When property is vacant, rent is to be calculated under section 23(1)(a)

Arihant Patni Vs ITO (ITAT Pune)

The assessee’s rent for the property which remained vacant for the entire year shall be calculated as per provisions of Section 23(1)(a) of the Income Tax Act. Section 23(1)(c) will not be applicable in such case.

Facts-

The building, known as Bodhi Towers, belongs to Blackpool Realty Pvt. Ltd. in which the assessee are shareholder, and under the AOA of the Company, each shareholder has right to certain floors of the building and thus the assessee is ‘owner’ u/s 27(iii) of the Act and there is no dispute as to this fact. Building was completed in July 2011 (A.Y. 2012-13). Immediately in September 2011, the assessee appointed a broker ( CB Richards Ellis South Asia P.Ltd.) to find a suitable tenant (agreement at p. 16-26 of paper book). In view of slump in the market, the broker could not find a suitable tenant. In the return for A.Y. 2012-13, the assessee disclosed the fact and did not offer any notional income from house property. The return was accepted u/s 143(3). The Income Tax Department floated a tender in August 2013, and the Company submitted its offer in response to the said tender. Correspondence with Income Tax Department ensued between 2013 to 2015. Finally, the Income tax Department executed the lease agreement in April 2016. The Assessing Officer dismissed the claim of the assessee to determine the Annual lettable Value (ALV) u/s23(1)(C)of the Act at Nil and determined the ALV as per section 23(1)(a) of the Act.

Conclusion-

Held that it is an admitted undisputed fact that the property was vacant throughout the year and it was not let out. Following the Hon’ble A.P. High Court in the case of Vivek Jain and the Hon’ble Punjab & Haryana High Court in the case of Sushma Singla, we hold that the assessee’s rent for the said property shall be calculated as per provisions of Section 23(1)(a) of the Act and Section 23(1)(c) will not be applicable in the case of assessee for the said property.

FULL TEXT OF THE ORDER OF ITAT PUNE

These bunch of appeals preferred by the assessee as captioned above directed against orders of the ld.Commissioner of Income Tax(Appeals)-5, Pune, dated 09.09.2016& 24.04.2017 for the Assessment Year 2013-14 and 2014-15 respectively. In this group of Four(04) appeals, the assessees have raised certain common grounds of appeal, facts in all cases are almost similar, except variation of additions, therefore, all appeals were clubbed, heard and are decided by consolidated order. For appreciation of facts, the facts in ITA No.2695/PUN/2016 for AY 2013-14 is treated as lead case. The assessee has raised the following grounds of appeal:

The Assessee in ITA No.2695/PUN/2016 has raised the following  grounds of appeal:

“In the fact and the circumstances of case, and in law, the learned Commissioner of Income-tax (Appeals)-5, Pune, erred in confirming the additions and observations made by the assessing officer in the assessment order in respect of following points:

1. In respect of addition of Rs.1,10,87,608 under the head “income from house property;:

a) In confirming the addition of Rs.1,10,87,608 (including income of minor children clubbed u/s 64(1A)) as deemed income from house property.

b) In not appreciating that the assessee has taken reasonable efforts to let out the property and hence by applying the provisions of section 23(1)(c) r.w.s 23(1)(a) the annual value of the property should be taken at ‘Nil’.

2. Without prejudice to above, in confirming the computation of annual value @ Rs.52 per sq. feet p.m. and not as per the annual ratable valuable computed by the Pune Municipal Corporation.

3. The appellant craves leave to add, modify or withdraw any of the grounds of appeal at the time of hearing.

ITA No.2695/PUN/2016 for A.Y. 2013-14:

