S C MAJUMDAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) In this reference for the assessment year 1974-75, under Section 256(1) of the I.T. Act, 1961, the following questions of law have been referred to us :

(2.) The ITO, in his assessment for the relevant assessment year, pointed out that the assessee had income from house property of which the third floor flats were occupied by the assessee, who was an individual, from April, 1972, after its final completion. The assessee claimed deduction under Section 23(1), second prov., Clause (b) of the said Act in respect of six residential units let out and also for the third floor occupied by the assessee for his dwelling. It was submitted before the ITO that the deduction under Section 23(1), second prov., Clause (b) of the said Act is allowable to buildings, erection of which was begun after the 1st April, 1961, and completed after the 31st March, 1970, and as the construction of the house property of the assessee was completed in the financial year 1971-72, the assessee was entitled to a deduction under Section 23(1), second prov., Clause (b) of the said Act in the assessment year 1973-74. Before the ITO the asaessee laid stress on the completion of the building as a whole but the ITO held that this contention was not tenable. The ITO held that the deduction under this section was allowable for each of the residential units of the building if it was let out. The ITO took the view that the applicability of the section came into force as soon as the residential unit was completed and let out. He also held that the third floor of the building was completed in the financial year 1972-73 and was occupied by the assessee for dwelling in that year. He was of the view that the construction up to the second floor was completed by the financial year 1968-69 and was partly let out and partly occupied by the assessee and so the building up to the second floor was completed by that time. He also held that the completion of the third floor of the building was merely an extension of the existing completed building consisting of six residential units. He was of the view that since the deduction is allowable for each residential unit in the building, it was the completion of the residential unit that had to be considered, and not the completion of the building as a whole. The ITO, therefore, held that the deduction under Section 23(1), second prov., Clause (b) of the said Act claimed by the assessee cannot be allowed in respect of six residential units completed by the financial year 1968-69 and the third floor of the building completed by 1972-73 did not come into consideration as it was occupied by the assessee for self dwelling and not let out. For calculating the house property income he considered the gross rental income and allowed 3/4ths of the municipal tax and 3/4ths for the service charges and thus calculated the house property income from letting out at Rs. 12,487. As regards the dwelling house portion he calculated the annual letting out value at Rs. 8,400 and after allowing the proportionate deduction of municipal tax, for repairs, collection charges, vacancy allowances and interest he calculated the income at Rs. 12,430 after further allowing Rs. 1,800 as deduction under Section 23(2) of the I.T. Act, 1961.

(3.) The assessee appealed before the AAC. The AAC agreed with the finding of the ITO. He also pointed out that in the case of the assessee the construction of the house up to the second floor was completed by the end of the financial year 1968-69 and so the assessee was not entitled to a deduction under Section 23(1), second prov., Clause (b) of the said Act in respect of six residential units let out. The AAC also held that the ITO disallowed the assessee's claim for deduction in respect of the unit which was completed during the financial year. The AAC agreed with the ITO that the assessee was not entitled to any deduction under Section 23(1), second prov., Clause (b) of the said Act since it was in the occupation of the assessee.