Income Tax Appellate Tribunal - Amritsar
Assistant Commissioner Of Income Tax vs Dr. Amrit Lal Adlakha on 22 February, 2006
Equivalent citations: (2006)105TTJ(ASR)271
ORDER
Bhavnesh Saini, J.M.
1. This appeal by the Revenue is directed against the order of the CIT(A)-I, Ludhiana dt. 17th Sept., 2004 for the asst. yr. 2001-02.
2. I have heard the. learned representatives of both the parties and gone through the observations of the authorities below. I take this Departmental appeal for the purpose of disposal on each ground as under.
3. Ground No. 1 :
(I) The learned CIT(A) has erred both in law and on facts of the case in allowing claim for deduction of interest under Section 24 at Rs. 1,00,000, being not admissible under the head "Income from house property" on the plot adjoining the hospital purchased by the assessee after availing loan from the bank.
3.1 This ground relates to the share in the land and building adjoining to Adlakha Hospital. The AO recorded the facts regarding this property and mentioned that this property was an elongated plot measuring 168 feet by 40 feet approximately. This plot is situated at the Race Course Road and thus it had a front width of 40 feet. This plot had vacant land in the front and in the end i.e. away from the road, it had some constructed portion consisting of three rooms, store, bath room, etc., and a backyard behind the constructed portion. The width of the plot on the back side was 36.3 feet. This property, also called 393, Basant Avenue, was owned by one Shri Sudershan Verma. Three separate shares of this property were sold by him to the assessee, his wife Dr. Sharda Adlakha and Shri Sahil Adlakha vide three separate transfer deeds executed on different dates in the years 2000 and 2001 as detailed below :
Shares sold Name of the Tiansferee(s) Date of transfer
1/3rd i.e. 241.66 Sq. yds. Dr. A.L. Adlakha 27-1-2000
1/3rd i.e. 241.66 Sq. yds. Dr. Sharda Adlakha 30-5-2000
1/3rd i.e. 241.66 Sq. yds. Dr. A.L. Adlakha & Sh. Sahil 26-2-2001
Adlakha (equal co-owners)
The AO on perusal of these deeds found that at the front of this plot, there is a Race Course Road and at the back is 'Nayyar Niwas'. It was seen that three separate plots measuring 54.3 feet by 40 feet approximately were sold on 27th Jan., 2000 i.e. from portion of the plot which fell on the Race Course Road was sold to Dr. A.L. Adlakha (assessee). Thereafter, on 30th May, 2000, the middle portion of the land measuring 54.3 feet by 40 feet (falling between the constructed portion and the portion of land already sold to Dr. A.L. Adlakha) was sold to Dr. Sharda Adlakha, wife of the assessee. Finally, on 26th Feb., 2001, the balance portion of the property which actually contained the constructed portion of the total plot was sold jointly to Dr. A.L. Adlakha and Shri Sahil Adlakha. The assessee has thus two separate shares in this property. One is individual share and second is jointly with his son. The AO has observed that the first plot i.e. vacant plot of land was purchased on 27th Jan., 2000. The assessee has claimed interest on loan taken from the Punjab National Bank for the purchase of this property. The assessee has shown interest on loan of Rs. 1,86,888. However, the assessee has not given any details as to whether the amount of interest claimed includes any interest on loan, if any, taken for the constructed portion purchased in February, 2001. The two portions are completely separate from each other and vacant plot of land in the front cannot be called appurtenant to the construction portion at the back as in between them lies the plot of Dr. Sharda Adlakha the constructed portion and the vacant land being 54.3 feet apart. The AO further observed that interest claimed is apparently in respect of the first portion which is a vacant plot of land. This being not a house property, no deduction of interest under Section 24 was allowed to the assessee. The addition was made accordingly by a sum of Rs. 1 lakh.
