` 28,620/-;
that the MCD's valuation documents with regard to both the properties
were duly filed before the A.O on 12.12.06, but the A.O. wrongly
ignored them; that though specifically requested to do so, the A.O. did
not conduct any inspection of the vacant properties to reassess the
rental value thereof and arbitrarily fixed the ALV of the properties at
                                       5                 ITA No.2217/Del/2010



figures much higher than those fixed by the MCD, without bringing on
record any evidence to the effect that the assessee had not disclosed
the actual rent received, or that whereas the property had been given
on rent and was not lying vacant during the year, the assessee had
concealed such facts; that rather, there was nothing with the A.O. to
disbelieve the factum of the vacancy of these properties during the
entire year; that also, there was nothing available with the A.O. to
show that the ALV fixed by the MCD was incorrect and that that taken
by the A.O. was the correct ALV; that the ld. CIT (A) has not at all erred
in following "Kamal Mishra" (supra), wherein the attending facts were
similar to those of the case of the assessee; that the ld. CIT (A) also
correctly took note of the fact that "Kamal Mishra" (supra) was
followed in "ACIT vs. M/s Mayur Recreational and Development Ltd.",
AIT 2008 189 ITAT (SB) (Del); that therefore, the ld. CIT (A) correctly
deleted the addition of ` 12,76,104/- made in respect of the Maharani
Bagh property and restricted the addition from that of ` 6,99,996/- to
that of ` 28,620/- qua the 1-A, Ring Road property; and that therefore,
there being no force therein, the appeal filed by the Department be
dismissed.


7.    The assessee has also filed a synopsis before us, which we
consider it relevant to reproduce (relevant portions) hereunder:-

      "1.     Admittedly, the facts of the case are that the appellant
      Dr. Prabha Sanghi owns three house properties as under:-


      1. 2, Ring Road, Kilokri, New Delhi.
      2. I-A, Ring Road, Kilokri, New Delhi.
      3. A-6A Maharani Bagh, New Delhi.

             In all the above three properties, the assessee has partial
      interest.

      2.    Admittedly, out of the above three properties, the
      property located at 2, Ring Road, Kilokri, New Delhi, is self
      occupied and has always been self-occupied and is therefore,
                                 6                    ITA No.2217/Del/2010



not liable to tax u/s 23(2) of the Income Tax Act. There is no
dispute with regard to this property.

3.    Admittedly, the remaining two properties viz., I-A, Ring
Road, Kilokri, New Delhi, and A-6A, Maharani Bagh, New Delhi,
had been on rent with public sector undertakings in the earlier
years , but have been lying vacant during the previous year
relevant to assessment year 2004-05. Admittedly, no rent was
received or receivable, nor any other income was derived from
the two properties throughout the previous year 2003-04
relevant to assessment year 2004-05.

4.      The municipal valuation of the property located at I-A,
Kilokri, New Delhi, was at the annual ratable value of Rs.
28,620/- with effect from 1.2.2003 and it was Rs. 34,600/- in
respect of the property located at A-6A, Maharani Bagh, New
Delhi, with effect from 16.10.2001. These ratable values fixed by
the MCD were prevalent during the previous year in question.

5.     Based on the above mentioned undisputed admitted
facts, the A.O. invoked section 23(4 )(b) of the Act and
determined the ALV of these two properties as per page 2, para
2, of his order as under:-

    "Hence, on the basis of rent received in previous years 2001-02
    and 2002-03 in respect of following properties, except one for
    residential purpose, may be deemed as annual letting value u/s
    23(4)(b) of the Income Tax Act. Income from house property is
    computed as under:-

    1. Rent from A,6A, Maharani Bagh as shown in
    A Y 2000-01 & 2001-02 @Rs.106342x12 months. Rs.12,76,104

    2. Rent shown for the property I-A Ring Road
    in A Y 2001-02&2002-03 @Rs.58333x12 months. Rs. 6,99,996
                                                 -------------------
                    Total income                 Rs.19,76,100
    Less Repair/renovation @ 30%                 Rs. 5,92,830
                                                  ------------------
            Net property income                  Rs. 13,83,270

