1. This departmental appeal is directed against the order of the CIT (Appeals) dated 26-4-1989. In this particular case, the assessee returned an amount of Rs. 21,915 as his net taxable income from the house property constructed by him. The completion of the construction work was made by the assessee in this year only and he let it out at the monthly rent of Rs. 3,000. Although the Assessing Officer does not make any mention about any point having been raised before him at the time of hearing of the assessment proceedings, regarding exemptability of the entire income from house property, the CIT (Appeals), however, mentions in his appellate order that such a contention was actually raised before the Assessing Officer. The CIT (Appeals) states that although the assessee had included the income from house property in his return, in the course of the assessment proceedings, however, he had contended before the Assessing Officer that since he was the owner of the property, only for a period of 10 months during the year, there was no annual value to be determined and hence no income was to be assessed under the head "Income from house property". The CIT (Appeals) states thereafter that, the Assessing Officer does not appear to have examined this contention of the assessee.
2.1 The assessee relied on the decision of the Special Bench of ITAT, Madras Bench "B" in the case of M. Raghunandan v. FIX) [1985] 11 ITD 298 in support of his claim that the income from the house property was not taxable in his hands in this year, inasmuch as, he was not the owner of the house property, nor did he derive rental income therefrom for the full year corresponding to this assessment year. The CIT (Appeals) discussed the decision of the abovementioned Special Bench case of the ITAT to the effect that where a property does not give rise to an annual income or gives income for a lesser period, notional or otherwise, the income from that property cannot be included in the total income. The CIT (Appeals) also took into consideration the observation of the Special Bench of the ITAT that if out of 365 days in a year the assessee is the owner of the property for 364 days, no property income can be included in his total income because no annual value can be computed for that previous year. The CIT (Appeals) by following the aforesaid decision of the ITAT, Special Bench, accepted the contention of the assessee that no income from the house property could be assessed in his hands for this year and directed the Assessing Officer to exclude the income from property and re-determine the total income of the assessee.
2.2 So far as the other ground raised in the appeal before him, relating to computation of income from the property, by allowing the assessee's liability towards building tax is concerned, the CIT (Appeals) stated that under the first proviso to Section 23(1), taxes levied by a local authority in respect of a property are deductible while determining the annual value of the property. He held that when no building tax had admittedly been levied in respect of the building belonging to the assessee, till then the question of its deduction did not arise. The CIT (Appeals) found suppor to his view in this regard from the decision of the Andhra Pradesh High Court in the case of Hyderabad Co-operative Central Trading Society Ltd. v. CIT [1988] 173ITR 690 and accordingly rejected this particular ground of the assessee.
3.1 Before us, the learned departmental representative has strongly argued that the abovementioned decision of the ITAT, Special Bench Madras Bench "B", is not to be followed in deciding the issue in the instant case. He relied on the decision of the Lahore High Court in the case of Lalla Mal Samgham Lal v. CIT [1936] 4 ITR 250 and contended that in accordance with the said decision, the annual value of a house property does not necessarily mean the money benefit accruing to its owner. He also relied on the followingdecisions in support of his claim that since monetary benefit was received by the assessee in the instant case by way of deriving rental income from the property, the said income has necessarily to be assessed to tax by determining the annual value in an appropriate manner from the rent received: (i) S.B. (House and Land) (P.) Ltd. v. CIT [1979] 119 ITR 785 (Cal.); (iii) CIT v. Dewan Bahadur Dewan Krishna Kishore [1941] 9 ITR 695 (PC); 3.2 The learned departmental representative finally attracted our notice to the provisions of Sections 5 and 56 of the Income-tax Act, 1961 and argued that in accordance with the said provisions all income accruing to an assessee have necessarily got to be assessed to tax and if it is not possible to assess the said income under any specific head, it will have to be assessed as "Income from other sources". The departmental representative thus came up with the alternative contention that the rental income from the property under consideration should at least be assessed to tax as "Income from other sources".
4. The learned counsel for the assessee, on the other hand, strongly argued that all the cases as relied upon by the departmental representative related to the provisions of 1922 Act and that the definition of "annual value" as per the 1961 Act is different from that as in the 1922 Act. It has been stated by him that in the 1922 Act, there was no concept of "annual value" at all. He thereafter quoted extensively from the order of the ITAT, Special Bench, Madras, in M.Raghundndan's case (supra) to argue that since in the instant case, the assessee was not the owner of the house property for the full year, there was no "annual value" in respect of the property so far as this year is concerned and hence the income from the property has rightly been decided by the CIT (Appeals) to be not chargeable to tax in this particular year.
