1. The respondent in this case is a specified family trust known as Purshottam Lal Roongata Family Welfare Trust. In the year 1977, it had constructed two godowns and the same were let out to the Food Corporation of India (hereinafter referred to as "the FCI") on agreed rent of Re. 0.33 per sq. ft. and thereafter at Re. 0.55 per sq. ft. The assessee filed the return of income for the assessment year 1988-89 on July 2, 1988, declaring nil income. In the statement of computation of income gross rent had been shown at Rs. 1,96,581. Deductions under Section 24 had been claimed at Rs. 69,158 and the net rental income arrived at Rs. 1,27,422. Against this income, deduction of Rs. 65,527 was claimed with the following note : " Less : Damages claimed by the FCI for damages of wheat stored in the godowns and rent for four months (June, 1987, January, 1988, February, 1988, and March, 1988} deducted at Rs. 16,381,70 per month on this account. Final amount of damages to be settled by the FCI Committee." 2. In support of the claim the assessee had filed a certificate dated December 27, 1988, from the FCI (placed at page 8 of the paper book) certifying that net rent paid to the assessee during the financial year 1987-88 was Rs. 1,31,053 only. The Assessing Officer allowed statutory deductions to the assessee under Section 24 but refused to grant deduction of Rs. 65,527 on account of damages paid to the FCI on the ground that the said damages had occurred on account of negligence of the assessee of not making repairs to the godowns. The Assessing Officer was of the view that the deduction of this amount was not permissible under the head "Income from house property". This being a case of a specified trust, the income was distributed by the Assessing Officer amongst the three beneficiaries at Rs. 42,474 each.
3. The assessee appealed to the Commissioner of Income-tax (Appeals).
On examination of the terms and conditions of the agreement of the assessee with the FCI, the Commissioner of Income-tax (Appeals), Rajasthan, Jaipur, vide order dated September 4, 1991, was of the view that as per Clauses 4 and 13 of the agreement, the assessee was liable to pay damages and the same was to be deducted out of the rental income. According to the Commissioner of Income-tax (Appeals), the rental income after making good the damages alone accrued to the assessee and as such the net amount of rent received by the assessee alone should be brought to tax. He, accordingly, directed the Assessing Officer to compute the income from house property by adopting the net rent of Rs. 1,31,159 as the annual letting value and allow deductions under Section 24 accordingly.
4. The Revenue appealed to the Tribunal. The following ground of appeal has been raised before us : "On the facts and in the circumstances of the case, the Commissioner of Income-tax (Appeals) has erred in directing the Assessing Officer to allow deduction of Rs. 65,527 on account of deductions made by the FCI for damages of wheat stored in the godown notwithstanding the fact that no such deduction is available under Section 24 of the Income-tax Act, 1961. " 5. This appeal had come up for hearing before the Division Bench on June 12, 1995. The decision of the Delhi Bench "B" of the Tribunal in the case of Lekh Raj Channa v. ITO [1990] 37 TTJ 297 was relied upon, on behalf of the assessee in support of the claim. The Bench, however, felt that it would be proper if the matter is referred to a Special Bench. A reference had accordingly been made to the President for constitution of a Special Bench for disposal of this appeal. The President has accordingly constituted a Special Bench under Section 255(2).
7. It was contended by the learned Departmental Representative that as per the agreement between the assessee and the FCI, the rent in respect of the godowns was agreed to be Rs. 1,96,581 per annum. In the statement of computation of income filed along with the return of income, the assessee has disclosed the rent in respect of the property at Rs. 1,96,581. The amount of Rs. 65,527 had been claimed by the assessee as a deduction and it was accordingly wrohg on the part of the Commissioner of Income-tax (Appeals) to hold that the actual rent received by the assessee was Rs. 1,31,159 only.
8. The learned Departmental Representative further contended that as per the rent agreement, the assessee was obliged to maintain the building and was responsible to compensate the FCI for the damages to the stocks suffered as a result of negligence of the assessee in the maintenance of the building. In this case, the stocks of the FCI had been damaged as a result of seepage and the recovery had been made by the tenant as provided under the agreement. The final determination of the damages had been left to the High Power Committee. It was, therefore, wrong on the part of the assessee to plead that the actual rent received was Rs. 1,31,159 for the relevant previous year. The Commissioner of Income-tax (Appeals) has also unjustifiably accepted the claim of the assessee, it was contended.