2. Brief Facts of the case are that the impugned building is purely commercial building with 8 floors having total area of 83.314 sft. The building, known as Bodhi Towers, belongs to Blackpool Realty Pvt. Ltd. in which the assessee are shareholder, and under the Articles of Association of the Company, each shareholder has right to certain floors of the building and thus the assessee is ‘owner’ u/s 27(iii) of the Act and there is no dispute as to this fact. Building was completed in July 2011 (A.Y. 2012-13). Immediately in September 2011. the assessee appointed a broker (CB Richards Ellis South Asia P. Ltd.) to find a suitable tenant (agreement at p. 16-26 of paper book).In view of slump in the market, the broker could not find a suitable tenant. In the return for A.Y. 2012-13, the assessee disclosed the fact and did not offer any notional income from house property. The return was accepted u/s 143(3).The Income Tax Department floated a tender in August 2013, and the Company submitted its offer in response to the said tender. Correspondence with Income Tax Department ensued between 2013 to 2015. Finally, the Income tax Department executed the lease agreement in April 2016. The Assessing Officer dismissed the claim of the assessee to determine the Annual lettable Value (ALV) u/s23(1)(C)of the Act at Nil and determined the ALV as per section 23(1)(a) of the Act. The AO followed the decision of Hon’ble AP High Court.

2.1 At the time of hearing, the ld.AR submitted before us that the same issue whether section 23(1)(a) of the Act or Section 23(1)(c) of the Act is applicable, has been discussed by two subsequent decisions of the Tribunal having considered and distinguished the findings of the Hon’ble Andhra Pradesh High Court in the case of Vivek Jain. The ld.AR further reiterated the submissions made before the subordinate authorities. The decisions relied on by theld.AR are (i) Shri Vivek Keshav Garud vs. ITO (ITA No.747/PN/2014 for A.Y. 2009-10 dated 22-03-2016; and (ii) Sonu Realtors Pvt. LTd. vs. Dy.CIT reported in (2018) 173 ITRD 82 (Bom).

3. On the other hand, the ld.Departmental Representative(ld.DR) for the Revenue relied on the decision of the Hon’ble Andhra Pradesh High Court and orders of Lower Authorities.

4. Ground No.1 of the appellant relates as under:

“1. In respect of addition of Rs. 1,10,87,608 under the head ‘income from house property’

a) In confirming the addition of Rs. 1,10,87,608 (including income of minor children clubbed u/s 64(1A) as deemed income from house property

b) In not appreciating that the assesse has taken reasonable efforts to let out the property and hence by applying the provisions of Section 23(1)(c) r.w.s. 23(1)(a) the annual value of the property should be taken at ‘Nil’.

4.1. It is observed from the assessment order para 11 that the assessee is owner of more than one house property. As per the assessment order, the assessee owns following properties:

Assessee has a right in one floor of the building owned by Blackpool Realty Pvt. Ltd. as per the Article of Association of the company. The said building was completed on July, 2011. Regarding the property in the building owned by Blackpool Realty Pvt. Ltd, the assessee had made following submission before the CIT(A) which is part of the paper book filed before us.

“I am holding 4,5000 shares in Blackpool Realty Pvt. Ltd.. This company owns a commercial premises at 55/7B, Salisbury Park, Pune 411037. In terms of the Articles of Association of the Company, each shareholder is allotted specific floor kin the building owned by the Company. Each shareholder has sole and exclusive right of use, occupation and enjoyment of the floor so allotted, alongwith specified parking rights and other amenities attached thereto and undivided share in common area. The shareholders are entitled to give on leave and license or lease, the floor so allotted, and the income received by such shareholder shall be the income in the hands of such shareholder and not in the hands of the Company. The shareholders are obliged to reimburse the maintenance expenses and other outgoings, including ground rent, rates and taxes. Accordingly, I have the said rights in one floor of the said commercial premises. During the year, efforts have been made to give the property on rent. However, no suitable tenant has been found. Hence, the annual value of my share in the said property is taken at Nil.”

Thus, admittedly Assessee has a right in one floor of the said building. The assessee claimed that the assessee made efforts for renting out the property in the building owned by Blackpool Realty Pvt. Ltd. The assessee claimed that it had appointed one broker viz C.B. Richard Ellis on a monthly retainership of Rs. 75,000/- from 15/09/2011 to 15/03/2012 to find a suitable tenant. However, the assessee discontinued the retainership agreement to avoid recurring expenses. The assessee claimed that its efforts to find suitable tenant continued. With reference to this property the assessee claimed that he had made efforts to find tenant, therefore, as section 23(1)(C) of the Act the deemed rent will be Nil. Assessing Officer rejected the contention of the Assessee. The CIT(A) upheld the Assessment Order on this issue relying on the decision of Hon’ble High Court in the case of Vivek Jain vs ACIT 337 ITR 47(2011) (AP).