3.2 The addition was challenged before the CIT(A) and it was submitted that during the year under consideration, the assessee purchased property adjoining to the Adlakha Hospital, Amritsar along with the other family members by separate sale deeds. It is a constructed house with a land appurtenant thereto. That for acquiring this property, the assessee has taken a loan from Punjab National Bank, Amritsar. During the year under consideration, the assessee had paid interest on borrowed capital taken for acquiring the property and claimed Rs. 1 lakh under the head "Income from house property" as interest paid on borrowed capital. It was submitted that the AO while framing the assessment disallowed the assessee's claim of interest paid on borrowed capital with the contention that as there is no construction on the property, the interest, so paid, is not allowable. Section 24(b) of the IT Act was relied upon in which it is provided that the income chargeable under the head "Income from house property" shall be computed after making the following deductions :
(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital;
It was, therefore, submitted that the above provision clearly stated that if the interest was paid by the assessee on borrowed capital taken for acquiring any property, the interest so paid is eligible for deduction. The assessee relied upon the decision in the case of CIT v. National Insurance Co. Ltd. Dwarkadas Shrinivas v. Sholapur Spg. & Wvg. Co. Ltd. . It was submitted that the property is a bundle of rights which the owner can lawfully exercise to the exclusion of all others. He is entitled to use and enjoy it as he pleases provided he does not infringe any law of the State. It was further submitted that the word property does not mean merely physical property but also means the right, title or interest in it. The decision in the case of CIT v. Daksha Ramanlal was relied upon. It was further submitted that the word 'property' has a wider connotation and includes land, building and building with land appurtenant thereto for the purpose of Sections 22 to 27 of the IT Act. It was further submitted that since different words are used with regard to the term 'house property, therefore, the meaning assigned in Section 24 should be taken. The decision by the Tribunal, Madras Bench in the case of S. Govindarajan v. ITO (1982) 1 ITD 722 (Mad) was relied upon in which it was held :
The word "acquired" in Section 24(1)(vi) would certainly comprehend purchase of sites, and it would be a narrow view to hold that "property" would comprehend only the building and not the site on which it is constructed. The claim of the assessee was, therefore, allowable.
3.3 The CIT(A) considered similar matter in the case of Dr. Sharda Adlakha and deleted the addition. Copy of the same order is also filed on record. The CIT(A) deleted the addition by finding force in the submission of the assessee by relying upon the order of the Tribunal, Madras Bench in the case of S. Govindarajan (supra). The CIT(A) held that the assessee had purchased a house along with the land adjoining thereto. The portion of the constructed building also falls in assessee's case. Moreover, as per Section 24 of the IT Act, to claim the deduction of the interest, the requirement is whether the property has been acquired. The CIT(A) also held that the word 'property' has not been defined and different words have been mentioned as "Income from house property". Therefore, the word used in the Act is to be used. The CIT(A) also believed that under Section 24, the word 'house property' is not used and the word 'property' has been mentioned. The CIT(A) also accepted the contention of the assessee that the property, in question, has only one entrance from the road and if entry is not allowed from that gate on account of existing sides the two portions of this property cannot be approached for the entry in their areas. The CIT(A) considering the facts and the circumstances of the case deleted the addition.
3.4 The Revenue is in appeal on the ground mentioned above. The learned Departmental Representative relied upon the order of the AO and submitted that for claiming deduction under Section 24(b), the word deduction from income from house property has been used and, therefore, since the assessee did not have a house property within the meaning of Section 24 as is explained in the assessment order, therefore, the AO rightly disallowed the interest paid on the borrowed capital. He has submitted that loan is taken for pur-chase of vacant land and for claiming deduction under Section 24, there should be some construction in the property purchased out of the borrowed funds. The learned Departmental Representative also referred to facts explaining various portions owned by the assessee and his family members. The learned Departmental Representative submitted that the decision of the Madras Bench in the case of S. Govindarajan (supra) is not applicable.
3.5 On the other hand, the learned Counsel for the assessee relied upon the submissions made before the CIT(A) and submitted that the assessee along with his family members purchased a constructed house with land appurtenant thereto through separate sale deeds in which the assessee has acquired 50 per cent share and his wife has 33.33 per cent and his son has 16.67 per cent share. He has submitted that it is one property having one boundary wall with one entrance and is used for the purpose of residence. He has further submitted that after purchase of property by three family members, the boundary wall, the entrance and situation of the house remained the same and it was used by all the family members together. He has further submitted that the assessee has taken loan from the Punjab National Bank for acquiring the property in question. The learned Counsel for the assessee relied upon the order of the Tribunal, Madras Bench, in the case of S. Govindarajan (supra) and the decision of the Tribunal, Chandigarh Bench in the case of Master Sukhwant Singh v. ITO (1998) 61 TTJ (Chd) 643.