9. The learned Departmental Representative further contended that the income from the house property has got to be computed in accordance with the provisions of Section 23 of the Income-tax Act, 1961, and statutory deductions as specified under Section 24 are to be allowed.
Referring to Section 23 of the Act, the learned Departmental representative contended that after the amendment in the said Section the actual rent received or receivable was to be adopted as the annual value of the property and the deductions permissible under Section 24 are to be allowed. The deductions as are not specified under Section 24 are inadmissible, according to the learned Departmental representative.
10. It was accordingly urged that the decision of the Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer restored.
11. On the other hand, learned counsel for the assessee contended that the godowns in question had been constructed as per the plans of the FCI. Since the said godown could not be let out to anyone other than the FCI and since the assessee was liable to pay damages to the Corporation on account of seepage, etc., a higher rent had been agreed to be paid by the FCI against the normal rent. As per Clauses 4 and 13 of the agreement, it is provided that the assessee would be under an obligation to maintain the building and in the event of their failure the FCI, after giving notice to the assessee, would be entitled to incur the expenses on repairs and the cost is to be recovered from the assessee. It is also provided that the damages to stocks, if any, as a result of seepage, etc., would also be recovered from the assessee. The Food Corporation of India, according to learned counsel, did not inform the assessee about any repairs to be carried out as stipulated under Clauses 4 and 13 of the agreement. They, however, informed the assessee about the damages to the stocks and the recovery to be made. The matter had been referred to a High Power Committee for assessment of damages.
Notwithstanding the objection of the assessee for such recovery the FCI recovered the damages to the tune of Rs. 65,527. The assessee did not challenge the claim of the FCI as a higher rent was being recovered from them than the normal rent and that the displeasure of the officers would result in the termination of the tenancy. According to Shri Ranka, the cost of construction of the godowns in the year 1977 was about Rs. 6 lakhs and yield of Rs. 1,96,581 per annum was considerable when compared to the cost of construction. It was further stated that the amount of rent received by the assessee during the previous year relevant to the assessment year 1988-89 was only Rs. 1,31,053 and since the standard rent in respect of the property was far less than the actual rent received, the latter, i.e., the actual rent received would form the annual letting value of the property. When asked as to whether the Committee set up to assess the damages had submitted its report, learned counsel contended that the said report was not readily available. (He was informed by the Bench that if the copy of the report is not furnished, adverse inference was likely to be drawn). It was contended by learned counsel for the assessee that the Rajasthan Premises (Control of Rent and Eviction) Act of 1950 (which is hereinafter called "the said Act") was applicable in this case.
Referring to Sections 3, 6 and 8 of the said Act, learned counsel contended that rent in excess of the standard rent was not to be paid.
Shri Ranka further contended that the agreed rent does not automatically become the standard rent and if any party had gone to the Controller of Rents, the standard rent would have been assessed at a much lower figure than the actual agreed rent. Shri Ranka contended that had the assessee challenged the action of the FCI in making the deductions it was quite likely that the matter would have been taken to the Controller of Rent for fixation of rent. The standard rent as per the working provided in the statute would work out to less than Rs. 60,000 per annum. The balance rent though agreed to be paid would not be recoverable. Learned counsel cited the following decisions relevant for the determination of annual letting value :Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee [1980] 122 ITR 700 (SC) ; 12. Learned counsel relying upon the decision of the Supreme Court in the case of Sheila Kaushish [1981] 131 ITR 435 contended that the annual letting value of the property could vary from year to year.
