Case: Liquidator Of Mahamudabad Properties (P) Ltd Vs. Commissioner Of Income Tax, West Bengal Ii, Calcutta

The assessee, a private limited company, is the owner of the property described as 3, Gun Foundry Road. Originally it housed a jute baling press. The property was requisitioned by the West Bengal Government in 1951. It was released to the assessee on December 26, 1960, after being used for housing refugees. Evidently, the building had not received the care it deserved, for when the assessee resumed possession he found it in a sorry stateThe assessee filed an income-tax return for the assessment year 1962-63 (for which the previous year was the calendar year 1961), and the return recited that the annual value of the building was Rs. 1, 23, 672. However, on the ground that the building had remained vacant throughout the previous year, the assessee claimed a remission in the computation of the income of the entire annual value. The assessee also claimed a deduction on account of insurance premium and municipal taxes relating t o the propertyThe Income-tax Officer took the view that the property was not in a habitable condition and did not admit of letting and therefore no question arose of applying the provisions of the Income Tax Act relating to the computation of income from property. Accordingly, he held that the annual value as well as the vacancy claim had to be ignored. The assessee appealed to the Appellate Assistant Commissioner, who held that although the property had remained vacant, it possessed an annual value and should be considered for assessment. On that view, he allowed the deductions claimed by the assessee. In second appeal, the Income Tax Appellate Tribunal favoured the view taken by the Income Tax Officer and accordingly held that the claim to deductions made by the assessee must fail. The Tribunal, in other words, affirmed that the property fell outside the scope of S. 22 of the Act and, consequently, denied the deductions.The Revenue appeared satisfied with the order of the Appellate Tribunal. But, at the instance of the assessee, a reference was made to the High Court at Calcutta on the following question:-"Whether on the facts and in the circumstances of the ca se and on the interpretation of sections 22 and 23 ofthe Income-tax Act, 1961 the Tribunal was right in holding that in computing the income from property the bonafide 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 ?"The High Court was of opinion that the Appellate Tribunal had misconceived the law in holding that because the property was in a state of disrepair it did not possess an annual value. As regards the assessees claim to the specified deductions, it held that while the insurance premium paid by it could be allowed, there was no merit in the claim on account of vacancy remission and payment of municipal taxes. Accordingly, the High Court recorded:-"On the first part of the question we hold that the Tribunal was wrong in holding that there was no annual value of this property No. 3, Gun Foundary Road and that it was outside the scope of section 22 ofthe Income-tax Act, 1961. We hold and we are of the opinion that this property has an annual value in the facts and circumstances of the case and it should be taken into account in the light of the principles and observations we have made above. We therefore set aside that part of the order of the Tribunal and answer the question accordingly. The answer to this first part of the question is in the negative. The answer to the second part of the question follows from the answer to the first part of the question and is that the only deduction in the facts and circumstances of t he present reference which the assessee can get is the deduction for insurance premium paid. We hold further on this part of the question that the other deductions, namely, (a) vacancy remission and (b) municipal taxes are not permissible and the assessee is not entitled to claim them in the present reference. We answer the second part of the question accordingly.The Tribunal, therefore, will dispose of the case conformably to this judgment and the interpretation of the principles enunciated herein under section 260 ofthe Income-tax Act, 1961."At the outset a serious controversy arose before us on the point whether the High Court was right in including a direction in it s judgment that the Appellate Tribunal should take into account its finding that the property possessed an annual value.The assessee says that when the Appellate Tribunal had held that the property did not fall within the scope of s. 22, it w as for the Revenue, in case it desired to charge the assessee on income from this property, to apply for a reference to the High Court. It is urged that the Revenue having omitted to do so, it was not open to the High Court to make an order enabling the Revenue to tax any income from that property.On behalf of the Revenue, the submission is that inasmuch as the assessee had taken the case in reference to the High Court for an adjudication on the deductions claimed by it the point whether the property possessed an annual value and its income was chargeable was directly raised by the assessee itself, and therefore, the High Court was right in rendering a decision on this point"Income from house property" is one of the head s into which different categories of income included in the total income have been classified. For the purpose of computing "income from house property", a code of