N.M. Kasliwal, J. -
(1.)ON an application made by the Addl. Commissioner of Income-tax, the Income-tax Appellate Tribunal, Jaipur Bench, has referred the following question of law for the opinion of this court:
"Whether the Tribunal was right in holding that the annual value of a property is to be calculated under Section 23(1) of the Income-tax Act, 1961, and its first proviso only and the second proviso to the said subsection has no application ? "
(2.)THE brief facts leading to this reference application are that M/s. Instrumentation Limited, Kota (hereinafter referred to as " the assessee company "), had constructed houses for the purpose of residence of its employees at Palghat, Kerala, where it has a branch. THE Income-tax Officer computed the annual value of the property as Rs. 97,699 on the basis of the main provisions of Section 23(1) read with the first proviso and from the above amount of Rs, 97,699, the Income-tax Officer allowed a deduction of an amount of Rs. 62,400 under the second proviso to Section 23(1) of the Act, This deduction was allowed in view of the fact that the assessee company had constructed residential units for its employees. After reducing the amount of Rs. 62,400, the Income-tax Officer worked out the annual value under the second proviso to Section 23(1) of the Act at a net figure of Rs. 35,299 and treated this figure as the annual letting value of the property. THE Income-tax Officer then considered the question of allowing deductions on account of repairs as contemplated under Section 24(1) of the Act. THE Income-tax Officer for the purpose of allowing deductions on account of repairs calculated the annual value of the property at Rs. 35,299. THE contention of the assessee company that for the purpose of deduction on account of repairs, the basis should have been the annual value of Rs. 97,699 was not accepted by the Income-tax Officer, On appeal, the Appellate Assistant Commissioner also upheld the view taken by the Income-tax Officer. On further appeal by the assessee company, the Income-tax Appellate Tribunal did not agree with the above view and held that the annual value of the property is to be determined by applying Section 23(1) together with its first proviso only. According to the Tribunal, the second proviso to Section 23(1) of the Act cannot be taken into account in determining the annual value of the property. THE Additional Commissioner of Income-tax moved an application for making a reference and the learned Tribunal by its order dated July 18, 1974, has referred the question mentioned above for the opinion of this court.
It would be proper to reproduce Section 23 of the Act which reads as under and which existed at the relevant time, in order to appreciate the contention raised by learned counsel for both the parties :
" Section 23. (1) For the purposes of Section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year :
Provided that where the property is in the occupation of a tenant and the taxes levied by any local authority in respect of the property are, under the law authorising such levy, payable wholly by the owner, or partly by the owner and partly by the tenant, a deduction shall be made equal to the part, if any, of the tenant's liability borne by the owner.
Explanation.--For the purposes of this sub-section, in the case of a property the construction of which was completed before the 1st day of April, 1950, the total amount of such taxes, and in the case of any other property, one-half of the total amount of such taxes shall be deemed to be the tenant's liability:
Provided further that in the case of a building comprising one or more residential units the erection of which is begun and completed after the 1st day of April, 1961, the annual value as determined under this subsection shall, for a period of three years from the date of completion of the building, be reduced by a sum equal to the aggregate of-
(i) in respect of any residential unit whose annual value as so determined does not exceed six hundred rupees, by the amount of such annual value;
(ii) in respect of any residential unit whose annual value as so determined exceeds six hundred rupees, by an amount of six hundred rupees ;
so, however, that the income in respect of any residential unit is in no case a loss.
(2) Where the property is in the occupation of the owner for the purposes of his own residence, the annual value shall first be determined as in Sub-section (1) and further be reduced by one-half of the amount so determined or one thousand eight hundred rupees, whichever is less :
Provided that where a sum so arrived at exceeds ten per cent. of the total income of the owner, the excess shall be disregarded.
Explanation.--Where any such residential unit as is referred to in the second proviso to Sub-section (1) is in the occupation of the owner for the purposes of his own residence, nothing contained in that proviso shall apply in computing the annual value of that residential unit.
(3) Where the property referred to in Sub-section (2) consists of one residential house only and it cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house shall-
(a) if the house was not actually occupied by the owner during the whole of the previous year, be taken to be nil, or
(b) if the house was actually occupied by the owner for a fraction of the previous year, be taken to be that fraction of the annual value determined under Sub-section (2):
Provided that the following conditions are in either case fulfilled-
(i) the house is not actually let, and
(ii) no other benefit therefrom is derived by the owner."
A perusal of the above provision of Section 23 would show that the annual value of the property as defined in Section 23(1) is the annual value of any property for which such property might reasonably be expected to let from year to year. Under the first proviso to Section 23(1) while determining the annual value of the property, taxes levied by any local authority in respect of that property are to be deducted provided the property is in the occupation of a tenant. So far as the second proviso is concerned, it does not lay down that the deduction allowed under the second proviso is to be taken into account for the purpose of computation of the annual value of the property. The second proviso allows certain statutory deductions to the assessee in respect of residential units for some period. Thus, in our opinion, it is only Section 23(1) read with the first proviso which alone lays down the basis for the determination of the annual value and thus for the purpose of calculating 1/6th of the annual value under Section 24(1)(i), it is the annual value which is determined under Section 23(1) read with first proviso alone should betaken into consideration. So far as the second proviso is concerned, it nowhere lays down that the annual value is that sum which is arrived at after the deduction of the amount given in the second proviso. The second proviso clearly lays down that the annual value is to be first determined on the basis of the main section along with the first proviso and it is only from the annual value so determined that further deduction is allowed under the second proviso for new residential units. If we look to Section 23(2), it becomes further clear that the basis for .arriving at the annual value of a property which is in the occupation of the owner for the purpose of his own residence is to be determined according to Section 23(1) and after determining such annual value, reduction equal to half of the amount so determined or Rs. 1,800 whichever is less is to be allowed as compensation for the property being used as the residence of the owner.
Thus taking into consideration the entire scheme of the provisions of Section 23 as a whole, it becomes very clear that so far as the annual value of the property is concerned, it has to be determined in accordance with Section 23(1) read with the first proviso and thereafter some compensation by way of statutory deductions are allowed in other parts of Section 23 which may be on account of construction of new residential units or use of the property by the owner for his own residence.
So far as Section 24(1)(i) of the Act is concerned, it allows an assessee deduction to the extent of 1/6th of the annual value by way of repairs. In our view, it appears to be quite reasonable and just that the allowance for repairs should be calculated on the annual value of the property determined as a whole under the first proviso to Section 23(1) of the Act and not after making statutory deductions from the annual value. In these circumstances, we hold that the view taken by the Appellate Tribunal is correct and the reference is answered in the affirmative. On the facts and circumstances of the case, parties shall bear their own costs.