5.1 We have carefully gone through the order of the ITAT, Special Bench, in M. Raghunandan's case (supra). We have also gone through the different provisions of the Income-tax Act, 1961. We find that the Special Bench of ITAT, held in the abovementioned case that what is taxed under Section 22 is, only the yearly income of the person derived from property and that legally and etymologically also annual value cannot mean monthly value, weekly value, daily or monetary value. The Special Bench also held in the said case that if an assessee be not the owner of a property for the full year, no annual value occurs in respect of that property for that year and hence the income from the property would not be subjected to tax. We are in agreement with the above decision of the ITAT, Special Bench. We, however, feel that the entire discussions made by the Special Bench in the said case relate to the question of taxability of income from a property under the head "Income from house property". In that particular case M. Raghunandan (supra), the assessee derived only notional income from the property by residing therein and the point at issue was deduction of interest paid on a loan taken for constructing the building. There cannot be any doubt that notional income from a house property can be charged to tax only under Section 22 of the Income-tax Act, 1961 and as income from house property. This is no real income and the specific provision of Section 22 has got to come to play for bringing the notional income of this nature to tax. We, however, feel that although the Special Bench of the ITAT used an expression "where the property does not give rise to an annual income or gives income for a lesser period, notional or otherwise, the income from that property cannot be included in the total income", the Special Bench, however, did not exactly have in mind the case of a property fetching rental income. We are of the opinion that even if a property actually fetches rental income for a period of less than 365 days, the decision of the Special Bench, ITAT, under consideration would apply and the rental income from the property cannot be subjected to tax as "Income from house property" by recourse to the provisions of Section 22 of the Income-tax Act, 1961.
5.2 At the same time, again, we feel that no income which actually accrues to an assessee during amyear and which is not specifically exempt from taxation by some particular provisions of the Act, should go untaxed. In this connection, we want to make a difference between the concept of "receipt" and "income". It is of common knowledge that all the receipts are not income and hence even such receipts which are not of the nature of income and for which there is no specific provision for exemption under the Income-tax Act, would not be taxable.
The same, however, cannot be said about the "income" actually accruing to an assessee. The basic idea behind the Income-tax Law is that whatever is income must be subjected to tax unless it is exempted by a specific provision. We find ample support for this view from the wording of the charging Sections 4 and 5 of the Income-tax Act, 1961.
The first paragraph of Sub-Section (1) of Section 4 reads as below: Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of this Act, in respect of the total income of the previous year or previous years, as the case may be, of every person.
Subject to the provisions of this Act, the to Lal income of any previous year of a person who is a resident includes all income from whatever source derived....
it is clear from above that these two sections providing the basis of charge of income-tax envisage that all income of an assessee (especially in case of a resident) from whatever source derived, is required to be charged to tax. If we now look into the provisions of Section 56 we find that Sub-Section (1) of the said section reads as below: Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in Section 14, items A to E.It is clear from above that firstly all income accruing to an assessee during any year has necessarily got to be charged to tax unless there is a specific provision in the Act exempting the same and secondly that if it is not possible to categorise such income under any of the heads from A to E in Section 14, such income will have to be assessed to tax as "Income from other sources". In the instant case, it is an admitted fact that the assessee derived rental income for a period of 10 months from the property constructed by him at the monthly rent of Rs. 3,000.
The rental receipt constitutes his income by all canons of commercial and legal consideration. It is an accepted theory of economics that income accrues from land, labour, capital and entrepreneurship by way of rent, wages, interest and profit respectively. Land must be considered to include super-structure constructed thereon also. Hence, in economic terms also, rent received by a person from the ownership of land or building thereon is nothing but income in his hands. Legally also, rent receipt minus expenses incurred for earning the same, is nothing, but income in the hands of the recipient thereof. There is nothing in law to bar rental income being assessed as otherwise than as income from house property. In fact, income from house property is a special type of income, for which certain conditions like ownership of the property and assessing of "annual value" are necessary. There are ample decisions to show that rental income actually derived from house properties can be assessed to tax as business income or as income from other sources. In the instant case also, therefore, since the rental income accruing to the assessee is found to be not chargeable to tax as income from house property and it cannot also be said that the intention of the assessee was to exploit the house property constructed by him commercially, the rental income has necessarily got to be assessed as income from other sources in accordance with the provisions of Section 56. Enumeration of different types of income in Sub-section (2) of Section 56 is merely illustrative and not exhaustive as is evident from the wording of the said Sub-section (2). We are, therefore, finally of the view that the rental income derived by the assessee from the house property constructed by him is to be assessed to tax as income from other sources for this year, inasmuch as, it is not possible to arrive at its "annual value" for this year.
5.3 However, it is not our intention that the gross rental income from the property is to be taxed. Section 57(iii) provides for allowance of any expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning income under Section 56. We are, therefore, of the view that any expenditure which can be considered to have been laid out or expended by the assessee wholly and exclusively for the purpose of making or earning the rental income is required to be allowed against the gross rental income. This particular issue including the issue relating to consideration of allow-ability of building tax against the rental income has been decided by the CIT (Appeals) against the assessee simply on the ground that there was no levy of the tax by the local authority and hence such tax was not allowable under the first proviso to Section 23(1). However, since we are holding that the rental income is required to be assessed as income from other sources only, the question of allowability of expenses including the municipal taxes will have to be judged from the point of view of Section 57(iii). We, therefore, remit this particular point to the file of the CIT (Appeals) with a direction to him to consider the question of allowability of expenses by way of municipal taxes or otherwise against the rental income from the property.
6. In the result, the departmental appeal is partially allowed to the extent of directing that the rental income from the property be assessed as income from other sources and at the same time asking the CIT (Appeals) to consider the question of allowability of expenses against the said income in accordance with the provisions of Section 57(iii) of the IT Act.