6.    The CIT (Appeals), per contra, determined the ALV of the
two properties as under:-

     A-6A, Maharani Bagh, New Delhi.          NIL
     I-A, ring Road, Kilokri, New Delhi.      Rs. 28,620/-
     (Ref: page 12, last para of CIT(A)'s order).
                                7                   ITA No.2217/Del/2010



7.   The scheme of the Income Tax Act for determination of
income from house property is contained in Chapter IVC of the
Income Tax Act.

8. There is no dispute that the property in question is under the
ownership and in possession of the appellant (sic assessee).
Therefore, it comes within the rigour of the provisions of section
22 of the Act.

9. The dispute between the appellant and the Department is
confined to heading contained in Chapter lVC of the Act i.e.
Annual Value how determined? This is contained in section 23
which is reproduced hereunder:-

   Annual
   Annual value how determined.

   For the purposes of section 22, the annual value of any
   property shall be deemed to be

   (a) the sum for which the property might reasonably be
   expected to let from year to year; or

   (b) where the property or any part of the property is let
   and the actual rent received or receivable by the owner
   in respect thereof is in excess of the sum referred to in
   clause (a), the amount so received or receivable; or

   (c) 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 actual rent
   received or receivable by the owner in respect thereof is
   less than the sum referred to in clause (a), the amount
   so received or receivable.

   Provided that the taxes levied by any local authority in
   respect of the property shall be deducted (irrespective
   of the previous year in which the liability to pay such
   taxes was incurred by the owner according to the
   method of accounting regularly employed by him) in
   determining the annual value of the property of that
   previous year in which such taxes are actually paid by
   him.

   Explanation - For the purposes of clause (b) or (c) of this
   sub-section, the amount of actual rent received or
   receivable by the owner shall not include, subject to
   such rules as may be made in this behalf, the amount of
   rent which the owner cannot realize.
                                 8                   ITA No.2217/Del/2010



   (2) Where the property consists of a house or part of a
   house which-

   (a) is in the occupation of the owner for the purposes of
   his own residence; or

   (b) Cannot actually be occupied by the owner by reason
   of the fact that owning to his employment, business or
   profession carried on at any other place, he has to
   reside at that other place in a building not belonging to
   him, the annual value of such house or part of the house
   shall be taken to be nil.

   (3) The provisions of sub-section (2) shall not apply if -

   (a) the house or part of the house is actually let during
   the whole or any part of the previous year; or

   (b) any other benefit there from is derived by the owner.

   (4) Where the property referred to in sub-section (2)
   consists of more than one house-

   (a) the provisions of that sub-section shall apply only in
   respect of one of such houses, which the assessee may,
   at his option, specify in this behalf;

   (b) the annual value of the house or houses, other than
   the house in respect of which the assessee has
   exercised an option under clause (a), shall be
   determined under sub-section (1) as if such house or
   houses had been let.] "

10.    Now, as per Section 23 of the Act, the procedure to be
followed for determining the annual value in respect of the two
properties, the first step is - "to determine" the sum for which
the property might reasonably be expected to let from year to
year. It is now well settled that it would be the municipal ratable
value, or the standard rent as per the local Rent Control Act,
whichever is higher. This would be covered under section
23(1)(a). In this case, it would be Rs. 28,620/- for l-A, Ring Road,
Kalokri, New Delhi, and Rs.34,600/- for A-6A, Maharani Bagh,
New Delhi. This is well settled by a plethora of judgments of
Hon'ble Supreme Court and various High Courts. Ref: Sheila
Kaushish vs. CIT (1981) 131 ITR 435 (SC); Amolak Ram Khosla
vs. CIT (1981) 131 ITR 589 (SC); Dewan Daulat Ram Kapoor vs.
NDMC (1980) 122 ITR 700 (SC); Dr. Balbir Singh vs. MCD (1985)
152 ITR 388 (SC); CIT vs. Mayur Recreational & Development
Ltd. (AIT-2008-189-ITA-SB); CIT vs. Raghubir Salan Charitable
Trust 183 ITR 297 ­ (Delhi High Court); L. Bansidhar & Sons HUF
                                9                   ITA No.2217/Del/2010