4.2. The undisputed facts in this case are as under:

– Assessee owns more than one house property

– The property in Building owned by Blackpool Realty Pvt. Ltd was ready in 2011.

– The said property was never let out either during the year or earlier year.

Thus, the fact is that the property owned by the assessee was not rented out. Assessee has mainly relied on the decision of the Coordinate Bench of the Pune Tribunal in the case of Vikash Keshav Garud Vs ITO ITA No. 747/PN/2014 for the A.Y. 2009-10 dated 22/03/2016and the decision of the Coordinate Bench of the ITAT Mumbai in the case of Premsuda Export (P) Ltd. Vs. ACIT CC, Mumbai reported in (2008) 110 ITD 158 (Mum)/(2008) 110 TTJ 89.

4.3. However, the Hon’ble Andhra Pradesh High Court in the case of Vivek Jain Vs ACIT (2011) 337 ITR 74 (Andhra Pradesh) has held as under:

Quote “4. The Income-tax Appellate Tribunal observed that it is only in cases covered by (a) and (b) that the annual let out value is to be taken as nil ; even in these two cases, as provided in section 23(4), nil value could be taken only in respect of one property if the properties in those two cases was more than one ; in the rest of the cases, i.e., those mentioned in (c) to (e), and the additional properties in (a) and ( b), the value had to be determined either notionally or actually, as the case may be, and the higher of the two should prevail; it was necessary at the first instance to determine the notional value in respect of any property whether let out or not let out; if the property was not let out then the notional value should be the income from the property; this is what section 23(1)(a) provides for; however, if the property is let out, and the actual rent received or receivable is higher than the notional value, then such actual rent should be the income from the property as provided in section 23(l)(b); at times it may so happen that, despite the property being let out, it remains vacant and, on account of such vacancy, the actual rent received or receivable may be lesser than the notional value; in such a case the actual rent should only be taken as the income from property; and the Legislature had taken care to see that the assessee was not unduly taxed on that part of the income where, despite such letting out, the property remained vacant either for the whole or a part of the year, and the actual rent fell below the notional value. This benefit, provided in section 23(l)(c) of the Act, was to be extended only where the property was let out, and the actual income had fallen from what it would have been had the property not remained vacant; the benefit could not be extended to a case where the property was not let out at all; if it was not let out, then the notional value would be the income from the property ; if the assessee’s argument was accepted then, in addition to the two cases where the annual let out value could be taken to be nil, there could also be a third eventuality to take the annual let out value at nil which was not envisaged by any of the provisions of the statute; and it would also render section 23(1)(a) otiose, and the scope of section 23(2) would get unduly extended. The Income-tax Appellate Tribunal concluded that, in cases where the property had not been let out at all during the year under consideration, there was no question of any vacancy allowance as provided in section 23(1)(c), and hence the order of the Commissioner of Income-tax (Appeals), determining the annual let out value of the property at Rs. 1,44,000, was being upheld. Aggrieved thereby the present appeal under section 260A of the Act.

5. The income-tax, under the head “Income from house property”, is chargeable under section 22 of the Income-tax Act, 1961, on the annual value of the property, consisting of any building or land appurtenant thereto, of which the assessee is the owner. However, such portion of the property, as the assessee may occupy for the purpose of his business or profession the profits of which are chargeable to income-tax, is not to be charged to income under the head “Income from house property”. As income from house property is charged to tax on the annual value of the property, consisting of a building or the land appurtenant thereto, section 23 provides for the manner in which the annual value of the property is to be determined for the purpose of section 22 of the Act. Section 23(1) creates a legal fiction in that, for the purpose of section 22, the annual value of the property is to be deemed to be the sum mentioned in any one of clauses (a ) to (c) thereof.

