Income-tax---

----Income from house property---Deductions---Vacancy allowance-- Agreement to sell property---Property in occupation or agreement holder to purchase property and owner not receiving rent---Owner of property is voluntarily foregoing right to collect rent---Property cannot be deemed to be vacant---Owner of property not entitled to vacancy remission---Indian Income Act Tax, 1961, S.24(1)(ix).

While making the assessment of the assessee, an owner of a house property, for the assessment years 1976-77 and 1977-78, the Income-tax Officer accepted the income from the house property shown by the assessee, wherein the assessee had not admitted any income for the period from November 1, 1975 to November 30, 1976. Subsequently, the Commissioner of Income-tax found that during the above period the property was in the occupation of the agreement holder to purchase the property and that the assessee was not receiving any rent and hence the assessee should have disclosed the income from the house property in respect of the said period. The Commissioner of Income-tax, therefore, invoked the provisions of section 263. of the Income Tax Act, 1961, since the order of the Income-tax Officer was .erroneous and prejudicial to the interest of the Revenue and directed the Income-tax Officer to re-compute the income from house property. On appeal, the Tribunal held that the assessee was entitled to vacancy allowance during the period of the interregnum during which the agreement holder was occupying the premises, that the occupation of the agreement holder was not in the capacity of a tenant and was only a permissive occupation and, therefore, it should be taken that the property was vacant during the period, and that, therefore, the order of the Income-tax Officer could not be considered as erroneous and prejudicial to the interests of the Revenue. On a reference:

Held, reversing the decision of the Tribunal, that the assessee had voluntarily forgone the right to collect the rent since the agreement holder was in occupation of the property as per the sale agreement by way of part performance of the contract of sale which fell through subsequently. Therefore, the Tribunal was not correct in holding that when the property was occupied by the agreement holder, it should be deemed to be vacant and vacancy remission should be given to the assessee under section 24(1)(ix).

S. V. Subramaniam for the Commissioner.

Nemo for the Assessee.

JUDGMENT

K. A. THANIKKACHALAM, J.---At the instance of the Department, the Tribunal referred the following two questions for the opinion of this Curt under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the "Act"):

"(1) Whether, on the facts and in the circumstance of the case, the Appellate Tribunal was right in holding that the order of the Income-tax Officer in not taking the rent for the period November 1, 1975., to November 30, 1976, is not erroneous and prejudicial to the interests of the Revenue and that the Commissioner of Income-tax was not justified in invoking the provisions of section 263 of the Income Tax Act, 1961?

(2) Whether, on the facts and in the circumstance of the case, the Appellate Tribunal's view that the assessee is entitled to vacancy allowance when the property was not actually, let out and was not in the occupation of the tenant is sustainable in law?"

The assessee is an individual deriving income from house property. While completing the assessment for the assessment years 1976-77 and 1977-78, the Income-tax Officer accepted the income from house property shown by the assessee wherein the assessee had not admitted any income for the period from November 1, 1975, to November 30, 1976. Subsequently, the Commissioner of Income-tax found that during the period the property was in the occupation of the agreement holder to purchase the property and that the assessee was not receiving any rent. Since the property was in the occupation of the agreement holder the Commissioner of Income-tax held that the assessee should have disclosed the income from house property in respect of the said period. He, therefore, invoked the provisions of section 263 of the Act, since the order of the Income-tax Officer was erroneous and prejudicial to the interests of the, Revenue. After hearing the assessee, the Commissioner of Income-tax directed the Income-tax Officer to re-compute the income from house property in the assessee's case.

The assessee preferred an appeal before the Appellate Tribunal. The Appellate Tribunal held that the assessee should be allowed vacancy allowance in respect of the interregnum period during which the agreement holder was occupying the premises. According to the Appellate Tribunal, the occupation of the agreement holder was not in the capacity of a tenant, and, therefore, it should be taken that the property was vacant during that period, since no tenant was in occupation. In other words, the occupation was only a permissive occupation, and so far as the assessee is concerned, it was only vacant for that period. The Appellate Tribunal, therefore, held. that if the vacancy allowance is granted, there would be no change in the income computed by the Income-tax Officer, originally, and, therefore, the order of the Income-tax Officer cannot be considered as erroneous and prejudicial to the interests of the Revenue. Accordingly, the Appellate Tribunal cancelled the order passed by the Commissioner of Income-tax under section 263 of the Act and allowed the assessee's appeal.

