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1991 Supreme(Cal) 22
High Court of Calcutta
A.K. Sengupta, Bhagabati Prasad Banerjee, JJ.
Commissioner Of Income-Tax – Appellant
Versus
Smt. Shyama Devi Dalmia – Respondent
Income-tax Reference 16 of 1989
Decided On : Jan 25, 1991
Bajoria
The benefit conferred by the second proviso to Section 23(1) of the Income-tax Act, 1961 could only be availed of if the building was actually used for residential purposes and not otherwise.
Headnote:
Income-tax Act - Deduction under Section 23(1) - 23(1) - 23(1)(b) - 23(1) proviso - 23(1) second proviso
Fact of the Case:
The assessee claimed deduction of Rs. 6,000 under the second proviso to Section 23(1) of the Income-tax Act, 1961 for the assessment year 1982-83. The Income-tax Officer rejected the claim, but the Tribunal held that the assessee was entitled to the deduction.
Finding of the Court:
The court found that the nature of the user of the building let out determines the grant or denial of relief envisaged by the second proviso to Section 23(1) of the Act. It held that the benefit conferred by the proviso could only be availed of if the building was actually used for residential purposes and not otherwise.
Issues: The main issue was whether the assessee was entitled to deduction under the second proviso to Section 23(1) of the Income-tax Act, 1961 for the assessment year 1982-83.
Ratio Decidendi: The court interpreted the second proviso to Section 23(1) and held that the benefit could only be availed of if the building was actually used for residential purposes. It emphasized that a residential unit, in the context in which it is used, necessarily denotes a dwelling unit for residence.
Final Decision: The court answered the question in the reference in the negative and in favor of the Revenue, thereby denying the deduction to the assessee.
Ajit K. Sengupta, J.
1. IN this reference under Section 256(1) of the Income-tax Act, 1961, the following question of law has been referred to this court for the assessment year 1982-83 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in directing the Income-tax Officer to allow deduction under the second proviso to Section 23(1) of the Income-tax Act, 1961, in respect of the portion of property used by the bank ?"
2. THE facts in brief are that, in the assessment year 1982-83, the asses-see claimed deduction of Rs. 6,000 out of the house property income under the second proviso to Section 23(1) of the Act. THE Income-tax Officer rejected this claim of the assessee as, according to him, four floors of the building stood let out to the bank and were not utilised for "residential purposes". On appeal, the Commissioner of Income-tax (Appeals) confirmed the action of the Income-tax Officer. Being aggrieved, the assessee preferred a second appeal before the Tribunal. For the following reasons, the Tribunal held that the assessee was entitled to deduction under the second proviso to Section 23(1) of the Act :
"We have considered the contentions of both the parties as well as the facts on record. In our opinion, the contentions raised for the assessee carry force. The second proviso to Section 23(1) of the Act refers to residential units. It does not refer to the purpose for which the occupant actually uses it. In any case, it has been recognised as a residential unit by the Calcutta Corporation. The Income-tax Officer also does not dispute this basic fact. Hence, we hold that the assessee is entitled to the deduction envisaged under the said proviso and so we direct that the same be allowed to the assessee."
3. AT the hearing, it has been contended on behalf of the Revenue that the object of the proviso to Section 23(1) of the Act is to encourage construction of residential units which would be used as such and not for construction of houses which would be put to commercial use.
4. ON the other hand, the contention of Mr. Bajoria, learned counsel for the assessee, is that there is no requirement under the law that the construction has to be used for residence only. If the construction is of a residential unit, it is immaterial whether it is used for a commercial purpose. The concept of user is irrelevant in the context of the proviso to Section 23(1). Our attention has also been drawn to several decisions to which we shall presently refer. We have considered the rival contentions. Section 23 aims at the determination of annual value in respect of house property where it is either fully or partly let out or is used for the owner's own residence. The material portions of Section 23(1) of the Act as it stood at the relevant time run thus :
"23(1) 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 be let from year to year ; or (b) where the property is let and the annual 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 : Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted in determining the annual value of the property : Provided further that the annual value as determined under this subsection shall,.... (b) in the case of a building comprising one or more residential units, the erection of which is begun after the 1st day of April, 1961, and completed after the 31st day of March, 1970, but before the 1st day of April, 1978, for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of-- (i) in respect of any residential unit whose annual value as so determined does not exceed one