3.6. I have considered the rival submissions and material on record. The AO has referred various deeds of sale through which the property, in question, was purchased by the assessee and his family members. The assessment year involved is 2001-02. The assessee claimed deduction on account of interest paid for borrowed funds which was taken for acquiring the property in question. Details mentioned by the AO clearly show that the assessee had the ownership right not only on account of the land, in question, but also in the constructed portion also. The facts clearly justified that the assessee and the family members though purchased the property, in question, through different sale deeds on different dates but their intention to purchase whole of house property is clear which consists of constructed portion as well as land appurtenant thereto. In the previous year, relevant to the assessment year in question, the assessee and his all the family members were owners of the property. Even going by the finding of the AO, the position of the building was such that it has some open land and some constructed portions. The GIT(A) rightly appreciated the facts and circumstances of the case while deleting the addition because if the property is taken in different portions, then it would not be in better use by the assessee and his family members. It is not a disputed fact that the assessee and his family members are residing in the aforesaid residential property which is having one boundary wall and one entrance. The AO tried to bifurcate their shares for the purpose of making the disallowance. Moreover, the AO disallowed the interest because it was not a house property. I do not agree with the finding of the AO because in Section 24(b) the deduction is allowable where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed funds, the amount of any interest payable on such capital. Therefore, the only word 'property' has been used in this section, which is acquired from the borrowed capital. The CIT(A), therefore, rightly held that in Section 24(b) the word 'house property' is not used. The CIT(A), therefore, rightly relied upon the decision in the case of S. Govindarajan (supra). This is a direct decision applicable to the facts and the circumstances of the case. It is a settled law that while interpreting the provisions of taxing statute, strict interpretation has to be applied. Since in Section 24(b), the word 'house property' is not used, therefore, the entire findings of the AO are not justified.
3.7 In the case of Master Sukhwant Singh v. ITO (supra), the Tribunal, Chandigarh Bench held :
Income from house propertyDeduction under Section 24(1)(vi)Interest payable to estate officeAssessee purchased a leasehold commercial site in open auctionBid money payable in yearly instalments along with interestUnpaid price is debt incurred by assessee for acquiring the propertyCapital passed into the hands of assessee in the form of leased propertyTransaction of allotment of property to assessee on instalment basis does give rise to the relationship of lender and borrower between Estate Office and the assessee Accordingly interest paid on unpaid price is an admissible deduction under Section 24(1)(vi).
The CIT(A) rightly deleted the addition in the matter. I do not find any infirmity in the order of the CIT(A). The same is confirmed and the appeal of the Revenue on this issue is dismissed.
4. Ground No. 2 :
(2) The learned CIT(A) has erred both in law and on facts of the case in deleting the addition of Rs. 20,000 under the head "Income from house property" made by the AO on account of assessee's share in the ARV of Dharampur building.