201 ITR 655 (Delhi HC); CIT vs. Vinay Bharat Ram & Sons (HUF)
261 ITR 632 (Delhi High Court).

11. Therefore, on the first principle above, there is no mandate
in section 23(1 )(a) to take the annual rent derived in the
previous years, when the property was tenanted, as the ALV in
the current year, when the property is admittedly vacant.
Therefore, the AO, in any case, was not empowered to take Rs.
12,76,104/- and Rs.6,99,996/- as the ratable value of the two
vacant properties in the year under consideration, even if he
sought to apply section 23(4)(b), because section 23(4)(b) again
refers to section 23 (1)(a) for determination of the ALV.

12.    The second step u/s 23(1)(b) is to determine if actual rent
received or receivable is higher than the one determined above
u/s 23(1)(a) . In this case, admittedly, No Rent, No Agreement of
tenancy, property vacant, therefore, computation u/s 23(1 )(b)
fails and it would be NIL in the present case.

13.   The third step is to determine whether any part of the
property was let out and was vacant either during the whole or
any part of the previous year and owing to such vacancy, the
annual rent received or receivable by the owner in respect
thereof was less than the sum referred to in sub-clause (a) than
the amount so received or receivable.

14.    The third step as mentioned above as per section 23(1)(c)
in this case would be for I-A, Ring Road, Kilokri, New Delhi, in
respect of which the amount would be Rs.28,620/- or NIL
whichever is lower and, therefore, NIL, and in the case of A-6A,
Maharani Bagh, New Delhi, this would be Rs. 34,600/- or NIL
whichever is lower, thus NIL. Therefore, the third step would
reduce the ALV u/s 23(1) of the Act to nil and this is also now
well settled by various judgements placed on record by the
appellant (sic assessee) viz., Kamal Mishra Vs. ITO 19 SOT 251
(Del), Premsudha Exports Ltd., Vs. ACT 110 TTJ 89 (Mum), Smt.
Shakuntala Devi Vs. DCIT 2012-TIOL-64-ITAT (Bang,).

15    The scheme of section 23 of the Act provides as under:-

       Sub-section (2) of section 23 speaks of 'the property'. In
this case, it would refer to A-I, Ring Road, Kilokri,New Delhi, and
A-6A, Maharani Bagh, New Delhi, and attribute to that property
consisting of a house or a part of a house which is in the
occupation of the owner for the purpose of her own residence.

16.   In a situation wherein if these properties were in the
occupation of the owner herself, then sub-section (2) provides
that ALV of such a house shall be taken as nil. Sub-section (2),
therefore, provides for exemption to self-occupied house
                                 10                    ITA No.2217/Del/2010






irrespective of the result of computation uls 23(1). In the case of
the appellant (sic assessee), the result is nil both under the
computation provisions of u/s 23(1) of the Act as well as u/s
23(2), if so applied. It is further not the case of the appellant (sic
assessee) that these houses were in her self occupation. The
case of the appellant (sic assessee) is that both these were let
out for the last many years and were, unfortunately, vacant
during the previous year relevant to the assessment year.
Therefore, according to the appellant (sic assessee), sub-section
(2), even though it grants some concession to the tax-payer, is
not relevant for the controversy at hand.

17. Sub-section (3) is again irrelevant because it puts further
conditionalities for grant of relief under sub-section (2) in
respect of self occupied houses, but admittedly the assessee has
derived no benefit from these two properties during the previous
year nor have the properties been let out during whole or any
part of the previous year. Therefore, even if sub-section (3) is
applied, the result would again be nil.