6. Section 23(1) deals with three distinct situations enumerated in clauses (a) to (c) thereunder. Under clause (a), the annual value of the property is deemed to be the sum for which the property may reasonably be expected to let from year to year. Under clause (b), where the property, or any part thereof, 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 shall be the actual value of the property. While the situation to which clause (a ) relates is where the property has not been let out, (for it is in such an event alone would the question of the sum for which the property might reasonably be expected to be let from year to year arise), the situation to which clause (b) relates is when the property, or any part thereof, has been let out. Clause (b) does not relate to a situation where the rent actually received, or receivable, is less than the sum for which the property may reasonably be let from year to year. While the pre-amended section 23 did not provide for such an eventuality, section 23 was amended by the Finance Act, 2001 with effect from April 1, 2002, and clause (c) was inserted to section 23(1) to deal with such a situation. Section 23 of the Income-tax Act, which fell for consideration in Liquidator of Mahamudabad Properties (P.) Ltd. v. CIT [1980] 124 ITR 31 / 3 Taxman 47 (SC), was as it stood prior to its amendment by the Finance Act, 2001, with effect from April 1, 2002. The assessment year, in the present case, is 2002-03 and it is the amended section 23 which is applicable, and not the pre-amended provision.

7. Under the amended section 23(1)( c), where the property, or any part thereof, 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 shall be the annual value of the property. The notes on clauses relating to the amendment to section 23(1) reads thus [2001] 248 ITR (St.) 35, 118 :

“Clause 14 seeks to substitute new section for section 23 of the Income-tax Act relating to determination of annual value of house property.

The existing provision of the said section provides for the determination of annual value of a property in certain circumstances including where the property is let, or is self-occupied, or is vacant, or is partially let, or is let for part of the year. The annual value so determined is subject to the deductions allowable under section 24, including deductions on account of vacancy for any part of the year in respect of the property let, and on account of rent which cannot be realized.

It is proposed to substitute the said section so as to provide for determination of annual value in certain circumstances specified in the proposed new section after allowing deductions in computing the 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 the assessment year 2002-03 and subsequent years.”

8. The effect of substitution of section 23 has been elaborately dealt with in Departmental Circular No. 14 of 2001, the relevant portion of which reads as under [2001] 252 ITR (St.) 65, 89. :

“29.2. The substituted section 23 retains the existing concept of annual value as being the sum for which the property might reasonably be expected to let from year to year, i.e., annual letting value (ALV). However, in case of let out property, the concept of ‘annual rent’ has been removed. The new section provides that where the property or any part of the property is let and the actual rent received or receivable is in excess of the ALV, the amount so received or receivable shall be the annual value. This will be the case even if the property (or part of the property) was vacant for a part of the year, but the actual rent received or receivable during the year is higher than the ALV. 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 is less than the ALV, the sum so received or receivable shall be the annual value. In case the actual rent received or receivable during the year is less than the ALV, but not because of vacancy, it is, the ALV which shall be taken to be the annual value.” [Emphasis supplied]

9. The effect of the amendment has been succinctly explained in Sampath Iyengar’s Law of Income Tax (10th edition) as under: “The new section provides that the higher of the amount as between what is actually received or receivable and the annual value in relation to what the property might reasonably fetch if let from year to year would be adopted as annual value for purposes of determination of property income. In the result, even where the property is vacant for part of the year, if the rent received for the remaining part is higher than the annual value, it is such annual value which will be adopted because for the component of actual rent what is receivable or received during the year, whichever is higher, will have to be adopted, though it is not so expressly spelt out. But if the actual rent received or receivable is less than the annual letting value, but not because of vacancy, the actual receipt will be the annual value. This impact is more implied than express. But in view of the Board’s Circular No. 14 of 2001, this is a matter which is required to be borne in mind, since such an interpretation would dispense with the need for separate deduction for vacancy allowance, though the interpretation as now placed may not take into consideration, where the property is vacant for the major period during the year.” [Emphasis supplied]

10. While interpreting a statute, the court may not only take into consideration the purpose for which it had been enacted, but also the mischief it seeks to suppress. Sneh Enterprises v. Commissioner of Customs [2006] 7 SCC 714. It is evident that clause (c) has been inserted as a protection to the assessee in cases where, on account of vacancy, the rent received or receivable on a property which has been let out is less than the sum referred to in clause (a). Prior to its amendment, even in such cases it was the sum referred to in clause (a) which was to be taken as the annual value of the property.