This issue relates to the determination of the annual value of the building at Dharampur. The assessee stated that the building is incomplete as per the photographs available on record taken at the time of search on 6th Feb., 2001. However, a perusal of the record reveals that this building was purchased in 1993 and was called "Sunrise cottage". The assessee has been showing this building in the asset side of the balance sheet of the earlier years. During the year under consideration, in December, 2000, this building was demolished and new construction was started on this building. However, the building was existing till November, 2000 and the assessee has not shown the annual value for the period April, 2000 to November, 2000. In the absence of any details, the AO took the annual value of the assessee's share in this building for a period from April, 2000 to November, 2000 at Rs. 20,000 to the best of his judgment and added the same. The addition was challenged before the CIT(A) and it was submitted that the assessee had one property at Dharampur which was purchased with co-owner Dr. Ved Prakash of Ludhiana in 1988 in equal shares. It was very old property. The property was situated near the railway track and contains one Lantor which was cracked. During the year under consideration, the constructed portion was demolished as it is situated near the railway track. The building was not in a condition for any type of use by anybody. No part of the building was ever put to use by the assessee on account of its dilapidated conditions. In such circumstances, there could be no expectation of any rent, specially when there is railway track below the property and on the top of the property, there is a national highway. It was further submitted that there is no evidence with the Department that the property which was demolished even before the search was capable of inhabitant. It was submitted that the AO with the presumption that the building was demolished in December, 2000 had taken the annual value for the whole building for the period April, 2000 to November, 2000. It was further submitted that even what is taxed under the IT Act is only the annual value of the property. The expression "annual" is the adjective of the word "year". What is taxed under Section 22 is, therefore, only the yearly income of the person derived from property. Annual value cannot mean monthly value, weekly value, daily or momentary value. Therefore, the addition is unjustified. The assessee has relied upon the decision of the Special Bench of the Tribunal, Madras Bench (Special Bench) in the case of M. Raghunandan v. ITO (1985) 21 TTJ (Mad) 526 : (1985) 11 ITD 298 (Mad) in which it was held as under :
A basic concept in which Section 22 differs from all other sections is in brining in a taxable period by reference to 'annual value'. In other words, what is taxed is only the annual value of the property. The expression 'annual' is the adjective of the word 'year'. What is taxed under Section 22 is, therefore, only the yearly income of the person derived from property. Legally and etymologically annual value cannot mean monthly value, weekly value, daily or momentary value. Therefore, here property income is brought to tax; if there is no 'annual value', there is no authority for taxing the property income at all. If the legislature wanted a taxing of property income for a shorter period, there was no purpose in utilising the expression 'annual value of property'. Therefore, where the property does not give rise to an annual value or gives income for a lesser period, notional or otherwise, the income from that property cannot be included in total income. This was relevant in the instant case, where the property was in the possession of the assessee only for a part of the year having been built during the course of the previous year. This is also of importance, where the assessee has disposed of the property during the course of the year. Therefore, if for the one reason or the other, the assessee is not the owner of the property for the full year, income from property cannot be included while working out his total income.
The CIT(A) considering the decision of the Special Bench in the case of M. Raghunandan (supra) deleted the addition. The CIT(A) was also of the view that the entire finding of the AO is based upon the presumption and that the facts stated by AO has been controverted by the counsel of the assessee because at the time of search on 6th Feb., 2001, a new lantor stood in place of the old property which had been demolished and that the Department had taken photographs of the crack in the lantor during the said search. The CIT(A) also accepted the view that as per Section 22 only the annual value of the property could be taken for the purpose of making the addition. However, in this case, the AO has taken only estimated value of the property for part of the year which is not permissible under the law. The CIT(A) accordingly deleted the addition.
4.1 The Revenue is in appeal. The learned Departmental Representative relying upon the order of the AO submitted that no notional value was shown because property was demolished therefore, the AO rightly took part of the value because no details whatsoever was filed and assessment can be made as is made by the AO.
4.2 On the other hand, the learned Counsel for the assessee relied upon the submissions made before the CIT(A) and relied upon the order of the Special Bench of the Tribunal, Madras Bench in the case of M. Raghunandan (supra).
4.3 I have considered the rival submissions and material available on record. Section 22 of the IT Act provides :
Income from house property : The annual value of property consisting of any buildings or lands appurtenant thereto of which the assesses is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property'.
Section. 23 provides determination of the annual value and Sub-section. (1)(a) provides that the annual value of any property shall be deemed to be the sums for which the property might reasonably be expected to let from year to year. 'Letting' means creation of the interest of the tenant in the property therefore it should be capable of being let out to the tenant. The Hon'ble Bombay High Court in the matter of Shree Nirmal Commercial Ltd. v. CIT (1991) 96 CTR (Bom) 54 : (1992) 193 ITR 694 (Bom) held that the income from house property-charge-property owned by assessee should be capable of being let out.