18.      The last part is sub-section (4) which again goes back to
the word 'the property' referred to in sub-section (2) consisting
of more than one house i.e. if an assessee has three houses, all
in its occupation, then according to clause (a), sub-section (4),
the concession provided in sub-section (2) would be restricted to
one house property only and the other two would have to suffer
the consequences of section 23 (1) and have ALV determined on
these according to section 23(1) of the Act. In the case of the
appellant (sic assessee), it, again, is irrelevant for the reason
that it is not the case of the appellant (sic assessee) that these
two properties were in her self-occupation, but were lying vacant
throughout the previous years relevant to the assessment year
under consideration. For the sake of argument, even if sub-
section (4) is applied, it again leads back to section 23(1)
because it only restricts the exemption granted under sub-
section (2) to only one house property; the other two, according
to sub-section (4) would have to suffer the consequences of
determination of ALV u/s 23(1) of the Act. This is made clear in
the last part of section 23( 4)(b) wherein it says that the annual
value of the house, or houses, other than the house in respect of
which the assessee has exercised an option under clause (a),
shall be determined under sub-clause (1) as if such house or
houses had been let. Therefore, sub-section (4) again sends us
back to section 23(1) of the Act

19. If we look at the Legislative history in respect of income
derived from house property starting with 1922 Act, section 9(2)
of that Act was parametery (sic pari materia with) of section
23(1) of the 1961 Act. In the 1961 Act, the 1922 Act was
                               11                   ITA No.2217/Del/2010



repeated as regards all self-occupied properties. Even if an
assessee had any number if self occupied properties, deductions
would be allowable after determining the ALV thereof. For
instance, in the 1961 Act, section 23(2) first determined the ALV
under sub-section (1) and further reduced by one-half of the
amount so determined or Rs.1800/- whichever is (sic was) less
subject to the overall ceiling limit of 10% of the total income.
The 1961 Act, therefore, provided that the ALV must be
computed for the sum reasonably expected to let from year to
year and then a concession was given by way of deduction from
the ALV so determined for selfoccupation and this has been
explained in CBDT Circular No. 5P dated 9.10.1967. (copy
enclosed as Annexure I). The Income from House property
underwent series of changes over a period of time. The Taxation
Amendment Act of 1970, with effect from 1.4.1971, vide CBDT
circular No. 56 dated 19.3.1971, para 65, actually clarifies the
working of this section in detail.


      EXTRACT FROM CBDT CIRCULAR NO. 56 DATED
      19.3.1971:-

      "PARA 65 - With a view to rationalizing the
      provisions in section 23(2) and to provide a fillip to
      construction of house property for self-occupation,
      sub-section (2) of section 23 has been substituted
      by a new sub-section. Under sub-clause (2), as
      substituted, the annual value of house property
      used by the owner for the purpose of his own
      residence will first be computed in the same
      manner as if the property had been let i e. by
      deducting from the gross annual value the whole of
      the taxes levied by the local authority in respect of
      the property. The balance of the annual value will
      then be reduced by one-half thereof or Rs.1800/-
      whichever is less. Where the assessee has two
      houses, both of which are used for the purpose of
      his own residence, the annual value of each of such
      house will be computed in this manner. Where the
      assessee has more than two houses and uses them
      for his own residence, the concessional basis of
      computation of annual value as stated above will
      be allowed only in respect of two houses of the
      assessee's choice. The annual value of the
      remaining houses will be determined as if they
      were let out. The resultant annual of the house or
      two houses owned and occupied by the tax-payer
      for the purposes of his own residence will, as at
      present, be further limited, where appropriate, to
      ten per cent of other taxable income of the tax-
      payer and the excess, if any, will be disregarded. "
                                12                  ITA No.2217/Del/2010