11. In order to attract section 23(l)(c), the following requirements must be fulfilled (i) the property, or any part thereof, must be let; and (ii) it should have been vacant during the whole or any part of the previous year ; and (iii) owing to such vacancy the actual rent received or receivable by the owner in respect thereof should be less than the 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 the amount received or receivable, in terms of clause (c) of section 23(1), shall be deemed to be the annual value of the property. Clause (c) does not apply to situations where the property has either not been let out at all during the previous year or, even if let out, was not vacant during the whole or any part of the previous year. Under the Explanation to section 23(1), for the purposes of clause (b) or (c), the amount actually received or receivable by the owner shall not include the amount of rent which the owner cannot realize. Self-occupation by the owner of a house would require the annual value of such house, or part of the house, to be taken as nil under section 23(2)(a) and, where the house cannot actually be occupied by the 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), the house or part of the house had not actually been let during the whole or any part of the previous year. As a legal fiction is created the word “actually”, as used in section 23(3)(c), does not find mention in section 23(1) of the Act.

12. The construction placed on section 23(l)(c), by Sri B. Chandrasen Reddy, learned counsel for the petitioner, that if there is an intention to let out the property during the relevant year, coupled with efforts being made for letting it out, it must be held the property is let, would necessitate reading words into section 23(1)(c) which do not exist. The words “where the property is let” cannot be read as “where the property is intended to be let”. The provisions of a tax statute must be strictly construed. The words of a 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. The Legislature may be safely presumed to have intended what the words plainly say. – Bhaiji v. Sub-Divisional Officer, Thandla [2003] 1 SCC 692. The intention of the legislation must be found in the words used by the Legislature itself. The question is not what may be supposed and has been intended but what has been said – Unique Butyle Tube Industries (P.) Ltd. v. Uttar Pradesh Financial Corpn. [2003] 113 Comp. Cas. 374 (SC). The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed. It cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any assumed deficiency. The object of this rule is to prevent a taxing statute being construed “according to its intent, though not according to its words”. It has even been said that “if the provision is so wanting in clarity that no meaning is reasonably clear, the courts will be unable to regard it as of any effect – Gursahai Saigal v. CIT [1963] 48 ITR 1 (SC); Cape Brandy Syndicate v. IRC [1921] 1 KB 64 ; Bethlehem Hospital In re [1875] L.R. 19 Eq 457; A.V. Fernandez v. State of Kerala 1957 SCR 837 ; IRC v. Bladnoch Distillery Co. Ltd. [1948] 1 All ER 616 ; CST v. Modi Sugar Mills Ltd. [1961] 12 STC 182 (SC); CIT v. V. MR. P. Firm, Muar, AIR 1965 SC 1216 ; CED v. Kantilal Trikamlal [1976] 105 ITR 92 (SC); Aphali Pharmaceuticals Ltd. v. State of Maharashtra [1989] 4 SCC 378 ; Baidyanath Ayurved Bhawan (P.) Ltd. v. Excise Commissioner AIR 1971 SC 378. The question as to what is covered must be found out from the language according to its natural meaning fairly and squarely read. IRC v. Duke of Westminster [1936] AC 1 (HL), A.V. Fernandez’s case (supra) Saraswati Sugar Mills v. Haryana State Board [1992] 1 SCC 418). The meaning and intention of a statute must be collected from the plain and unambiguous expression used therein rather than from any notions which may be entertained by the court as to that is just or expedient. The expressed intention must guide the court. CIT v. Shahzada Nand & Sons [1966] 60 ITR 392 (SC). The Legislature does not waste its words. Ordinary, a grammatical meaning is to be assigned to the words used while interpreting a provision to honour the rule. The Legislature chooses appropriate words to express what it intends and, therefore, must be attributed with such intention as is conveyed by the words employed so long as this does not result in absurdity or anomaly or unless material— intrinsic or external —is available to permit a departure from the rule. Harbhajan Singh v. Press Council of India [2002] 3 SCC 722.

