JUDGMENT
B.N. Srikrishna J.
1. In this reference made under section 256(1) of the Income-tax Act, 1961, pertaining to the assessment year 1974-75 of the assessee, the Tribunal has, at the instance of the assessee, referred the following question for the opinion of this court :
“Whether, on the facts and circumstances of the case, the Tribunal rightly held that the vacancy allowance was to be made in an amount of Rs. 2,45,443 even though the rent loss on account of vacancy was to the tune of Rs. 3,49,588 ?”
2. The assessee is a limited company and its major source of income is derived from letting out of immovable property. For the previous year ending March 31, 1973, admittedly, the rent receivable for the entire property was Rs. 14,17,735. There is no dispute that a part of the property remained vacant during the year and, because of that, the rent received was less by Rs. 3,49,580. The rent receivable being more than the annual value indicated in the municipal bills, the Income-tax Officer proceeded to compute the income on the basis of rent receivable to which the assessee had no objection. For arriving at the annual value as defined under section 23(1) of the Act read with the proviso thereto, the Income-tax Officer deducted the municipal taxes amounting to Rs. 4,23,338 from the rent receivable of Rs. 14,17,735 and computed the annual value at Rs. 9,94,397. The Income-tax Officer accepted the assessee’s claim in principle, namely, that the assessee was entitled to deduction on account of vacancy as provided under section 24(1)(ix) of the Act. There was, however, a dispute with regard to the quantum of deduction to be allowed under the said clause. While the assessee claimed that the entire amount of Rs. 3,49,880 had to be allowed as deduction under section 24(1)(ix), the Income-tax Officer took the view that only the proportionate part of the annual value of Rs. 9,94,397, as pertaining to the rent receivable of Rs. 3,49,880, could be allowed. The Income-tax Officer calculated the allowable deduction at Rs. 2,45,443 by taking the ratio of Rs. 3,49,880 to Rs. 14,17,735 and applying it to the annual value of Rs. 9,94,397 computed by him.
3. Being aggrieved by the assessment, the assessee appealed and, in appeal, the Appellate Assistant Commissioner disagreed with the Income-tax Officer’s calculation and held that the assessee was entitled to the full deduction of Rs. 3,49,880.
4. In the Department’s appeal, the Tribunal took the view that what was allowable as a deduction under section 24(1)(ix) was restricted to that part of the annual value appropriate to the vacant part and the expression “annual value” was defined by section 23(1) as “rent receivable minus the taxes leviable”. In this view of the matter, the Tribunal reversed the Appellate Assistant Commissioner’s findings and restored the Income-tax Officer’s order. The present question has been referred to us at the instance of the assessee.
5. Mr. Mehta, learned counsel for the assessee, contends that what is permissible as deduction under section 24(1)(ix) is the proportionate value of the “gross annual value” of the property and not the proportionate amount of the “net annual value” as calculated by the Income-tax Officer and upheld by the Tribunal. In our view, this contention is misconceived. Section 24(1)(ix) does not speak of either “gross” or “net” annual value. All that this clause provides is that 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 is deductible from income chargeable under the head “Income from house property”. It is section 23 which gives the meaning of the expression “annual value”.
6. The scheme of section 23 is that if the property has not been let, then “the annual value” shall be deemed to be the same for which the property might reasonably be expected to be let from year to year. This, of course, is a hypothetical figure which has to be estimated by the Assessing Officer where the property is not actually let. Where the property is let and the annual rent received or receivable by the owner in excess of the amount which could be calculated on hypothetical basis as above, then the annual value of the property shall be deemed to be the amount so received or receivable. The proviso to section 23(1) provides that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent the taxes are borne by the owner, be deducted in determining the annual value of the property. In our view, this section does not speak of “gross” or “net” annual value. It merely indicates two different methods of computing the annual value which are applicable to two different situations. The assessee’s case is covered by clause (b) and, therefore, it is erroneous to contend that what is determined in accordance with section 23(1)(b), read with the proviso thereto, would be the “net” annual value of the property. In our view, the amount thus arrived at would be the “annual value” of the property and it is only a proportionate amount out of this annual value, proportionate to the period of non-occupancy, which is permissible as a deduction under section 24(1)(ix). In our judgment, the Income-tax Officer and the Appellate Tribunal were perfectly justified in the view taken by them.
7. In the result, we answer the question referred to us for opinion in the affirmative and in favour of the Revenue. There will be no order as to costs.