provisions is incorporated in ss. 22 to 26 of the Act. S. 22 declares that the a nnual value of property consisting of buildings or lands appurtenant thereto in the ownership of the assessee, excepting such portions of the property occupied for any business or profession carried on by him of which the profits are chargeable to income tax, shall be chargeable to income tax as "income from house property".The annual value is determined after making a deduction on account of municipal taxes. The income from house property is then subject to the deductions set forth in Sec. 24. The deductions are made for the purpose of computing the net figure of the income fromn order to decide whether the High Court was right in including a direction to the Appellate Tribunal to take into account the annual value of the property, it is necessary to appreciate the true scope of the reference taken to the High Court. The Income Tax Officer had found that the property, having regard to its condition, was not capable of being let to tenants and therefore the gross value and the deductions claimed had to be ignored. The assessee was aggrieved by that finding. It must be remembered that in its return the assessee had indicated that the property possessed an annual value of Rs. 1, 23, 672 unless the property had an annual value, it believed, it could not be entitled to the deductions claimed by it. In appeal before the Appellate Assistant Commissioner, its case was that the property could not be ignored for the purposes of the Income-tax Act. The contention was accepted by Appellate Assistant Commissioner, who held that the annual value of the property could not be ignored and further that the vacancy remission and other deductions claimed by the assessee were admissible . When the Revenue proceeded in appeal to the Appellate Tribunal it urged that the assessee was not entitled to the deduction claimed in respect of the property. The Appellate Tribunal considered the evidence relating to the condition of the building, and was of opinion that the building was not in a habitable condition and it could not be said that the property could be reasonably let out at any particular annual value. In its opinion, the property fell outside the scope of Section 22 and, therefore, the Income Tax Officer was right in ignoring the property altogether and in not computing any profit or loss in respect of it. The Appellate Tribunal set aside the order of the Appellate Assistant Commissioner and restored the order of the Income Tax Officer. It was in the context of this train of proceedings that the assessee now took the case in reference to the High Court. The question referred to the High Court was rooted in the fundamental submission of the assessee that the property possessed an annual value for the purpose of Section 22 and it was, therefore, entitled to the vacancy remission and other deductions claimed by it. The frame of the question indicates that it has two parts, whether the Appellate Tribunal was right in holding that in computing the income from property the premises 3, Gun Foundry, possessed an annual value and whether the Appellate Tribunal was right in disallowing the vacancy remission and other deductions in respect of that property. Plainly, unless the property fell within the scope of Section 22 there was no occasion for considering the assessees claim to the deductions. The High Court also, when considering the reference, examined the question in its bifurcated character. But although, bifurcated, the thrust of the question was directed to the consideration of the deductions claimed by the assessee. Whether the property possessed an annual value was necessary to determine solely for the purpose of considering the claim to deductions. Unless the assessee was interested in those deductions it would not have asked for a finding, that the property possessed an annual value. The High Court was, therefore, right in examining both p arts of the question and in determining whether the property had an annual value and the deductions claimed were permissible. The assessee can have no quarrel with the High Court considering the first part of the question, because that was the very case of the assessee throughout from the earliest stage of the proceeding. From what has gone before it is apparent that the determination whether the property has an annual value arises only if it is found that on the terms of the statute the assessee is otherwise entitled to the deductions claimed by him. If those deductions are not permissible under he relevant section, no question arises of examining whether the property has an annual value. Viewed in that light, the determination of the question whether the property has an annual value falls into its proper place. It cannot be contended that even though the claim to deductions must otherwise fail, the question whether the property has an annual value must still be considered. Such a contention is not open to the Revenue. If the Revenue intended that the High Court should determine whether the property had an annual value as a question independent of its finding on the admissibility of the deductions, the Revenue should have applied to the Appellate Tribunal for a reference to the High Court accordingly. It did not ask for a reference and, therefore it is not entitled to raise that contention now. It seems to us that there is only one way of looking at the case, and that is whether on the assumption