13. The courts have adhered to the principle that effort should be made to give meaning to each and every word used by the Legislature, and it is not a sound principle of construction to brush aside words in a statute, as being inapposite surplusage, if they can have a proper application in circumstances conceivable within the contemplation of the statute. Gurudevdatta VKSSS Maryadit’s case (supra), Manohar Lal v. Vinesh Anand [2001] 5 SCC 407. When the legislative intent is found specific mention and expression in the provisions of the Act itself, the same cannot be whittled down or curtailed and rendered nugatory. Bharathidasan University v. All India Council for Technical Education [201l] 8 SCC 676. The effect should be given to all the provisions and a construction that reduces one of the provisions to a “dead letter” must be avoided. Anwar Hasan Khan v. Mohd. Shafi [2001] 8 SCC 540. The courts should not, ordinarily, add words to a statute or read words into it which are not there, especially when a literal reading thereof produces an intelligible result. Delhi Financial Corpn. v. Rajiv Anand [2004] 11 SCC 625 ; [2006] 131 Comp. Cas. 285 (SC). A construction which requires, for its support addition or substitution of words, or which results in rejection of words, has to be avoided. Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd. v. Custodian of Vested Forests AIR 1990 SC 1747, Shyam Kishori Devi v. Patna Municipal Corpn. AIR 1966 SC 1678, A.R. Antulay v. Ramdas Sriniwas Nayak [1984] 2 SCC 500, Dental Council of India v. Hari Prakash [2001] 8 SCC 61, J.P. Bansal v. State of Rajasthan [2003] 5 SCC 134 and State of Jharkhand v. Govind Singh [2005] 10 SCC 437. There is a line, though thin, which separates adjudication from legislation. That line should not be crossed or erased. The courts expound the law, they do not legislate. State of Kerala v. Mathai Verghese [1986] 4 SCC 746, Union of India v. Deoki Nandan Aggarwal AIR 1992 SC 96. A judge is not entitled to add something more than what is there in the statute by way of a supposed intention of the Legislature. Union of India v. Elphinstone Spg. &Wvg. Co. Ltd. [2001] 4 SCC 139. The legislative casus omissus cannot be supplied by judicial interpretative process. Maruti Wire Industries (P.) Ltd. v. STO [2001] 122 STC 410 (SC), Govind Singh’s case (supra). ]

14. The contention that, as clause (c) provides for an eventuality where a property can be vacant during the whole of the relevant previous year, both situations, i.e., “property is let” and “property is vacant for the whole of the relevant previous year” cannot coexist does not merit acceptance. Clause (c) encompasses cases where a property is; let out for more than a year in which event alone would the question of if being vacant during the whole of the previous year arise. A property let out for two or more years can also be vacant for the whole of a previous year bringing it within the ambit of clause (c) of section 23(1) of the Act.

15. The contention that, if the owner had let out the property even for a day, it would acquire the status of “let out property” for the purpose of clause (c) for the entire life of the property even without any intention to let it out in the relevant year is also not tenable. The circumstances in which the annual let out value of a house property should be taken as nil is as specified in section 23(2) of the Act. Under section 23(l)(c), the period for which a let out property may remain vacant cannot exceed the period for which the property has been let out. If the property has been let out for a part of the previous year, it can be vacant only for the part of the previous year for which the property was let out and not beyond. For that part of the previous year during which the 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 sub­sections (2) and (3) of section 23 of the Act. Such a construction does not lead to any hardship, inconvenience, injustice, absurdity or anomaly and, therefore, the rule of ordinary and natural meaning being followed cannot be departed from. Sneh Enterprises’ case (supra). We are in agreement with the interpretation of section 23(1)(c) by the Tribunal, and are of the opinion that the benefit thereunder cannot be extended to a case where the property was not let out at all.

16. We find no merit in the submission that the words “property is let” are used in clause (c) to take out those properties which are held by the owner for self-occupation from the ambit of the said clause. As noted hereinabove, section 23(2)(a) takes out a self-occupied residential house, or a part thereof, from the ambit of section 23(1) of the Act. Likewise, under section 23(2)(b ), where a house cannot actually be occupied by the owner, on account of his carrying on employment, business or profession at any other place requiring him to reside at such other place in a building not belonging to him, the annual value of the property is also required to be treated as nil, thereby taking it out of the ambit of section 23(1) of the Act. Section 23(3)(a) makes it clear that section 23(2) would not apply if the house, or a part thereof, is actually let during the whole or any part of the previous year. Thus, only such of the properties which are occupied by the owner for his residence, or which are kept vacant on account of the circumstances mentioned in clause (b) of section 23(2), fall outside the ambit of section 23(1) provided they are, as stipulated in section 23(3)(a), not actually let during the whole or part of the previous year. Clause (c) was not inserted to take out from its ambit properties held by the owner for self- occupation inasmuch as section 23(2)(a) provides for such an eventuality. It is only to mitigate the hardship faced by an assessee, and as clause (b) does not deal with the contingency where the property is let and, because of vacancy, the actual rent received or receivable by the owner is less than the sum referred to in clause (a), was clause (c) inserted. In cases where the property has not been let out at all, during the previous year under consideration, there is no question of any vacancy allowance being provided thereto under section 23(l)(c) of the Act.” Unquote

