case lawsU/S 24(1)(1x) of the IT Act 1961
vaidhyanathan.s
(Querist) 04 January 2011
This query is : Resolved
My client incurred loss under the head of income from house property.And claimed vancancy allowance u/s 24(1)(1x)of the IT ACT. to defend this,
Kindly let me know the decided case under this act and your suggessions
A V Vishal
(Expert) 04 January 2011
Vacancy allowance
No allowance can be availed of if property is vacant throughout the year - Section 24(1)(ix), which speaks of property which is let and which was vacant during a part of the year, must be read to mean properÂty which was let during the previous year and was vacant during a part of the year. It cannot refer to property which was not let at all during the previous year - Liquidator of Mahamudabad Properties (P.) Ltd. v. CIT [1980] 124 ITR 31 (SC)/CIT v. PraÂdeepkumar M. Shah [1981] 130 ITR 118 (Ker.) (FB).
Letting may precede or succeed vacancy period - In order that clause (ix) of section 24(1) is attracted, the property in quesÂtion must have been let and also vacant during a part of the year. Both the events must have occurred within the same year. If the property had been let, not in the relevant year, but in an earlier year, the clause will not be attracted. It is, however, not necessary that letting must precede vacancy. The benefit will accrue equally if the order is reversed - CIT v. Joy P. Jacob [1985] 151 ITR 19 (Ker.).
Allowance is admissible even if part of property falls vacant - Even where a part of property is vacant for the first 11 months of previous year and is let out for last month alone, vacancy allowance is allowable, on proportionate income relating to that part - CIT v. K.A. Vamana Pai [1986] 158 ITR 211 (Ker.).
The Income-Tax Appellate Tribunal (ITAT) Mumbai has ruled that a property which has remained vacant for a year is entitled to vacancy allowance. This means that you will not have to pay tax on the rental value of your property if it has been vacant for a full year.
This decision goes against the practice of tax officers who levy tax on the rental value of a property even if the property remained vacant for a full year. They normally allow vacancy allowance if the property is vacant for a part of the year. In the department's view, since the property is vacant for a full year, it's not let out at all and therefore the question of vacancy allowance does not arise.
The ITAT ruling was given in the case of Amrit Petroleum for the assessment year 2001-02 . The AR argued that the property remained vacant despite the best efforts of the owner to find a client and therefore the owner is entitled to the vacancy allowance for full year.
The department usually takes a stand that such vacancy allowance is allowable only when the property is vacant for a part of the year and not for the full year. According to the provisions of the Income-Tax Act, if a taxpayer owns an immovable property which is not used for the purposes of his business, he is liable to pay tax on the annual letting value (ALV) of the property.
The tax is levied on the income-earning potential of the property, and not on the income generated from the property. However, if the property is let out and is vacant for a part of the year, the assessee is entitled to proportionate relief called "vacancy allowance" — earlier under Section 24(1)( ix) of the IT Act and now under Section 23(1)( c) of Act. The tribunal held that when vacancy allowance was allowed under Section 24(1)( ix), the same is allowable even if the property is vacant for the whole year.
