An Old, Non-Habitable House can’t be subject to Tax on Notional Rent basis: ITAT [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has held that notional rent cannot be applied to determine house property income towards an old non-habitable house which is not capable to let out.

The assessee inherited a house from his mother. The Assessing Officer demanded tax from the property under the head “income from house property” on a notional basis.

Before the authorities, the assessee claimed that the house is in dilapidated condition in a village situated in the State of Rajasthan which is not habitable at all and, therefore, cannot be let out to anybody so, therefore, it was pleaded before the AO that by invoking the deeming provision it should not be taxed.

However, the AO did not agree and he estimated the annual lettable value at Rs.1,20,000/- per annum and after having given the standard deduction of 30% on it made an addition of Rs.84,000/-. On appeal, the CIT(A) confirmed the action of AO.

After hearing the contentions from both the sides, the Tribunal noted that a house property was inherited by the assessee in his native village situated at Rajasthan which was duly shown in his Balance Sheet.

“Since the assessee has a residential house at Kolkata, the AO invoked sec. 22 and 23 of the Act, estimated the annual lettable value at Rs. 1,20,000/-, i.e. Rs.10,000/- per month. It was brought to our notice that the house in question is an old house, which is in a dilapidated condition and so it is not habitable. Therefore, according to Ld AR, the question of letting out of the property does not arise. It was also brought to our notice that no inquiry was carried out by the AO before estimating the annual lettable value of the house despite the assessee pointed out this fact to the AO that the house in question is an old house, which is in a dilapidated condition and so it is not habitable and therefore, the question of letting out of the property does not arise. Taking in to consideration the aforesaid facts, in the interest of justice and fair play, I set aside the order of Ld. CIT(A) and restore the matter to the file of AO to verify the contention of the assessee that the house in question is in a dilapidated condition and not habitable. The AO after making enquiries finds the contention of the assessee to be correct then no deemed provision of sec. 22 read with section 23 should be saddled on the assessee. If the contention of the assessee fails and the house is habitable then the AO to make reasonable annual letting value considering the location and rent which the house could fetch in that locality in accordance to law after hearing the assessee,” the Tribunal said.