Since in the year under appeal, the assessee has received the rent of Rs. 1,31,053 only the mere fact that the rent of Rs. 1,96,581 had been received in the preceding year and assessed as annual letting value for that year was not sufficient for not accepting the lower annual value for the year under appeal. Relying upon the decision of the Punjab and Haryana High Court in the case of Prakash Chand Sushil Kumar v. CIT [1989] 179 ITR 27 (sic), learned counsel contended that when the assessee had agreed to provide some services, the service charges for lift, etc., were to be reduced from the gross rent for determination of the annual letting value. In the case of the assessee, according to learned counsel, the damages recovered from the assessee were necessarily to be reduced from the actual agreed rent. Reliance was also placed on the Bombay Bench decision of the Tribunal in the case of Verma Family Trust v. ITO (Sixth) [1984] 7 ITD 392 in support of the contention that the amount of stamp duty paid by the landlord would have to be deducted from the actual rent received for the purposes of determination of the annual letting value. Shri Ranka pleaded that Section 23(l)(a) of the Income-tax Act, 1961, was not applicable in the present case. However, as per Clause (b) of Section 23(1) the actual rent received or receivable for the relevant assessment year alone was to be taken as the annual letting value of the house property.
13. Shri Ranka contended that the assessee had maintained the building in proper condition and the damages were not on account of negligence of the assessee in effecting the repairs to the buildings. It was accordingly contended that the decision of the Commissioner of Income-tax (Appeals) was just and reasonable.
14. It was further contended that the assessee had not claimed the deduction of Rs. 65,527 under Section 24 of the Act and, therefore, the finding of the Assessing Officer that the deduction under Section 24 could not be allowed, was not proper. He, however, contended that the conclusion of the Commissioner of Income-tax (Appeals) can be defended on the alternative ground merely that the claim of the assessee can be considered on account of vacancy allowance under Section 24(l)(ix). It was contended that the FCI had deducted rent for the months of July, 1987, January, February and March, 1988. The property, according to Shri Ranka, should be treated as vacant for the said period. The assessee's counsel placed reliance on the decision of the Bombay High Court in the case of Panalal Silk Mills P. Ltd. v. CIT [1992] 194 ITR 270 and the decision of the Supreme Court in the case of Liquidator of Mahamudabad Properties P. Ltd. v. CIT [1980] 124 ITR 31 at page 39 in support of the contention.
15. Learned counsel further pleaded that if the claim of the assessee is not found allowable it may, be considered under Clause (x) of Section 24(1) on account of unrealised rent. In this connection, our attention was also invited to rule 4 of the Income-tax Rules. Learned counsel contended that the legal proceedings had not been initiated against the FCI as the same would not have been fruitful. According to learned counsel, the amount in question could be considered at par with a bad debt and the decisions on account of not initiating legal action in respect of bad debts would be squarely applicable. In this connection, reliance was placed on the decision of the Calcutta High Court in the case of CIT v. Dunlop India Ltd. [1994] 209 ITR 987.
16. It was accordingly urged that the decision of the Commissioner of Income-tax (Appeals) may be upheld and the appeal of the Revenue dismissed.
17. We would place on record that Shri Ranka had been directed by the Bench to file an affidavit to the effect that rent of Rs. 1,31,053 alone had been received from the FCI for the previous year. The affidavit of Shri Purshottam Lal Roongata, trustee of the assessee has been filed after the date of hearing. Since several other factors have been stated in the affidavit of which the Department had no notice (the affidavit having been filed after the hearing), we have ignored the same but for the statement regarding actual receipt of rent.
18. We now refer to the counter reply of the Departmental Representative. It was contended that the entire case law cited by learned counsel for the assessee is irrelevant to the issue involved in this appeal. The assessee had adopted the annual letting value at Rs. 1,96,581 and had claimed deduction under Section 24 in respect of damages and at this stage, it was not permissible for them to change the stand. The amount recovered by the FCI was on account of damages which were finally to be assessed. The assessee in the return of income had also stated that the claim was subject to final decision. It was, therefore, wrong on the part of the assessee to contend that the amount recovered was not on account of damages.
19. The learned Departmental Representative further contended that the claim of the assessee that the amount of damages recovered be considered as unrealised rent is also unacceptable as the amount in question was applied in discharge of contractual obligation. The same cannot, therefore, be termed as unrealised rent.
20. The alternative claim of vacancy allowance was also objected to by the learned Departmental representative on the ground that the property during the relevant period had never been vacant. Moreover, the conditions for allowance of deduction under rule 4 are not satisfied.