4.4 The AO himself mentioned certain facts and agreed to the submissions of the assessee that during the part of the year building was demolished and, therefore, the AO has taken only part of the value for the purpose of making the addition in the year under consideration. The CIT(A) relied upon the decision of the Special Bench of the Tribunal, Madras Bench in the case of M. Raghunandan (supra). From this decision of the Special Bench the expression "annual" is the adjective of the word "year". What is taxed under Section 22 is, therefore, only the yearly income of the person derived from the property. The annual value, therefore, cannot be taken on notional basis for part of the year as per the aforesaid decision. All the facts on record, therefore, were clearly justified deletion of addition. The CIT(A) deleted the addition because in the year under appeal the annual value of the property had not been taken by the AO. The decision in the case of M. Raghunandan was, therefore, rightly relied upon by the CIT(A).
4.5 I may also rely upon the order of the Division Bench of the Tribunal, Amritsar Bench in the case of Sham Sunder Behl v. Addl. CIT in ITA Nos. 491/Asr/2001 & 386/Asr/2002 in which the Tribunal vide order dt. 15th Feb., 2005 [reported at (2006) 99 TTJ (Asr) 1147Ed.] considered the same matter in issue and decided the issue in favour of the assessee vide order dt. 15th Feb., 2005. The findings in paras 21, 22 and 23 are reproduced as under:
21. We have considered the rival submissions and material available on record. The assessee very specifically before the authorities below have pleaded that there was no electricity or water supply fitted in the flat. This fact was not verified by the authorities below and no such attempt have been made on their part. The assessee has made the same submissions before the AO in the earlier asst. yrs. 1996-97 and 1997-98. Copies of the written submissions and the assessment orders are available in the paper book. The AO was satisfied with the explanation of the assessee as. regards non-habitability of the flat in question, because of electricity and water supply not provided in the flat and as such did not charge the ALV of the flat to tax under Sections 22 and 23 of the IT Act. Considering the past history of the assessee and submissions made before the authorities below clearly established that no water or electricity supply was available in the flat in question, in the relevant assessment year. The assessee also explained that certain flooring, bath room etc. were also found incomplete and as such it could not be used for the purpose of dwelling. The Hon'ble Orissa High Court in the matter of CWT v. K.B. Pradhan (1981) 130 TTR 393 (Ori) while considering the definition of the house observed that the word "house" has no statutory definition and, therefore, has to be given the common parlance meaning. The dictionary meaning of the word is "building for dwelling in, a building in general, a dwelling place". It has also the meaning of "abode habitation, etc.". It was further observed that where, however, the house is in the process of construction and, on account of the fact that it is not complete, has not reached a habitable stage,, the concept of a "house" cannot be extended to cover such an incomplete construction. Section 22 of the IT Act provides the annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to the income-tax, shall be chargeable to income-tax under the head "Income from house property". Section 23 of the IT Act provides how annual value to be determined and provides that annual value of the property shall be deemed to be
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property or any part of the property 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;
22. It is admitted fact that property was not let out to any tenant. The necessary condition for charging the ALV to tax is an annual value of the property which would be a sum for which property might reasonably be expected to let or where the property is let and the annual rent received or receivable. Therefore, the condition of Section 23(1)(a) is to be satisfied in this case upon which the property might reasonably be expected to let from year to year. The letting of the property means creating the interest of the tenant in the property or capable of creating interest of the tenant in the property for use and occupation of tenanted property. According to the assessee the flat, in question, was not in habitable condition because it was not having electricity or water connection in the financial year, relevant to the assessment year and other things have also to be completed for the purpose of use and occupation of the property by the tenant. In the absence of the material amenities available in the property, it is difficult to believe that the property might reasonably be expected to let out to the tenant. It is also difficult to believe that the owner would be in a position to create interest of the tenant in the property. The Hon'ble Bombay High Court in the matter of Shree Nirmal Commercial Ltd. v. CIT (1991) 96 CTR (Bom) 54 : (1992) 193 ITR 694 (Bom) at p. 712 held :
In our view, unless the property owned by the assessee is of such nature as could be let out, the charge under Section 22 of the Act cannot be attracted. In our view, if the property is of such nature that it is inherently incapable of being let out and the assessee is the owner thereof, then the charge under Section 22 of the Act cannot arise. What is necessary for the charge under Section 22 of the Act to arise is that the property be inherently capable of being let out.
