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1996 DIGILAW 684 (MAD)

Commissioner of Income Tax v. Dhun D. Dalal

1996-07-11

K.A.THANIKKACHALAM, N.V.BALASUBRAMANIAN

body1996
Judgment :- THANIKKACHALAM, J. : At the instance of the Department, the Tribunal referred the following two questions for the opinion of this Court under S. 256(1) of the IT Act, 1961, hereinafter referred to as the 'Act' : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order of the ITO in not taking the rent for the period 1st November, 1975 to 30th November, 1976 is not erroneous and prejudicial to the interest of Revenue and that the CIT was not justified in invoking the provisions of S. 263 of the IT Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal's view that the assessee is entitled to vacancy allowance when the property was not actually let out and was not in the occupation of the tenant is sustainable in law ?" 2. The assessee is an individual deriving income from house property. While computing the assessment for the asst. yrs. 1976-77 and 1977-78, the ITO accepted the income from house property shown by the assessee wherein the assessee had not admitted any income for the period from 1st November, 1975 to 30th November, 1976. Subsequently the CIT found that during the period the property was in the occupation of the agreement holder to purchase the property and that the assessee was not receiving any rent. Since the property was in the occupation of the agreement holder, the CIT held that the assessee should have disclosed the income from house property in respect of the said period. He, therefore, invoked the provisions of S. 263 of the Act, since the order of the ITO was erroneous and prejudicial to the interest of the Revenue. After hearing the assessee, the CIT directed the ITO to recompute the income from house property in the assessee's case. 3. The assessee preferred an appeal before the Tribunal. The Tribunal held that the assessee should be allowed vacancy allowance in respect of the interregnum period during which the agreement holder was occupying the premises. According to the Tribunal the occupation of the agreement holder was not in the capacity of a tenant, and therefore it should be taken that the property was vacant during that period, since no tenant was in occupation. According to the Tribunal the occupation of the agreement holder was not in the capacity of a tenant, and therefore it should be taken that the property was vacant during that period, since no tenant was in occupation. In other words, the occupation was only a permissive occupation, and so far as the assessee is concerned, it was only vacant for that period. The Tribunal, therefore held that if the vacancy allowance is granted, there would be no change in the income computed by the ITO originally, and, therefore, the order of the ITO cannot be considered as erroneous and prejudicial to the interest of the Revenue. Accordingly, the Tribunal cancelled the order passed by the CIT under S. 263 of the Act and allowed the assessee's appeal. 4. Before us, the learned Senior Standing appearing for the Department submitted that the property during the relevant period was not vacant. The property was not let out to the tenant during that period. The property was in the occupation of the intending purchaser under an agreement to purchase the property. Therefore, it cannot be said that there is any relationship of landlord and tenant between the agreement holder to purchase the property and the owner of the property. In such circumstances, the assessee is not entitled to any vacancy remission as contemplated under S. 24(1)(ix) of the Act. It was, therefore, submitted that the Tribunal was not correct in setting aside the order passed by the CIT under S. 263 of the Act, since the order passed by the ITO was erroneous and prejudicial to the interest of the Revenue. 5. We have heard the learned Senior Standing Counsel appearing for the Department and perused the records carefully. 6. The point for consideration, is, whether the assessee is entitled to vacancy remission as contemplated under S. 24(1)(ix) of the Act. The assessment years involved in this case are 1976-77 and 1977-78. The assessee is the owner of the flat No. 5, Rhushila Co-operative Society, Carmicael Road, Bombay-20. In the return for the asst. yr. 1976-77 while disclosing the property income, the assessee has shown a sum of Rs. 28, 129 at the rate of Rs. 3, 925 per month from 1st April, 1975 to 5th November, 1975. The assessee has not disclosed the property income from 6th November, 1975 to 31st March, 1976. So also for the asst. yr. yr. 1976-77 while disclosing the property income, the assessee has shown a sum of Rs. 28, 129 at the rate of Rs. 3, 925 per month from 1st April, 1975 to 5th November, 1975. The assessee has not disclosed the property income from 6th November, 1975 to 31st March, 1976. So also for the asst. yr. 1977-78, the assessee has disclosed the property income from December, 1976 to March, 1977, a sum of Rs. 14, 580 at the rate of Rs. 4, 000 per month. But the property income pertaining to the period from 1st April, 1976 to 30th November, 1976 was not disclosed. The income returned by the assessee was accepted by the ITO, while completing the assessment for the assessment years under consideration. On a scrutiny, the CIT came to the conclusion that the property is not occupied by the tenant and there is no relationship of landlord and tenant between the intending purchaser and the owner of the property. Therefore, in the present case, there is no question of allowing any vacancy remission as contemplated under S. 24(1)(ix) of the Act. Hence, according to the CIT, the order passed by the ITO is erroneous and prejudicial to the interest of the Revenue. 7. According to the Tribunal the property was not occupied by the tenant. But from the point of view of the owner of the property, the property was vacant. It remains to be seen that the property was not let out to the intending purchaser. There was an agreement to sell the property in question even though the agreement fell through subsequently. During the period under consideration, the property was under the occupation of the agreement holder. The owner of the property received the advance and the sale consideration was fixed in the sale agreement. In such circumstances, it cannot be said that the property was let out to the agreement holder. When there is no relationship of landlord and tenant between the agreement holder and the owner of the property, it cannot be said that the property was let out to such a person. When the property was not actually let out and when the property has remained without payment of any rent, the provisions of S. 24(1)(ix) of the Act can be made applicable. When the property was not actually let out and when the property has remained without payment of any rent, the provisions of S. 24(1)(ix) of the Act can be made applicable. In the present case, the owner of the house voluntarily has foregone the right to collect the rent, since the agreement holder is in occupation of the property as per the sale agreement by way of part performance of the contract of sale. Under such circumstances, the Tribunal was not correct in stating that when the property was occupied by the agreement holder, it should be deemed to be vacant and the vacancy remission should be given under S. 24(1)(ix) of the Act. In view of the foregoing reasons, we consider that the order passed by the Tribunal is not in accordance with the law prevalent in the matter of letting out the property by the owner to the tenant. Therefore, the order passed by the Tribunal in setting aside the order of the CIT under S. 263 of the Act is erroneous and the order of the CIT passed under S. 263 of the Act is in order. In that view of the matter, we answer the questions referred to us in the negative and in favour of the Department. No costs.