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1970 Supreme(Cal) 156
HIGH COURT OF CALCUTTA
P. B. Mukharji, T. K. Basu
LIQUIDATOR, MAHMUDABAD PROPERTIES LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 45 Of 1969
Decided On : JULY 17, 1970
A.K.Basu, S.C.ROY, S.N.Sen, SUKUMAR MITRA
The annual value of a property is to be determined on the basis of a hypothetical tenancy, considering the property as it is and taking into account the usual arrangements between landlords and tenants about the burden of repairs.
Headnote:
INCOME TAX - ANNUAL VALUE OF PROPERTY - PROPERTY IN DISREPAIR - WHETHER ANNUAL VALUE CAN BE IGNORED - DEDUCTIONS - VACANCY REMISSION, MUNICIPAL TAXES AND INSURANCE PREMIUM - WHETHER ALLOWABLE.
Fact of the Case:
The assessee, a company in voluntary liquidation, filed a return of total income showing a loss under the head "house property" of Rs. 15,821. The loss was claimed on account of vacancy remission for the premises at 3, Gun Foundry Road, Calcutta, which was requisitioned by the West Bengal Government and was in a dilapidated condition. The Income-tax Officer disallowed the vacancy remission, municipal taxes and insurance premium claimed as deductions. The Appellate Assistant Commissioner partly allowed the appeal of the assessee and directed the Income-tax Officer to amend the assessment accordingly. On appeal by the department, the Tribunal held that the property was outside the scope of Section 22 of the Income-tax Act, 1961, and restored the order of the Income-tax Officer.
Finding of the Court:
The Tribunal erred in holding that the property had no annual value and was outside the scope of Section 22 of the Income-tax Act, 1961. The annual value of a property is to be determined on the basis of a hypothetical tenancy, considering the property as it is and taking into account the usual arrangements between landlords and tenants about the burden of repairs. The fact that the property is in a state of disrepair does not mean that it has no annual value. The assessee is entitled to deduct the insurance premium paid, but not the vacancy remission or municipal taxes.
Issues: 1. Whether the Tribunal was right in holding that the property had no annual value and was outside the scope of Section 22 of the Income-tax Act, 1961? 2. Whether the assessee is entitled to deduct vacancy remission, municipal taxes and insurance premium.
Ratio Decidendi: 1. The annual value of a property is to be determined on the basis of a hypothetical tenancy, considering the property as it is and taking into account the usual arrangements between landlords and tenants about the burden of repairs. The fact that the property is in a state of disrepair does not mean that it has no annual value. 2. The assessee is entitled to deduct the insurance premium paid, but not the vacancy remission or municipal taxes.
Final Decision: The Tribunal's order is set aside and the question is answered accordingly. The assessee is entitled to deduct the insurance premium paid, but not the vacancy remission or municipal taxes.
( 1 ) THE Tribunal has referred in this income-tax reference under Section 256 (1) of the Income-tax Act, 1961, the following question for decision by this court:"whether, on the facts and in the circumstances of the case and on the interpretation of Sections 22 and 23 of the Income-tax Act, 1961, the Tribunal was right in holding that in computing the income from property the bona fide annual value of the property at 3, Gun Foundry Road, Calcutta, has not to be taken and in disallowing the vacancy remission and other deductions in respect of the aforesaid property ? "even though the words of the question are not as clear as they could and should be, it is plain what the question asks. The question is whether there is an annual value of premises No. 3, Gun Foundry Road, Calcutta, and whether it is to be taken into account under Section 22 of the Income-tax Act, 1961. The Tribunal has held that such a property is outside the scope of Section 22 of the Act. The second part of the question is also plain and that is whether the Tribunal was right in disallowing the vacancy remission and other deductions in respect of the said property. It would have been better if instead of using the expression " other deductions " the Tribunal had made it clear in the question what are the specific deductions in this case because they are confined to three items: (1) the vacancy remission, (2) the municipal taxes, and (3) the insurance premium, which are claimed as statutory deductions under Sections 23 and 24 of the Income-tax Act, 1961. These deductions are discussed in the order of the Income-tax Officer.
( 2 ) THE facts giving rise to this question may be stated at the outset. The assessee is a company in voluntary liquidation represented by a liquidator. The assessment year is 1962-63 for which the previous year is the calendar year 1961. The assessee filed a return of a total income on 10th December, 1962, showing a total income of Rs. 2,469 and a loss under the head " Capital gains " of Rs. 6,390, and in that computation a loss was shown under the item "less: loss under the head 'property'--Rs. 15,821". In support of the claim of loss for Rs. 15,821 under the head " House property" the assessee worked out a total vacancy claim of Rs. 1,23,672, for the premises in this reference, namely, 3, Gun Foundry Road. It is with the premises 3, Gun Foundry Road, that this income-tax reference is concerned.
( 3 ) THE facts about the property at 3, Gun Foundry Road, are as follows: The property was in the occupation of the West Bengal Government having been requisitioned by the said Government for housing refugees and that requisition, we understand, was made under the West Bengal Premises Requisition and Control (Temporary Provisions) Act, 1947. On the 26th December, 1960, the building was derequisitioned by the Government and since then the property was lying vacant. The correspondence between the assessee and the West Bengal Government shows that the said building was not in a habitable condition because the doors and window frames are stated to have been removed by the refugees and because a letter dated the 28th March, 1961, written by M/s. Talbot and Co. , valuers and surveyors, on behalf of the assessee to the Land Acquisition Collector shows that the value of the damages and dilapidation was estimated at Rs. 1,65,203. In these circumstances, the Income-tax Officer found that the property was not in a condition to be let out to tenants and hence the gross value thereof and the vacancy claim should both be ignored for the present computation. The decision of the Income-tax Officer, therefore, was that he did not allow the vacancy remission of Rs. 1,23,672, the municipal taxes amounting to Rs. 7,969, relating to premises No. 3, Gun Foundry Road, and the insurance premium of Rs. 6,089, in connection therewith as deductions.
( 4 ) THE Appellate Assistant Commissioner by his order found that No. 3, Gun Foundry Road, was "let"
