Vacancy allowance- Use caution

 

In an advocate’s case in Vivek Jain v. Assistant Commissioner of Income-tax (2011) 337ITR74 the Assessing Officer computed the annual let out value (ALV) of a vacant house under section 23(1)(a) , on the basis of rent received in the earlier years. In this case property was not let out during the accounting year and in the earlier year also the property was let out only for a period of 15 days . The annual value was thus estimated at Rs. 1,44,000. In this case the Tribunal as well as the AP High Court held that clause (c) of s.22(1) was not inserted to take out from its ambit properties held by the owner for self-occupation inasmuch as section 23(2)(a) provides for such an eventuality. It is only to mitigate the hardship faced by an assessee, and as clause (b) does not deal with the contingency where the property is let and, because of vacancy, the actual rent received or receivable by the owner is less than the sum referred to in clause (a), was clause (c) inserted. In cases where the property has not been let out at all, during the previous year under consideration, there is no question of any vacancy allowance being provided thereto under section 23(1)(c) of the Act.

The AP High Court further held that the contention that, if the owner had let out the property even for a day, it would acquire the status of "let out property" for the purpose of clause (c) for the entire life of the property even without any intention to let it out in the relevant year is also not tenable. The circumstances in which the annual let out value of a house property should be taken as nil is as specified in section 23(2) of the Act. Under section 23(1)(c), the period for which a let out property may remain vacant cannot exceed the period for which the property has been let out. If the property has been let out for a part of the previous year, it can be vacant only for the part of the previous year for which the property was let out and not beyond. For that part of the previous year during which the property was not let out, but was vacant, clause (c) would not apply and it is only clause (a) which would be applicable, subject of course to sub-sections (2) and (3) of section 23 of the Act. Such a construction does not lead to any hardship, inconvenience, injustice, absurdity or anomaly and, therefore, the rule of ordinary and natural meaning being followed cannot be departed from. The Court thus held that the benefit thereunder cannot be extended to a case where the property was not let out at all.


The Delhi Tribunal in Asstt CIT v. Dr. Prabha Sanghi (2012) 139ITD504 however took the stand that clause(c ) would have application even if the property is let in the earlier year(s) without any letting in the relevant year. This view contradict with the AP High Court view.

One may thus exercise caution in claiming any benefit of vacancy allowance.