It was accordingly urged that the order of the Commissioner of Income-tax (Appeals) may be set aside and that of the Assessing Officer restored.
21. We have given our careful consideration to the rival contentions.
Since the controversy involved in this case is relating to determination of the income from house property, it would be useful to refer to Sections 22 and 23 of the Income-tax Act : " 22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property'.
23. (1) 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 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." 22. As per Section 23 as it existed before its amendment by the Taxation Laws (Amendment) Act, 1975, the annual letting value of the house property was deemed to be the sum for which the property might reasonably be expected to be let from year to year. In the case of Sheila Kaushish [1981] 131 ITR 435 (SC) ; Amolak Ram Khosla [1981] 131 ITR 589 (SC) and Balbir Singh [1985] 152 ITR 388 (SC), it was held that where property let out is governed by the Rent Control Act, the standard rent as defined by or fixed under the relevant rent control legislation will have to be taken for determining the bona fide annual value. However, Section 23 of the Income-tax Act, 1961, has been amended by the Taxation Laws (Amendment) Act, 1975, and as per the said amended law applicable for the assessment year 1976-77 onwards, where the rent received or receivable in respect of the house property is more than the standard rent as defined or fixed under the relevant rent control legislation, the actual rent received or receivable is to be taken as the annual letting value of the house property.
23. It is not disputed in this case that the provisions of Section 23 as amended by the Taxation Laws (Amendment) Act, 1975, are applicable and that the actual rent received is assessable to tax as the annual letting value of the house property. Neither the Assessing Officer nor the Commissioner of Income-tax (Appeals) have gone into the question of annual letting value of the house property as per Sub-section (1)(a) of Section 23. The Revenue has proceeded, it seems to us, on the assumption that the actual rent received by the assessee is more than the annual letting value determin-able under Clause (a) of Section 23(1). The decisions of the Supreme Court referred to above and the decisions cited by learned counsel for the assessee which touch upon the subject of annual letting value in the case of such properties as are governed by the Rent Control Acts are inapplicable as the real issue involved in this appeal as also hotly contested, is as to what is the actual rent received/receivable by the assessee in respect of the property in question.
24. We shall, therefore, refer to the relevant agreements even at the cost of repetition, executed by the assessee with the FCI. As per the letter of offer dated February 2, 1985, and the letter of acceptance dated February 5, 1985, placed at pages 6 and 5, respectively, the rent per month payable by the FCI up to July 3, 1984, was Re. 0.33 per sq.
ft. From July 4, 1984, to July 3, 1987, the rent payable per month was at Re. 0.55 per sq. ft. If is not disputed by the assessee that the agreed rent up to the end of the previous year, i.e., March 31, 1988, was at the rate of Re. 0.55 per sq. ft. The area of the godowns is 14,892.5 sq. ft. each. Thus the total area of the two godowns let out to the FCI is 29,785 sq. ft. The rent at Re. 0,55 per month works out to Rs. 16,381.75 and for 12 months it works out to Rs. 1,96,581. It is nobody's case that there has ever been any change in the agreement regarding the agreed rent. The fact that in the relevant accounting year the whole of the agreed rent was not paid and only Rs. 1,31,054 was paid and there was short payment was not at all decisive or relevant for any of the purposes before us. The issue before us is as to what is the annual value assessable to tax under the provisions of Section 23. At this stage, we may clarify that before the Assessing Officer, the assessee had not disputed the assessability of the annual letting value of Rs. 1,96,581. In fact, the annual letting value has been disclosed by the assessee at Rs. 1,96,581. A deduction had been claimed of Rs. 65,527 on account of damages claimed by the FCI.However, before us the issue relating to the determination of annual letting value of the property has been vehemently argued and we, therefore, consider ourselves duty bound to deal with it.
25. Reverting back to the subject, we may refer to Section 23(1)(b) which is applicable from the assessment year 1976-77 onwards. It provides for adopting the "actual rent received or receivable" as the annual letting value of the property. The crucial words used in the aforementioned clause (b) of Section 23(1) which has been reproduced elsewhere in this order, are "rent received or receivable".