Before us, learned senior standing counsel appearing for the Department submitted that the property during the relevant period `was not vacant. The property was not let out to the tenant during that period. The property was in the occupation of the intending purchaser under an agreement to purchase the property. Therefore, it cannot be said that there is any relationship of landlord and tenant between the agreement holder to purchase the property and the owner of the property. In such circumstances, the assessee is not entitled to any vacancy remission as contemplated under section 24(1)(ix) of the Act. It was, therefore, submitted that the Tribunal was not correct in setting aside the order passed by the Commissioner of Income-tax under section 263 of the Act, since-the order passed by the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue.

We have heard learned senior standing counsel appearing for the Department and perused the records carefully.

The point for consideration, is, whether the assessee is entitled to vacancy remission as contemplated under section 24(1)(ix) of the Act. The assessment years involved in this case are 1976-77 and .1977-78. The assessee is the owner of flat No. 5. Rushila Cooperative Society, Carmichael Road, Bombay-20. In the return for the assessment year 1976-77, while disclosing the property income, the assessee has shown a sum of Rs.28, 129 at the rate of Rs.3,925 per month from April .1, 1975, to November 5, 1975. The assessee has not disclosed the property income from November 6, 1975, to March 31, 1976. So also for, the assessment year 1977-78, the assessee has disclosed the property income from December 1976, to March 1977, in a sum of Rs.14,580 at the rate of Rs.4,000 per month. But the property income pertaining to the period from April 1, 1976, to November 30, 1976, was not disclosed. The income returned by the assessee was accepted by the Income-tax Officer, while completing the assessment for the assessment years under consideration. On a scrutiny, the Commissioner of Income-tax came to the conclusion that the property is not occupied by the tenant and there is no relationship of landlord and tenant between the intending purchaser and the owner of the property. Therefore, in the present case, there is no question of allowing any vacancy remission as contemplated under section 24(l)(ix) of the Act. Hence, according to the Commissioner of Income-tax, the order passed by the Income-tax officer is erroneous and .prejudicial to the interests of the Revenue.

According to the Tribunal the property was not occupied by the tenant. But from the point of view of the owner of the property, the property was vacant. It remains to be seen that the property, was not let out to the intending purchaser. There was an agreement to sell the property in question even though the agreement fell through subsequently. During the period under consideration, the property was under the occupation of the agreement holder. The owner of the property received the advance and the sale consideration was fixed in the sale agreement. In such circumstances, it cannot be said that the property was let out td the agreement holder. When there is no relationship of landlord. and tenant between the agreement holder and the owner of the property, it cannot be said that the property was let out to such a person. When the property was not actually let out and when the property remained without payment of any rent, the provisions of section 24(l)(ix) of the Act can be made applicable. In the present case, the owner of the house voluntarily has forgone the right to collect the rent, since the agreement holder was in occupation of the property as per the sale agreement by way of part performance of the contract of sale. Under such circumstance, the Tribunal was not correct in stating that when the property was occupied by the agreement holder, it should be deemed to be vacant and the vacancy remission should be given under section 24(1)(ix) of the Act. In view of the foregoing reasons, we consider that the order passed by the Tribunal is not in accordance with the law prevalent in the matter of letting out the property by the owner to the tenant. Therefore, the order passed by the Appellate Tribunal in setting aside the order of the Commissioner of Income-tax under section 263 of the Act is erroneous and the order of the Commissioner of Income-tax passed under section 263 of the Act is in order. In that view of the matter we answer, the question referred to us in the negative and in favour of the Department. No costs.

M.B.A./3332/FCReference answered,