* If decline in rent collection is partly because of vacancy and partly due to other factors, then loss due to vacancy shall be deducted from the amount of the reasonable expected rent, otherwise illogical results will come.

Example: (Rs. in thousands)

MV                                                                            62

FR                                                                            66

SR                                                                            61

Actual rent (5,000 p.m.)                                        60

Loss due to Vacancy                                            10

UR                                                                            Nil

Computation of GAV as per our method: (Rs. in thousands)

Step I- Higher of MV or FR max to SR                                  

=  61

Step II - Rent received/receivable after deducting UR but before adjusting loss due to vacancy

= 60

Step III- Step I or Step II whichever is higher

=61

Step IV- Loss due to vacancy

=10

Step V- Step III - Step IV

=51

i.e, GAV = Rs. 51,000

In this case, rent actually collected is Rs. 50,000 (i.e., 60,000 - 10,000) which is lower than reasonable expected rent of Rs. 61,000.

The lower collection is because of the following reasons:

• loss due to vacancy (i.e., 2 months rent :Rs. 10,000); and
• loss due to letting out the property at less than reasonable expected rent (i.e, Rs. 1,000)

Rs. 10,000 is deducted to find out annual value of the property, althoughlower collection of rent is partly because of vacancy and partly because of other factors.

Opinion that section 23(1)(c) is not applicable when lower collection of rent is partly because of vacancy:

*there is a view that Rs. 10,000 should not be decuted in the aforesaid situation and annual value should be Rs. 61,000 [simply because of the fact that section 23(1)(c) is not applicable when lower collection of rent is partly because of Vacancy and under clause (a) of section 23(1) vacancy loss is ot deductible.]

If Rs. 61,000 is taken as annual value,

The taxpayer can reduce his tax liability by declaring that property is given on annual rent of Rs. 61,000 (and not Rs. 60,000). Consequently, the rent acually collected is Rs. 51,000(which is lower than reasonable expected rent only becuase of vacancy) and Rs. 51,000 will become GAv u/s 23(1)(c).

If vacancy loss is not adjusted in a case where lower collection of rent is partly because of vacancy, illogical results will come:-

Annual Value would be higher (Rs.61,000) if annual rent is Rs. 60,000. Conversely, annual value will be lower (Rs. 51,000) if it is declared that annual rent is not Rs. 60,000 but Rs. 61,000. The plain literal interpretation of a statutory provision produces a manifestly unjust result, which could never have been intended by Legislature.

 In Narang Overseas (P.) Ltd. v. ITAT[2007] & In K.P. Varghese v. ITO[1981] :

where the plain literal interpretation of a statutory provision produces a manifestly unjust result, which could never have been intended by Legislature, the language used by Legislature may be fine-tuned so as to achieve the intention of Legislature abd produce a rational construction.


Therefore,
Loss due to vavcancy is deducted from reasonable expected rent whenever lower collection of rent is partly because of vacancy and partly because of other factors.

I hope now u have got the answer....:)

in case any further query...u can ask freely

regards,

Hey Anuraag....

the case which u have quoted deals with Section 54 of the Income-tax Act, 1961 - Capital gains - Profit on sale of  property used for residential purposes.

Dear all,

                         Please see whether  rent lost due to vaccancy  is deducted or simply the actual rent received or receivable is considered. Going thro the provisions of law I do not find any provision for deduction fro the expected rent etc. I also advise you to go thruogh the case law cited by you and see the facts of the case and the reasoning adopted by the tribunal/court since if you closely study the same you may find that the case was decided on an entirely different factual matrix and shall not apply to the facts of your case. I could not locate the case cited by you. If you have the citation please let the forum have its advantage. I shall express my final opinion once I get the citation. With high regards

Sivadas Chettoor B.com FCA LL.M

Dear all,

                         Please see whether  rent lost due to vaccancy  is deducted or simply the actual rent received or receivable is considered. Going thro the provisions of law I do not find any provision for deduction fro the expected rent etc. I also advise you to go thruogh the case law cited by you and see the facts of the case and the reasoning adopted by the tribunal/court since if you closely study the same you may find that the case was decided on an entirely different factual matrix and shall not apply to the facts of your case. I could not locate the case cited by you. If you have the citation please let the forum have its advantage. I shall express my final opinion once I get the citation. With high regards

Sivadas Chettoor B.com FCA LL.M

Originally posted by : Mayank kharbanda
	Hey Anuraag....   the case which u have quoted deals with Section 54 of the Income-tax Act, 1961 - Capital gains - Profit on sale of  property used for residential purposes.

Chnadanben's case deals with HP while Narang's case delas with sec 54...butt the interpretation can be used...

refer Taxmann

:)

If part of the year say for 6 mnths the house is let out for Rs.10,000 pm , then remains vacant for 2 months; then for remaining 4 months let out for Rs, 13000 pm.The expected rent comes out to be Rs. 139000. Can we say that the actual rent is less due to vacancy or apparently as for 6 months 6000 was charged, other factors shall be responsible as well?