JUDGEMENT
Per Shri R. M. Mehta, Accountant Member - The following effective ground is ground is raised in this appeal preferred against the order of the AAC : -
(1.)"On the facts and in the circumstances of the case, and in law, the learned AAC erred in allowing deduction u/s. 23(1) (b) in respect of 26 separate residential units."
(2.)The respondent in this case is an Association of Persons deriving income from property. The asset. year involved is 1979-80 with the previous year ending 31-3-79. The AOP came into existence with effect from 1-9-77. It started the construction of a property at village Jalalpore, Navsari Distt. Bulsar, in the month of September 1977 and completed the same in the month of April 1978. In the statement of income attached with the return the assessee claim a deduction of Rs. 57,200 under the proviso to section 23(1) of the IT Act, 1961. However by means of a revised working the claim was reduced to Rs. 36,200.
The ITO rejected the claim put forward by the assessment and allowed the same to the tune of Rs. 2,400 only. He treated the entire building as one residential unit as against the assessees claim that each of the rooms occupied by independent tenants on the four floor be treated as separate residential units. The relevant reasons recovered by the ITO in rejecting the assessees claim were as under : "In this connection it is ascertained that the said building was rented to 26 tenants and the property bears only one Census Number of the Gram Panchayat and that there is common passage of or coming and going on first and second floor. The water is being taken out from tube well with the help of Water pump and being stored in storage tank on the top of the building and therefrom water is supplied to each 1 and moreover., the property is ranted to diamond cutters who are running ghanties of diamond cutting and polishing industry in each room and therefore, entire building was one commercial-cum-residential unit and the sub-clause (i) & (ii) of clause (b) of provision of section 23(1) (b) also indicates that in order to constitute a residential unit for the purpose of the section it must have a separate annual value and finds support from the decision of the Kerala High Court in the case of CIT v. Mrs. Elizabeth Varghese [1981] 132 ITR 605 (Part 5) and so I hold that the entire building was one residential unit and not 26 residential unit and the assessee was not entitled to the deduction permissible under the proviso to section 23(1) (b) in respect of each unit and therefore, the claim of the assessee is rejected."
(3.)IN the course of the proceedings before the first appellate authority the assessee sought to distinguish the decision of the Honble Kerala High Court in the case of CIT v. Mrs. Elizabeth Varghese [1981] 132 ITR 605 which had been relied upon by the ITO in rejecting the assessees claim. It was contended that the building had 26 separate units and each of these units had a separate Electric meter and an independent entrance. This was in contradistinction to a single electric meter in the case before the Kerala High Court. The assessee also furnished a list of the tenants along with the Meter Numbers during the course of the hearing as also a certificate from the Gram Panchayat in which it was stated that the building was occupied by 25 tenants. IN other words, the assessee canvassed for the acceptance of the claim as made by him during the course of the assessment proceedings viz. Rs. 36,200. The AAC upheld the claim of the assessee on the following lines : "I have considered the arguments of the appellants counsel. It is seen that the building has ground plus 3 floors with 26 units. Each unit is provided with separate electric meter. Provision for supply of water is made by the owner of the buildings. Appellant has filed a list of tenants and it is also supported by a certificate from the Surpanch of Gram Panchayat. IN the case of CIT v. Mrs. Elizabeth Varghese [1981] 132 ITR 605 (Ker) on which the ITO has relied, the building was being used as lodge with common entrance and one electric meter and one water connection. The ITO had allowed deduction in respect of one unit treating the entire building as a composite unit. However, there were separate blocks occupied by the tenants on monthly tenancy basis. Each block was a self contained unit. IN Kerala High Court decision, it was held that the expression "building comprising on or more residential units" occuring in proviso to section 23(1) has to be understood as signifying composite structures containing a plurality of residential or dwelling units, such as flats. This condition is fulfilled by the various units in the building owned by the appellant. I therefore, direct that the ITO should allow deduction of Rs. 36,200 claimed under proviso to section 23(1) (c) in respect of units."
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