CA Seebak

The Income-Tax Appellate Tribunal (ITAT) Mumbai has ruled that a property which has remained vacant for a year is entitled to vacancy allowance. This means that you will not have to pay tax on the rental value of your property if it has been vacant for a full year.

This decision goes against the practice of tax officers who levy tax on the rental value of a property even if the property remained vacant for a full year. They normally allow vacancy allowance if the property is vacant for a part of the year. In the department’s view, since the property is vacant for a full year, it’s not let out at all and therefore the question of vacancy allowance does not arise.

The ITAT ruling was given in the case of Amrit Petroleum for the assessment year 2001-02 . The company was represented by tax lawyer Jignesh R Shah. Mr Shah argued that the property remained vacant despite the best efforts of the owner to find a client and therefore the owner is entitled to the vacancy allowance for full year.

The department usually takes a stand that such vacancy allowance is allowable only when the property is vacant for a part of the year and not for the full year. According to the provisions of the Income-Tax Act, if a taxpayer owns an immovable property which is not used for the purposes of his business, he is liable to pay tax on the annual letting value (ALV) of the property.

The tax is levied on the income-earning potential of the property, and not on the income generated from the property. However, if the property is let out and is vacant for a part of the year, the assessee is entitled to proportionate relief called “vacancy allowance” — earlier under Section 24(1)( ix) of the IT Act and now under Section 23(1)( c) of Act. The tribunal held that when vacancy allowance was allowed under Section 24(1)( ix), the same is allowable even if the property is vacant for the whole year.

Source : Economic Times

If you are in the habit of defaulting in paying income tax and ignoring the I-T department's notices, then this Supreme Court judgment will serve as a warning, for you may stand to lose your properties.

The Income Tax department is well within its right to attach the defaulter's property and put it up for auction sale to recover the dues, a bench comprising Justices Ashok Bhan and Dalveer Bhandari said in a recent judgment.

Dismissing an appeal against the sale of landed property through public auction, the bench answered in the affirmative the self-posed question: "Whether the Income Tax department is justified in auctioning the attached property for recovery of debt?"

In the appeal filed by Janatha Textiles, a partnership firm of Radhey Shyam Modi, Pawan Kumar Modi, Padmadevi Modi and Indira Chirmar, it was stated that the firm was in arrears of tax for the assessment years 1985-86, 1986-87, 1987-88 and 1989-90.

Though demands pertaining to assessment years 1986-87 to 1989-90 had been stayed by the appellate authorities, the department went ahead and took recovery proceedings for the dues for the assessment year 1985-86.

The main contention of the partners was that the Andhra Pradesh High Court erred by not taking into account the fact that the nature of their lands were wrongly mentioned as dry lands in the auction sale notice.

"In fact the said lands were a mango orchard also having building structure would have attracted a much higher value," the petitioners said and argued that the auction sale would be vitiated by the wrong evaluation of the property.

While affirming the action of the I-T department to auction sale the property to recover the dues, the Bench said auction sale by authorities were sacrosanct and could not be interfered with unless grave irregularities in the process were pointed out by the aggrieved party.

The apex court said the law gives complete protection to the ownership right of a stranger over the auctioned property irrespective of the outcome of the dispute between the defaulters and the recovery authority.

"Unless protection is extended to them, the court sales would not fetch market value or fair price of the property," the Bench said dismissing the appeal filed by Janatha Textiles and its partners.