Judgment:
A. Pasayat, J.
1. Since both the references made under Section 250(1) of the Income-tax Act, 1961 (in short, 'the Act'), involve common points, they arc disposed of by this judgment which shall govern both.
2. At the instance of the Revenue, the following question has been referred to this court for adjudication :
'Whether, on the facts and in the circumstances of the case, the Income lax Appellate Tribunal was justified in directing io compute the income from property as per the provisions of the Income-tax Act, 1961, and then allow further maintenance expenses of dharmasala in order to arrive at the net taxable income of the assessee?'
3. The background facts, as indicated in the statement of case drawn up by the Income-tax Appellate Tribunal, Cuttack Bench (in short, 'the Tribunal'), are as follows :
For the assessment years 1981-82 and 1982-83, Richaram Dharmasala Trust Estate (hereinafter referred to as 'the assessee') filed its returns of income. The Assessing Officer, while accepting the gross rent received, computed the income from the house property by first deducting therefrom the expenses incurred for earning the rent as per the claim, and, thereafter, allowing deductions for municipal tax, repairs and ground rent. In other words, from the gross rent received, the expenses incurred for earning the rent were first deducted and, thereafter, the statutory allowances indicated above were allowed. The assessee filed appeals before the Appellate Assistant Commissioner of Income-tax, Cuttack Range. The said authority accepted the plea of the assessee that, before adjustment of the expenses incurred for earning the rent, the statutory deductions as available in law were to be deducted from the gross rent. He directed the Assessing Officer to make the computation accordingly. The Assessing Officer assailed the conclusion of the Appellate Assistant Commissioner in appeals before the Tribunal. The Tribunal dismissed the appeals by holding that the directions of the appellate authority in the matter of computation were in order.
4. In spite of notice, the assessee has not appeared and we have heard Mr. A. K. Roy, learned counsel for the Department.
5. For adjudication of the question referred, it is necessary to refer to Sections 22, 23 and 24 of the Act. In terms of Section 22 of the Act, income from house property is chargeable to tax. The said section stipulates that the annual value of property consisting of any buildings or land appurtenant thereto of which the assessee is the owner shall be chargeable to income-tax under the head 'Income from house property'. Section 23 prescribes the method of determination of the 'annual value' for the purpose of Section 22, and Section 24 enumerates the deductions from income from house property. Sub-section (1) of Section 23 indicates that, for the purposes of Section 22, the annual value of any property shall be deemed to be (a) the sum for which the property might reasonably be expected to be let from year to year ; or (b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in Clause (a), the amount so received or receivable. In other words, the rent received or receivable in respect of property let constitutes the annual value of the property. We are presently concerned with a case of a property which is undisputedly let. Section 24 deals with deductions from income from house property. Subsection (1) thereof deals with deductions to be granted in respect of repairs and other statutory deductions. It prescribes that income chargeable under the head 'Income from house property' shall, subject to the provisions of Sub-section (2), be computed after making the enumerated deductions. In respect of repairs, it is indicated :
' (a) where the property is in the occupation of the owner, or where the property is let to a tenant and the owner has undertaken to bear the cost of repairs, a sum equal to one-sixth of the annual value ;
(b) where the property is in the occupation of a tenant who has undertaken to bear the cost of repairs,--
(i) the excess of the annual value over the amount of rent payable for a year by the tenant ; or
(ii) a sum equal to one-sixth of the annual value, whichever is less.'
6. Therefore, deductions for repairs have to be granted in relation to the annual value. The method of determination of annual value has been statutorily prescribed in Section 23. Since it constitutes the annual rent received or receivable by the owner in respect of the property let, the deductions for repairs is to be made from the annual rent received or receivable. Obviously, therefore, computation has to be made before the expenses are adjusted from the rent received. The Appellate Assistant Commissioner and the Tribunal are justified in their conclusion that statutory deductions embodied in Section 24 of the Act are to be first considered and, thereafter, deductions for the expenses required for earning the rental income are to be made.
7. Our answer to the question referred to us is, therefore, in the affirmative, in favour of the assessee and against the Revenue. No costs.
S.K. Mohanty, J.
8. I agree.