Report No. 12
Notes to clauses 22 to 27
C. Income from house property.-Section 9 of the existing Act has been split up into separate clauses1. The title of the head has been charged into "Income from house property", because the section deals only with that property and not any other immovable property.
1. Clause 22 to 27.
In the draft, after having stated that the annual value is the basis of chargeability, the expression "annual value" is defined. The basis of computation of annual value in the case of a tenanted building and in the case of owner-occupied building is set out separately1. The main drafting changes are the omission of provisos and re-arranging the section on a more logical basis. An interpretation clause has been added.
The detailed changes made in each clause are explained below:-
1. Vide clause 23.
Clause 22
The head has been changed into "Income from House property" as already explained. In the expression "bona fide annual value" the words "bona fide" have been omitted. The section defines only "annual value" and not a "bona fide annual value". Section 9(2) also uses "annual value" only. Moreover the words "bona fide" do not in any way make the meaning clearer.
Clause 23
Sub-clause (1):- The sub-clause corresponds to section 9(2) and no change has been made.
Sub-clause (2):- This is new. It seems desirable to embody some rules in the Act to furnish guidance in determining the annual value of tenanted property. The draft sub-clause tries to set out the considerations to be borne in mind in such cases. The sub-clause, of course, does not purport to be exhaustive, and refers only to factors of importance.
Sub-clause (3):- Deals with property occupied by the owner. The first para sets out, in a simple form, the provision contained in section 9(2), first proviso for reduction of the annual value. The form has been changed in order to avoid all ambiguity. The second para corresponds to the last line of section 9(2), first proviso. The existing section provides that the annual value shall not exceed 10 per cent, of the total income of the assessee.
Now the total income of the assessee will naturally include income from such occupied property. The calculation of the annual value thus becomes a complicated mathematical problem (see formula below). It will be evident from the formula given below that the annual value so calculated comes to 6/55, i.e., roughly 11 per cent, of the other income of the assessee. The draft, therefore, provides that this 11 per cent, shall be taken as the annual value. No additional liability is saddled on the assessee.
The formula referred to above is derived as under:-
Suppose AV is the annual letting value of the self-occupied property. Now, according to section 9(2) first proviso, the annual letting value i.e., AV is 10 per cent, of the total income; or in other words the total income is ten times the annual letting value. Thus the total income is 10 AV.
If Y is the other income of the assessee, then-
Total income 10AV = Y + (AV - AV/6)
i.e., 60 AV = 6Y + (6AV - AV)
i.e., 60 AV = 6Y + 5AV
i.e., 60 AV - 5AV = 6Y
i.e., 55 AVt= 6Y
i.e., AV = 6/55Y
i.e., AV = 10.9 per cent. of Y (roughly 11 per cent).
Sub-clause (4):-This corresponds to section 9(2), 2nd proviso. The following changes have been made-
(i) the word "occupied" has been replaced by "actually occupied" at all places, since the proviso is meant only for cases where, the property, though occupied, is not actually occupied by the owner;
(ii) the case where the property remains unoccupied for the whole year and the case where it remains unoccupied for a part of the year have been dealt with as separate items, for the sake of clarity, and the formula for computation of annual value in the latter case has been defined in clear language. The existing expression "computed proportionately" sounds abrupt and does not fully express what is intended.
Clause 24
Sub-clause (1), Item (i):- This corresponds to section 9(2), 3rd proviso. The existing provision is defective in form, because it brings about in a roundabout way a result which can be stated directly. The gist of the cause is that in the case of a tenanted property, one half of the municipal taxes should be deducted. This need not be expressed in the form of a "deeming" provision [as section 9(2), 3rd proviso, clause (a) appears to do] regarding the tenant's liability, followed by a provision [clause (b) of the proviso] for deduction if the tenant's liability is borne by the owner.
The draft seeks to remove this defect. The provision has also been made simpler by removing the reference to the law authorising the levy of tax etc. as unnecessary. It may be added here that as a general rule, such laws make the tax payable wholly by the owner and not by the tenant.
Item (ii):- The existing section 9(1) (i) has been split up into two parts (a) where the property is occupied by the owner and (b) where it is occupied by the tenant. The two parts have been dealt with separately since in the latter case the annual value has to be reduced by the one half of the deduction for municipal taxes. The expression "reduced annual value", has been, therefore, used for the purpose; it has been explained in the explanation at the end of the clause. It is also made clear that the existing allowance of the one-sixth of income is in respect of repairs.
Item (iii):- The existing provision, section 9(1) (ii), is ambiguous, since the words "not exceeding one sixth of such value" can be read either as applying to the "difference" or to "rent". This has been avoided by splitting up the sub-clause. The Proviso for assessment year 1951-52 has been omitted as spent.
[As to "reduced annual value", see notes under item (ii) above).]
Item (iv): -No change has been made in the existing provisions [Section 9(1) (iii)].
Item (v):- Existing section 9(1) (iv), has been split up into four items (v) to (viii) for clarity. The proviso is transferred to a separate clause1.
1. Clause 25.
Item (vi):- See notes to item (v) above.
Items (vii) and (viii):- See notes to item (v) above.
Item (ix)- No change has been made in the existing section 9(1) (v).
Item (x)- The percentage for collection charges, as prescribed by rules, has been embodied in the Act itself. (As to the expression "reduced annual value" see notes under item (ii); above).
Item (xi)- Verbal changes have been made to improve the language. (As to the expression "reduced annual value" see notes under item (ii); above.)
Item (xii).- This incorporates the substance of the notification providing for deduction of irrecoverable rent.
Explanation:- [See notes under item (ii) above].
Sub-clause (2)- This gives effect to the principle contained in section 9(2), 2nd Proviso, last line, putting it in a more conspicuous form.
Clause 25
The amounts not deductible have been put in one clause.
Clause 26
This clause reproduces the provisions of sub-section (3) of existing section 9 without any change.
Clause 27
Sub-clause (i)- reproduces the existing provision in section 9(4)(a).
Sub-clause (ii)- reproduces the existing provision in section 9(4)(b) with the addition of the words italicised as even a part of a building such as a flat may be allotted on ownership basis, as very often happens in Bombay.
Sub-clauses (iii) and (iv)- The definitions of "annual charge" and "capital charge" have been taken from the decision of the Supreme Court in New Piece Goods Bazar Co. Ltd., Bombay v. C.I.T., Bombay, (1950) 18 ITR 516 SC.
Sub-clause (v)- gives effect to the change made by the Finance Act, 1938.
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