26. We would, therefore, have to consider as to What is the rent received or receivable in respect of the property. We have elsewhere stated in this order that the actual rent received or receivable in respect of the property for the relevant previous year was Rs. 1,96,581. As against this, the assessee had received a sum of Rs. 1,31,054. It, therefore, becomes necessary for us to go into the reasons for the deduction of Rs. 65,527 made by the FCI from the amount of rent due to the assessee for the relevant previous year. It would be relevant to refer to Clauses 4 and 13. of the terms and conditions of letting out the property agreed between the parties. Clause 4 reads as under : "4. I/We shall during the terms of the tenancy keep the godown fit in all respects for storage of foodgrains/sugar/fertilizer and any other material/stocks handled by the FCI. The godowns to be provided by me/ us shall be structurally sound in all respects, rodent proof/damp proof and shall have pucca damp proof floors and water tight with slanting roofing to allow free flow of rain water so as to "prevent damages being done to the stocks due to seepage and leakage of water. The godowns shall be smoothly plastered. The white washing shall be carried out once in a year by me/us. Approach roads and drainage arrangements shall be made pucca. A separate lavatory block also free of rent for the use of labour would be provided by me/us. The height of the 'boundary wall/barbed wire fencing shall be above the ground level as per FCI's standard specifications. If during the period of lease, the flooring in the godowns is/ are found sinking or the roof, walls of the godowns is/are found to be damaged resulting in leakage/seepage of water inside the godowns or the shutters/doors of the godowns are found to be damaged by moth, etc., it shall be my/our liability to reconstruct the flooring of the godowns, repair the roof/walls of the godowns as well as the shutters/doors thereof as the case may be, to make the place structurally sound and storage worthy. In case the requisite action as above is not taken by me/us within a period of 15 days of the date of issue of a registered notice to me/us by the FCI bringing out the necessity for reconstruction/repair, etc., the FCI will be within their rights to have the necessary reconstruction/repairs carried out and the entire expenses involved will be made good from me/us. In case of any damage to the stocks due to my/our abstinence to carry out the repairs within the stipulated time, the losses, if any, sustained by the FCI shall be borne by me/us for which I/we shall have no objection whatsoever." " If I/we failed to do or comply with any of the terms and facilities provided in the offer, the FCI shall have absolute right to get the things done and the cost of expenses incurred by the FCI would be adjusted against the rent payable to me/us in the manner considered fit by the FCI in its discretion together without elements of interest thereon worked out on the basis of diminishing balances. Cost of expenses incurred by the FCI on my/our account would be accepted by me/us as final without calling them to any question." 28. It is clear from the evidence on record that the FCI had informed the assessee about their stocks stored in the godowns having been damaged because of seepage and other defects. From the correspondence on record it is clear to us that the damages assessed by the FCI had been notified to the assessee and recovery of the damages have been made by the FCI out of the monthly rent due. Such recovery had been effected from the rent due for the months of June, 1987, January, February and March, 1988. It is clear from the note given by the assessee in the statement of income attached to the return that the final amount of damages was to be settled by the FCI High Power Committee and the recovery made of four months rent, was subject to the final decision of the Committee. It, therefore, becomes absolutely clear that the non-payment of rent for four months by the FCI was not on account of any change in the annual payment of rent but was on account of application of the rental income in the settlement of damages assessed by the FCI. It is, therefore, a case of clear application of income. Since the actual rent receivable was Rs. 1,96,581 therefore, the annual letting value of the property had rightly been adopted by the Assessing Officer at Rs. 1,96,581. The damages claimed by the FCI would not affect the actual rent .received/receivable in respect of the two godowns. When we peep deep into the reality of the amount recovered by the FCI, it becomes abundantly clear that the assessee had in fact received the amount of rent to the tune of Rs. 1,96,581 out of which a sum of Rs. 65,527 had been applied towards the settlement of damages suffered by the FCI recoverable, from the assessee, and the balance of Rs. 1,31,054 received through bank. We have elsewhere in this order pointed out that the actual rent receivable in respect of the two godowns from the FCI for the relevant previous year was Rs. 1,96,581. Whereas a sum of Rs. 1,31,054 had been received by the assessee from the FCI, a sum of Rs. 65,527 had been adjusted by the FCI against the claim of damages recoverable from the assessee. It is thus evident that the actual rent receivable in respect of the property has remained unaltered at Rs. 1,96,581 per annum. In this background, the controversy as to what is the actual amount received by the assessee is unnecessary. The actual amount received is not the sole basis to be adopted for determination of the annual letting value. It is the actual rent received or receivable in respect of the property. When the rent receivable is Rs. 1,96,581, it is immaterial as to what amount of rent has actually been received by the assessee out of the rent receivable.