23. The word 'building' used in Section 22 of the IT Act should be capable of letting out as stated in Section 23(1)(a) of the IT Act. The flat, in question, was not in a position because of the above infirmity to be let out to any tenant. Therefore, the authorities below have not considered the case of the assessee in property perspective. The AO rejected the claim of the assessee merely by mentioning that in Delhi flats are handed over after obtaining completion certificate by the builder. This finding is based upon the presumption only and cannot take place of the proof. At the cost of repetition, we hold that the AO shall accept the claim of the assessee that property was not expected to be let out. Considering the above discussion and the case law referred to above, we set aside the orders of the authorities below.
The addition is uncalled for in the matter. The same is accordingly deleted. As a result, the appeal of the assessee is partly allowed."
4.6 The finding of the CIT(A) has clearly held that property, in question, was not capable to let out or to use for any purpose because it was demolished as cracks appeared which is supported by photographs taken by the Department. There is no infirmity in the order of the CIT(A). The same is, therefore, confirmed. This ground of appeal of the Revenue is accordingly dismissed.
5. Ground No. 3:
(3) The learned CIT(A) has erred both in law and on facts of the case in deleting the addition of Rs. 60,177 under the head "Income from profession" ignoring thereby the fact that non-production of the books of account, record and supporting vouchers required to be maintained as per law, as prescribed under Rule 6F of the IT Rules, 1962 inspite of availing numerous opportunities ought to have been maintained, for which adverse inference was required to be drawn as per the settled position of law.
5.1 The AO directed the assessee to furnish the details of the income earned from the profession. The books of account as specified in Rule 6F of the IT Rules were also called for. The assessee, however, could not furnish details of the income earned from profession. The AO, therefore, estimated the income at Rs. 1,25,000 from profession.
5.2 The addition was challenged before the CIT(A) and it was submitted that part of books of account were produced and part of the books of account could not be produced because the search was conducted in the case of the assessee on 6th Feb., 2001 and almost the whole time the assessee remained busy in that matter and the books of account were checked as his- accountant now left the job and his record keeper who maintained all the records was on leave due to the death of his relative. Therefore, all the vouchers of the expenditure could not be produced. It was further submitted that the assessee had suo moto offered a sum of Rs. 84,145 for taxation purposes on account of disallowance of expenses and that the assessee had already declared income from profession of Rs. 64,823. It was determined by the AO at Rs. 1,25,000. The CIT(A) considering the facts and the circumstances of the case was of the view that the addition of Rs. 15,000 would serve the purpose and accordingly allowed the appeal of the assessee partly.
5.3 The learned Counsel for the assessee at the outset submitted that after the order of the CIT(A) the addition left for consideration is Rs. 45,177 instead of Rs. 60,177.
5.4 The learned Departmental Representative agreed to this proposition. The learned Departmental Representative relied on the order of the AO.
5.5 On the other hand, the learned Counsel for the assessee submitted that part of books of account were produced and part could not be produced as is explained before the CIT(A).
5.6 I have considered the rival submissions. The facts are not in dispute with regard to the non-production of part of books of account because the assessee is not in appeal and did not challenge the part of the addition of Rs. 15,000 as sustained by the CIT(A). There is only question left for consideration is whether the addition sustained by the CIT(A) is justified. The assessee has already declared income from profession at Rs. 64,823. The AO has taken the addition at Rs. 1,25,000. The Hon'ble Supreme Court in the matter of Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC) held "On the facts of the case that both the ITO and the Tribunal in estimating the GP rate on sales of the assessee did not act on any material but acted on pure guess and suspicion and therefore it was a fit case for the exercise of the power of the Supreme Court under Article 136 of the Constitution of India." It was also held "there must be something more than bare suspicion to support the assessment order". In the aforesaid case though part of the books were not produced but the AO made excessive estimate of income which was not based on any material. Merely because some of the books of account have not been produced before the AO would not justify unreasonable and exhorbitant estimate of income. Considering the income declared by the assessee and estimated by the CIT(A) through which part addition is sustained, I am of the view that no interference is called for in the matter. I confirm the order of the CIT(A) and dismiss this ground of appeal of the Revenue.
6. No other ground is pressed or argued.
7. As a result, the appeal of the Revenue is dismissed.