20.    The Taxation Amendment Act of 1975, with effect from
1.4.1976, actually added section 23(1)(b) to the Income Tax Act
whereby annual rent received or receivable was in excess of
reasonably expected rent as per section 23(1)(a), then the
higher of the two would be taxable and this Amendment Act also
reduced the exemption to self-occupied properties instead of
two to one house only. Therefore, as per the Legislative history
right from the 1922 Act, all houses under self-occupation had
concessional treatment under the Act. Then this became
restricted to two houses by amendment of Taxation Amendment
Act of 1970 with effect from 1.4.1971 Para 65 of CBDT Circular
No. 56 dated 19.3.1971 explaining the above has already been
reproduced The Taxation Amendment Act of 1975, with effect
from 1.4.1976, reduced the concessional treatment to self-
occupied property to one property only and it continues to be
the case today.

21.   With effect from 1.4.1987 by the Finance Act of 1986, the
value one self occupied residential house was taken to be at nil
instead of deduction as was allowed up to assessment year
1987-88. Ref: CBDT Circular No. 461 dated 9.7.1986 - 161 ITR
Statute 21. Therefore, the law up to assessment year 2001-02
was - where the property was vacant or self occupied, the ALV of
the property was to be determined u/s 23(1)(a) of the Act. The
value of one house property, if it was self occupied, with effect
from 1.4.1987, assessment year 1987-88, had to be taken at nil
and the rest of the properties would suffer tax as per ALV
computed u/s 23(1) of the Act This was also in accordance with
the Supreme Court decision in the case of Liquidator
Mehmodabad Properties Ltd Vs. CIT 124 ITR 31 (SC)

22.   The inequity of taxing vacant properties under a notional
charge under the Chapter 'Income from House Property' under
Chapter IVC of the Act was recognized by the Legislature and an
amendment to section 23 was made by the Finance Act of 2001
with effect from 1.4.2002 and this brought in section 23(l)(c) of
the Act.

23.    The rationale of this was explained by CBDT Circular No.
14 of 2001 - 252 ITR Statute 65, para 29. The logic as contained
in the said para had clearly explained that this amendment was
brought in to rationalize the provisions of the Act so as to
provide simplified determination of annual value after allowing
deductions in computing the ALV itself on account of vacancy of
the property and unrealized rent. Thus, after bringing the
provision of section 23(l)(c) where the property is self occupied
or lying vacant, partially or wholly, either in part of the year or
whole of the year, has annual rent received or receivable for
that part is nil, it would not have to suffer any tax due to
computation uls 23(1)(a) of the Act. In para 29(2) CBDT the
                                     13                  ITA No.2217/Del/2010



      Circular states - "Where the property or any part of the property
      is let out and was vacant during the whole or any part of the
      previous year and owing to such vacancy, the actual rent
      received or receivable is less than the ALV, the sum so received
      or receivable shall be the actual value. "

      24.    Therefore, in the case at hand for the assessment year
      2004-05 as per law, as explained by CBDT, u/s 23(l)(c) the rent
      received or receivable admittedly is NIL and thus NIL would
      become the annual value u/s 23(1) of the Act for both the
      properties."


8.    We have heard the parties and have perused the material on
record. The issue is as to whether the ld. CIT (A) has rightly applied
the provisions of section 23 (1)(c) rather than those of section 23 (4)
(b) of the Act.


9.    At the outset, it would be appropriate to reproduce hereunder,
both these provisions:-

      Section 23 (1) (c) - 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 actual rent
      received or receivable by the owner in respect thereof is less
      than the sum referred to in clause (a), the amount so received or
      receivable :

      Section 23 (4) (b) - the annual value of the house or houses,
      other than the house in respect of which the assessee has
      exercised an option under clause (a), shall be determined under
      sub-section (1) as if such house or houses had been let.