4.4. Thus, the Hon’ble High court in para 11 has categorically held as under:

(i) the property, or any part thereof, must be let; and

(ii) it should have been vacant during the whole or any part of the previous year ; and

(iii) owing to such vacancy the actual rent received or receivable by the owner in respect thereof should be less than the 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 the amount received or receivable, in terms of clause (c) of section 23(1), shall be deemed to be the annual value of the property. Clause (c) does not apply to situations where the property has either not been let out at all during the previous year or, even if let out, was not vacant during the whole or any part of the previous year.

4.5. In this case, there is no doubt that the property was vacant during the year. It was never let out during the year or year earlier to that. Therefore, the conditions mentioned by the Hon’ble A.P. High Court are applicable in this case, i.e. property was never let out during the year. Therefore, as held by the Hon’ble A.P. High Court, Section 23(1)(c) will not be applicable in the case of the assessee, as the property was not let out during the year.

4.6. The Ld.AR also submitted that ‘intention to let out, coupled with efforts’, is sufficient to invoke provisions of Section 23(1)(c) and actual let out is not required. However, these arguments were also made before the Hon’ble A.P. High Court in the case of Vivek Jain (supra). In para 12 of the said order, Hon’ble High Court has categorically held that the words ‘where the property is let’ cannot be read as ‘where the property is intended to be let’. The provisions of a tax statute must be strictly construed. The words of statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning.

4.7. Similarly, Hon’ble A.P. High court in the case of Vivek Jain (supra) has observed in para 14 as under:

Quote “ 14. The contention that, as clause (c) provides for an eventuality where a property can be vacant during the whole of the relevant previous year, both situations, i.e., “property is let” and “property is vacant for the whole of the relevant previous year” cannot coexist does not merit acceptance. Clause (c) encompasses cases where a property is; let out for more than a year in which event alone would the question of if being vacant during the whole of the previous year arise. A property let out for two or more years can also be vacant for the whole of a previous year bringing it within the ambit of clause (c) of section 23(1) of the Act.” Unquote

4.8. Thus, the contention raised by the LD.AR that a property is let out during the year and the property is also vacant cannot coexist has been considered by the Hon’ble A.P. High Court. Hon’ble A.P. High court has categorically stated that this contention does not merit acceptance. Thus, the said contention has been ruled out by the Hon’ble A.P. High Court.

4.9. Hon’ble Punjab & Haryana High Court in the case of Susham Singla Vs CIT [2016] 76 taxmann.com 349 (Punjab & Haryana) has held as under:

“Thus, the annual value of the properties like the ones in the case in hand which are more than one, owned by the assessee and which admittedly remained vacant throughout the previous year would not be assessed under Section 23(1)(c) but under Section 23(1)(a). The annual value would, therefore, be determined notionally as done in the case in hand by the Assessing Officer and concurrently upheld by the Commissioner and the Tribunal.”

4.10. Thus, there are two Hon’ble High Courts, i.e. Hon’ble A.P. High court and Hon’ble Punjab & Haryana High Court who have held that Section 23(1)(c) will not be applicable if the property was vacant throughout the previous year and it was not let out at all. As per judicial precedents, whenever jurisdictional High Court’s decision is not available on a particular issue but non-jurisdictional High Court’s decision are available, then the non-jurisdictional High court’sdecision are binding on all lower authorities. Therefore, the decision of the Hon’ble A.P. High Court is a binding precedence and it is binding on us. Hon’ble A.P. High Court has interpreted Section 23(1)(c), which is a legal issue. In the case under consideration, the issue is interpretation of Section 23(1)(c), the facts are identical to the facts mentioned by the Hon’ble A.P. High court in the case of Vivek Jain (supra). Therefore, the said decision of the Hon’ble A.P. High court is binding on us. Therefore, there is no binding force in the order of the Hon’ble Pune ITAT in the case of Vikas Keshav Garud (supra) and other decisions relied by the Ld.AR.