that the property has an annual value and falls within the scope of Section 22, the assessee is entitled to the deductions under Sections 23 and 24. If he is entitled to any of those deductions, then in order to establish the foundation in which the deductions can be rooted it will be necessary to determine whether the property possesses an annual value. That is what the High Court did, and the observations made by it must b e construed accordingly. It may be that the deduction to which the assessee is found entitled runs to a far smaller figure than the annual value property attributable to the property. In that event the consequence will be a net annual value of some significance. And this will be the consequence notwithstanding that the reference is at the assessees instance and no reference at all has been brought by the Revenue. The result appears anomalous, but after all it is for the assessee to choose whether or not he wishes to take a reference to the High Court, and if he is found entitled to even one of the deductions claimed by him and effect cannot be given to that claim without the annual value of the property being computed he has only to thankt the same time, we must point out that the High Court, after holding that the property has an annual value, has erred in stating that it sets aside that part of the order of the Appellate Tribunal. The High Court, on a reference before it, does not act as a court of appeal. The jurisdiction is advisory and no more. The High Court is empowered to decide the question of law referred to it, and to return its answer to the Appellate Tribunal. The Appellate Tribunal then takes up the appeal and disposes it of conformably with the answer returned by the High Court. It is not part of the jurisdiction of the High Court to interfere and modify or set aside the appellate order of the TribunalAs has been said earlier, the High Court considered both parts of the question referred to it, whether the property possessed an annual value and whether the deductions claimed by the assessee were admissible. It examine d first whether the deductions were admissible. It found that the amount of Rs. 689 paid on account of fire insurance premium in respect of the property was deductible from the annual value under s. 24(1) (ii). Regarding the claim under s. 24( 1) (ix) on account of vacancy remission, it disallowed the deduction on the ground that the property was not let during the previous year. The claim to deduction under s. 23 of the municipal taxes paid in respect of the property was also rejected in the view that the municipal taxes could be deducted only if the property was in the occupation of a tenant. The High Court then turned to the fundamental question whether the property possessed an annual value for the purpose of s. 22, and held that merely because the building was in a state of disrepair it could not be predicated that it had no annual value. In the result, on the question referred by the Appellate Tribunal it returned the opinion that the property possessed an annual value and that the assessee was entitled to a deduction in respect of insurance premium only.

Court's reasoning:
It is immediately apparent thattheproviso to s. 23(1) can be availed of only iftheproperty is intheoccupation of a tenant. It would seem so onthelanguage oftheproviso. The assessee does not rest his claim on anyr provision of law. Inthecircumstances,theHigh Court is right in denyingtheclaim in respect of municipal taxesThe provisions oftheIncome-tax Act relating tothecharge on income apply in relation to a specific assessment year andtheprovisions oftheAct providing forthecomputation ofthechargeable income (which includes taking into account permissible deductions inthecomputation oftheincome chargeable under different heads) apply, intheabsence of anything tothecontrary in relation totherelevant previous year. The total income oftheprevious year needs to be computed, andthedifferent provisions relating tothecomputation ofincome must be read and applied inthecontext ofthefacts and circumstances obtaining during that year, unlessthecontext suggeststhecontrary. Consequently, when reading s. 24(2) (ix) which speaks of property which is let and which was vacant during a part oftheyear, we must read it to mean property which was let duringtheprevious year and was vacant during a part oftheyear. It cannot refer to property which was not let at all duringtheprevious year. Inthepre sent case,e is no evidence to show that it was ever even given out bytheassessee thattheproperty was available for letting. We were referred to Maharajadhiraja of Darbhanga v. Commissioner of Income-tax, Bihar and Orissa, (1) where it w as observed bythePatna High Court that s. 9 (1) paragraph 7 oftheIncome Tax Act, 1922 could be invoked in a case where a house not intheoccupation oftheowner was habitually let to tenants andthevacancies referred to are vacancies betweenthedifferent tenancies, or a house though not let is dismantled and shut up bytheowner. We have carefully readthejudgment delivered by that High Court, and it appears thattheobservation is a mere obiter. The actualpointfor decision was in fact quite different. It was a case wheretheassessee, who owned several houses keptm furnished and open for his residence and never letm to any tenant, and he did not occupy some ofm duringtherelevant previous year. He claimed a vacancy remission in respect of. The High Court, in our opinion, rightly rejected