10.   A perusal of section    23 (1)(c) clearly shows the unambiguous
requirements of the said section. This section requires that where the
property was vacant during the year and due to such vacancy, the
actual rent received or receivable in respect thereof is less than the
sum for which the property might reasonably be expected to be let
from year to year, the amount so received or receivable shall be
deemed to be the annual value of such property.
                                   14                 ITA No.2217/Del/2010



11.     On the other hand, as per section 23 (4), where the property
consists of more than one house, the annual value thereof shall be
determined as if such house had been let.

12.     It appears that there is a difference between the provisions of
Section 23 (1)(c) of the Act and those of Section 23 (4) thereof.
However, it is not so.    As per Section 23 (1)(c), if any part of the
property was let out and was vacant during the year or any part
thereof, and due to such vacancy, the annual rent received or
receivable was less than the sum for which the property might
reasonably be expected to let from year to year, the lesser of the two
amounts, i.e., the amount received or receivable, is to be the annual
value of the property.    Section 23 (4), on the other hand, refers to
property where it consists of more than one house, as in the present
case.    As per this Section, the annual value of such property shall be
determined as if the property has been let.


13.     Now, the provisions of Section 23 (4) (b) are very clear that
where the property consists of more than one house, the annual value
thereof shall be determined u/s 23 (1), as if such property had been
let. This re-directs us to Section 23 (1). Applying Section 23 (1) to the
facts of the present case, it is Section 23 (1) (c)   which shall again
come into play inasmuch as it remains undisputed, as observed
hereinabove, that the property was let, but was vacant during the
year, due to which vacancy, the actual rent received or receivable by
the assessee in respect of such property was nil.      Nil rent, then, it
cannot be gainsaid, is evidently less than the sum for which the
property might reasonably be expected to let from year to year.


14.     On this score itself, the grievance of the department loses
whatever force it could have had, if any.
                                    15                ITA No.2217/Del/2010



15.   Then, reverting to Section 23 (4), it makes reference to "property
referred to in Section (2)" of Section 23. Section 23 (2) talks of "the
property" and the only difference is that whereas Section 23 (2) talks
of a house or a part of a house and Section 23 (4) considers property
consisting of more than one house.       As per Section 23 (4) (a), the
concession will be available to the assessee only with regard to one of
the houses constituting the property and the ALV of the remaining
houses shall have to be determined, in case, all the houses are in the
occupation of the assessee. In the present facts, this is not the case
and the two houses, as discussed, were let earlier, but were lying
vacant during the year. As such, Section 23 (4)(a) is not applicable.


16.   Section 23 (4)(b) is applicable, as considered, and it leads back
to Section 23 (1). So the situation is back to square one.


17.   Undoubtedly, it was to cure the inequity of taxing vacant
properties under a notional charge, that Section 23 (1)(c) was brought
on the statute book by virtue of the Finance Act of 2001 w.e.f.
01.04.2002, as rightly contended on behalf of the assessee, in order to
provide simplified determination of annual value of property on
allowing deductions in computing the ALV itself on account of vacancy
and unrealized rent.


18.   Thus, looked at from any angle, it is the provisions of Section 23
(1)(c) of the Act which are applicable hereto and none other.
Accordingly, we hold hat the Ld. CIT (A) was correct in applying the
said Section to the present case.


19.   For the above discussion, finding no merit in the grounds taken
by the department, the same are rejected.
                                   16                 ITA No.2217/Del/2010



20.   In the result, the appeal filed by the department is dismissed.

      The order pronounced in the open court on 18.09.2012.

                   Sd/-                               Sd/-
         [T.S. KAPOOR]                           [A.D. JAIN]
      ACCOUNTANT MEMBER                       JUDICIAL MEMBER

Dated, 18.09.2012.

dk

Copy forwarded to: -

1.    Appellant
2.    Respondent
3.    CIT
4.    CIT(A)
5.    DR, ITAT


                              TRUE COPY

                                                               By Order,


                                                      Deputy Registrar,
                                                    ITAT, Delhi Benches
 
 
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