29. The decision in the case of Verma Family Trust [1984] 7 ITD 392 (Bom) relied on behalf of the assessee regarding consideration of stamp duty, etc., as a charge on the actual rent received or receivable is inapplicable to the facts of this case. In that case, it had been provided as per the rent agreement that the cost of stamp duty shall be borne by the landlord. Since normally the cost of stamp duty is borne by the tenant it was reasonable to deduct the amount spent on stamp duty out of the total amount stated in the agreement and the balance considered to be on account of rent of the property. Similarly, in the case of Prakash Chand Sushil Kumar [1989] 179 ITR 27 (P & H) (sic), the landlord had to provide services to the tenants. In these circumstances, part of the sum stated in the agreement was considered to be towards such services and the balance as the rent payable in respect of the building. These decisions are inapplicable -to the facts of the present case.
30. Each case has got to be decided on its own facts. When we refer to Section 23 of the Income-tax Act, 1961, it is observed that the Assessing Officer while assessing the annual letting value has got to find out the actual rent received or receivable by the assessee in respect of the property, for the purposes of determination of the annual letting value. It would be permissible for the assessee to show, in a given case that the actual rent payable in respect of particular property has actually been agreed at a lesser amount than the gross amount stated in the agreement and that part of the amount is for other facilities as in the case of Verma Family Trust [1984] 7 ITD 392 (Bom), part of the payment relates to payment of stamp duty, etc. For example, if in a given case a person has agreed to let out the property on the annual payment of 'X' and it is agreed that the expenditure on account of stamp duty and registration charges which otherwise are payable by the tenant would be borne by the landlord, it would not be difficult to appreciate that the actual rent paid in respect of the building is 'X' less the expenditure on stamp duty. In such and similar circumstances, it might be permissible to reduce the amount of expenditure from the rent received/receivable for which separate provision is made in the agreement.
31. However, in this case there are no separate facilities provided by the assessee to the FCI. As per the terms of the agreement, two godowns were let out to the Corporation at a fixed monthly rent. It has been agreed by the assessee that the godowns would be kept in good condition. In other words, the assessee had undertaken to bear the cost of repairs to the godowns. This is the normal obligation of the landlord and the Legislature has taken care of such obligation by providing a statutory deduction under Section 24 of the Act out of the annual letting value of the property. This deduction is permissible even if the actual expenditure incurred by the assessee is less than the expenditure or even where no expenditure is incurred.
32. In the present case, it has been observed by us that the assessee has not incurred any expenditure on the repairs of the building.
Notwithstanding the fact that no expenditure had been incurred by the assessee on account of repairs, a statutory deduction of Rs. 32,763 has been allowed. Similar deduction has been allowed to the assessee from year to year. When the assessee has not incurred the expenditure on account of repairs of the building which under the agreement as well as under the relevant law they were obliged to incur and for which deduction was also allowed under the statute from year to year, the assessee has to face the conse-que'nces. The consequences are in the form of damages recovered by the FCI on the basis of agreed terms and conditions.
33. Considering the fact that the statutory deduction is allowed to the assessee on account of repairs of the building unrelated to the actual expenditure incurred, the non-allowance of deduction out of the actual rent received/receivable of the damages recovered by the FCI, cannot be said to be against equity and reasonableness. Moreover, the law has to take its own course. If the Legislature in its wisdom has provided for assessment of actual rent received or receivable as the annual letting value of the property, the same has got to be adopted irrespective of the consequences. We, therefore, are of the considered view that the Commissioner of Income-tax (Appeals) was wrong in directing the Assessing Officer to adopt the annual letting value of the house property at Rs. 1,31,054 as against Rs. 1,96,581.
