Judgment:
K.L. Manjunath, J.
1. The Revenue has come up in this appeal challenging the legality and correctness of the order passed by the Income-tax Appellate Tribunal, Bangalore Bench in I.T.A. No. 483/Bang/2002 dated March 21, 2004, for the block assessment period 1988-99.
2. The facts leading to this case are hereunder:
3. The assessee is one of the co-owners of the property known as MVJ Towers, situated at No. 177/1, Poonamalle High Road, Kilpauk, Madras. It consists of basement, ground, first, second, third and mezzanine floor including lobby and parking facility in the ground floor. The total plinth of the building is about 40.112 sq. ft. Out of this 19,275 sq. ft. has been let out in the mezzanine floor, ground, second and third floors along with the parking space in favour of State Bank of India along with other co-owners on monthly rent of Rs. 2,36,000 out of which Rs. 2,06,500 towards building rental and Rs. 29,500 towards amenities. The assessee filed his return and the same was processed under Section 143(1)(a) of the Act. The assessee in his return declared the V4th share of the rent received by him from the State Bank of India and did not declare the actual value notionally in respect of the vacant portion of the building. The assessments in respect of other co-owners were reopened to bring the building into tax in respect of unlet portion. Immediately the assessee filed a return of income in respect of the un-let portion valuing the same at Rs. 2.25 per sq. ft. per month. The Assessing Officer rejecting the return assessed the rent in respect of vacant portion of the building at Rs. 12 per sq. ft. per month. Accordingly the order of assessment was passed. Similarly the assessee also claimed the deduction under Section 24(1)(ix) of the Act which was rejected by the Assessing Officer by his order dated January 25, 2001.
4. Aggrieved by the order of assessment the assessee filed an appeal before the Commissioner of Income-tax (Appeals), Bangalore who allowed the appeal in part by his order dated January 31, 2002. Being not satisfied with the relief granted to the assessee by the Commissioner of Income-tax (Appeals), Bangalore, the assessee filed further appeal to the Income-tax Appellate Tribunal, Bangalore. The Tribunal after hearing the parties allowed the appeal in part holding that the income offered by the assessee at Rs. 2.25 sq. ft. per month in respect of the vacant portion of the building is just and proper. Being aggrieved by the same, the Revenue has come up in this appeal raising the following substantial questions of law:
(i) Whether the Tribunal was correct in holding that the notional value of the property held by the assessee in respect of the unlet portion should be computed on the municipal valuation at Rs. 2.25 per sq. ft. as against Rs. 12 per sq. ft. adopted by the Assessing Officer based on the actual rent received by the assessee in respect of the other portion of the property?
(ii) Whether the Tribunal was correct in holding that the assessee would be entitled to vacancy allowance under Section 24(1)(ix) of the Act despite the assessee having not let out the entire vacant portion of the building during the entire year?
5. We have heard the learned Counsel for the parties.
6. Mr. Aravind, learned Counsel for the Revenue contends in view of Section 143(1) of the Income-tax Act, the Assessing Officer was justified in passing an order of assessment by rejecting the contention of the assessee. According to him when nearly 50 per cent, of the building had been let out to the State Bank of India at the rate of Rs. 12 per sq. ft. one could reasonably expect the same rent in respect of the remaining portion of the building taken by the SBI since it is not only mezzanine, but also ground, I, II and III floors of the building, therefore he urged that the Tribunal has committed a serious error in accepting the contention of the assessee. Alternatively he contends the Tribunal has failed to consider that alternative ground urged by the assessee that the assessment could have been passed based on the Tamilnadu Buildings (Lease and Rent Control) Act, 1960. Therefore he contends that the order of the Tribunal has to be set aside and the order passed by the Commissioner of Income-tax (Appeals) has to be restored.
7. Per contra Sri Parthasarathi, learned Counsel for the assessee submits that no substantial question arises in this appeal since the Assessing Officer was required to pass an order of assessment based on Section 23 of the Income-tax Act. According to him considering the nature of the building and the location where the building is situated the case of the Revenue cannot be accepted. According to him the building is situated adjoining main corporation drainage. Due to seepage of drain water, basement cannot be used and let out by the assessee and he further contends just for the bank for its commercial purpose the bank has taken at Rs. 12.5 per sq. ft. and the same cannot be the rental value as contended by the Revenue. He further contends that adjoining to the present building corporation has let out the basement building at the rate of Rs. 3 per sq. ft. Therefore the Tribunal was justified in accepting the contention of the assessee that the standard rent cannot be more than Rs. 2.25 per sq. ft. in respect of the vacant portion of the building. In the circumstances, he requests the court to dismiss the appeal.
8. Having heard the Counsel for the parties we have to consider what would be the annual letting value of the building when it is not let out to a tenant. Admittedly the basement floor was not fit for occupation due to water logging from the corporation main drain and this aspect has been accepted by the Commissioner of Income-tax (Appeals) and against the order of the Commissioner of Income-tax (Appeals) the Revenue has not preferred appeal. Therefore what is actually in dispute is about the remaining portion of the building which is not let out. If the building had been let out by the assessee it was not difficult for the assessee to give the actual rent. But in the instant case without receiving the rent, he has to offer the building for tax. When the building is not occupied it was for the Assessing Officer or for the assessee to prove what would be the standard rent to be fixed under the Tamilnadu Buildings (Lease and Rent Control) Act, 1960, and when the assessee contends that the adjoining building has been let out by the corporation at the rate of Rs. 3 per sq. ft. as pleaded by the assessee, it was for the Assessing Officer to find out what would be the standard rent under the Tamilnadu Buildings (Lease and Rent Control) Act, 1960, and what would be the probable market rent if it would have been let out in the vicinity. But unfortunately this has not been taken into consideration even though the same has been pleaded and urged in the appeal memo. The Assessing Officer without taking note of these two aspects relief has been given the assessee. Therefore the order of the Tribunal has to be set aside since all the authorities have failed to consider this legal position. In the circumstances without answering the two substantial questions we set aside the order passed by the Assessing Officer, the Commissioner of Income-tax (Appeals), so also the order passed by the Income-tax Appellate Tribunal, Bangalore Bench and remand the matter to the Assessing Officer to pass fresh order of assessment keeping in view the standard rent to be fixed in the Tamilnadu Buildings (Lease and Rent Control) Act, 1960, and also the market value at Rs. 3 per sq. ft. as pleaded by the assessee in respect of a building let out by the Corporation of City of Chennai. With the above observations, the appeal is allowed. The matter is remanded to the Assessing Officer. All contentions are kept open.