4.11. Hon’ble Bombay High Court in the case of Smt. Godavaridevi Saraf Vs CIT,113ITR589(Bom) has held as under :

Quote , “ Until contrary decision is given by any other competent High Court, which is binding on a Tribunal in the State of Bombay, it has to proceed on the footing that the law declared by the High Court, though of another State, is the final law of the land. When the Tribunal set aside the order of penalty it did not go into the question of intra vires or ultra vires. It did not go into the question of constitutionality of section 140A(3). That section was already declared ultra vires by a competent High Court in the country and an authority like an Income-tax Tribunal acting anywhere in the country has to respect the law laid down by the High Court, though of a different State, so long as there is no contrary decision of any other High Court on that question.” Unquote

4.12. In this case, it is an admitted undisputed fact that the property was vacant throughout the year and it was not let out. There is no decision available of Hon’ble Bombay High Court on this issue which is a Jurisdictional High Court. Therefore, weare of the opinion that as held by the Hon’ble Bombay High Court in the case of Smt. Godavaridevi Saraf (supra), the decision of Hon’ble High Courts of other States are binding on this Tribunal (Pune Bench). Therefore, respectfully following the Hon’ble A.P. High Court in the case of Vivek Jain (supra) and the Hon’ble Punjab & Haryana High Court in the case of Sushma Singla (supra), we hold that the assessee’s rent for the said property shall be calculated as per provisions of Section 23(1)(a) of the Act and Section 23(1)(c) will not be applicable in the case of assessee for the said property.

5. Thus the Ground No.1 of the Appellant assessee is dismissed.

6. The Ground No.2 is regarding Annual lettable value (ALV) calculation. The AO has calculated ALV based on the fair rent for FY 2013-14. The AR submitted that the ALV shall be calculated based on Municipal lettable value. However, none of the Lower Authorities have discussed whether Rent Control Act is applicable to the relevant property or not!. The Hon’ble Bombay High Court in the case Kokilaben D. Ambani vs. CIT in I.T.Appeal No.625 of 2000 vide order dated 20^th March, 2015 has held that “Accordingly, while determining the annual letting value in respect of properties which are subject to rent control legislation and in cases where the standard rent has not been fixed, the Assessing Officer shall determine the same in accordance with the relevant rent control legislation. If the fair rent is less than the standard rent, then it is the fair rent which shall be taken as annual letting value and not the standard rent. This will apply to both, self-acquired properties and general cases where property is let out. While carrying out the exercise under section 23(1) of the Act, the Departmental authorities shall follow these guidelines reproduced above provided in the Full Bench decision of the Delhi High Court and followed by a Division Bench of this court in the case of Tip Top Typography.”. Therefore, this issue is set-aside to the file of the Assessing Officer for verifications. If the property is under Rent Control Act, then the Assessing Officer shall determine the Annual Value as per the guidelines given by the Hon’ble Bombay High Court in the above referred decision. If the impugned property is not under Rent Control Act, then Municipal Valuation shall be considered as Annual Lettable Value. Accordingly, this Ground No.2 is allowed for statistical purpose.

ITA No.2696/PUN/2016, ITA No.1248/PUN/2017 and ITA No.1249/PUN/2017 [03 Appeals]:

7. As we have noted above that the assessees have raised identical ground of appeal and the facts of this appeal under consideration are almost identical to the facts for the A.Y. 2013-14. Thus, our decision in ITA No.2695/PUN/2015 for A.Y. 2013-14 would apply mutatis-mutandis for these remaining Three Appeals i.e. ITA No.2696/PUN/2016 for A.Y.2013-14, ITA No.1248/PUN/2017 for A.Y. 2014-15 and ITA No.1249/PUN/2017 for A.Y.2014-15 appeals as well. Accordingly, these above mentioned three appeals of assessees are allowed for statistical purpose.

8. To sum up, the above appeals of both the assessees are allowed for statistical purpose.

Order pronounced in the open Court on 7^th June, 2022.