34. We now proceed to consider the alternative claim of the assessee on account of deduction out of the annual letting value. The assessee has advanced two alternate claims under Section 24 of the Income-tax Act, 1961". Firstly, it was claimed that the deduction under Section 24(1)(ix) is permissible to the assessee on account of vacancy allowance. Let us reproduce Clause (ix) of Section 24(1) for the sake of facility : "24. (1)(ix) where the property is let and was vacant during" a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out in parts, that portion of the annual value appropriate to any vacant part, which is proportionate to the period during which such part is wholly unoccupied." 35. It is evident from the language of Clause (ix) of Section 24(1) that the main condition for allowance of deduction is that the let out property is vacant for part of the year. The property in question undisputedly was not vacant for any part of the year. The FCI continued to occupy the premises for the entire previous year. The mere fact that recovery of damages has been made by way of rent relating to four months does not lead to the conclusion that the property was not occupied by the FCI during such months. The contention raised on behalf of the assessee in this regard does not appeal to commonsense. We, therefore, reject the same.
36. Now, let us consider the alternative claim of the assessee under Section 24(1)(x). Section 24(1)(x) reads as under : " 24. (1)(x) subject to such rules as may be made in this behalf, the amount in respect of rent from property let to a tenant which the assessee cannot realise." 37. It is clear from the language of Section 24 that a deduction on account of the rent which the assessee cannot realise is permissible as a deduction subject to satisfaction of the conditions under the relevant rules. Rule 4 of the Income-tax Rules is relevant.
38. It prescribes the following conditions for 'deducibility of unrealised rent' : (1) The tenancy must be bona fide. (2) The defaulting tenant should have vacated or steps should have been taken by the assessee to compel him to vacate the property. (3) The defaulting tenant should not be in occupation of any other property of the assessee. (4) The assessee must either have taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfy the assessing officer that legal proceedings would be useless. (5) The annual value of the property to which the unpaid rent relates must have been included in the assessed income of the previous year for which that rent was due, and tax should have been duly paid on such assessed income. (6) The deduction allowed should in no case exceed the income under the head 'Income from house property' included in the total income, as computed without making this deduction. (7) If after deduction has been allowed in one year, the assessee realises the unpaid rent in a subsequent year, the amount so realised will be brought to tax under the head 'Income from house property' in the year of receipt, irrespective of whether the assessee continues to be the owner of that property in that year or not.
39. It is seen from the language of Clause (x) of Section 24(1) and rule 4 that deduction is permissible in respect of unrealised rent subject to certain conditions. In this case when the amount of rent payable by the assessee has been applied for satisfying the claim of the FCI on account of damages, it cannot be said that the assessee was unable to realise the rent. The assessee has realised the rent in respect of the property by way of application of the money for settlement of the claim. Therefore, this Clause (x) of Section 24(1) is inapplicable in this case.
40. Even otherwise, one of the conditions under Rule 4 is that the defaulting tenant has vacated or steps had been taken to compel him to vacate the property. Another condition as per the said rule is that the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or the Assessing Officer is satisfied that the legal proceedings would be useless. These conditions are not satisfied in this case. The property in question might have been vacant for some time after the expiry of the term of the lease but even at present it is under the tenancy of the FCI.41. On a consideration of the totality of the facts and circumstances of this case, we are satisfied that the claim of the assessee regarding allowance of deduction amounting to Rs. 65,527 on account of damages recovered by the FCI cannot be allowed either under Clause (ix) of Section 24(1) or Clause (x) of Section 24(1).
42. In the final analysis we are of the considered view that the annual letting value of the properly in question is assessable at Rs. 1,96,581 and deduction of Rs. 65,527 on account of damages recovered by the FCI is not allowable as a deduction in computing the income from house property.
43. The decision of the Commissioner of Income-tax (Appeals) is not in conformity with our decision. We accordingly set aside the same and restore that of the Assessing Officer.