Section 24

Income from house property - deductions

General

Deductions not specifically provided for are not admissible - The Legislature has used the word ‘namely’ and this shows that the heads of expenditure wherefor deduction can be claimed are ex­haustive. If a particular type of expenditure is not specifically provided to be deductible, deduction therefor cannot be claimed from out of the annual value - CIT v. H.G. Gupta & Sons [1984] 149 ITR 253 (Delhi).

Salary paid to caretaker is not deductible - Salary paid to the caretaker is not an admissible deduction from the annual rent - CIT v. Sreelekha Banerjee [1989] 179 ITR 46 (Cal.).

Deduction is separately allowable to each co-owner - After each of the co-owners is allocated his share in the income of the joint property, it becomes an income from the house property within the meaning of sections 22 and 23. From that income again each of these owners is entitled to deductions under section 24 individually - CIT v. Abdullabhai M. Moonim [1981] 132 ITR 642 (Bom.).

Repairs allowance

Only  net annual value is to be adopted - For the purpose of calculating deduction under section 24(1)(i), it is the annual value which is determined under section 23(1) read with first proviso which alone should be taken into consideration - Addl. CIT v. Instrumentation Ltd. [1986] 160 ITR 689 (Raj.).

Allowance is unconnected with expenditure - The repairs allowance is allowable  irrespective of whether the repairs are effected or not - Gulab Singh & Sons (P.) Ltd. v. CIT [1974] 94 ITR 537 (Delhi).

Insurance premium

Deduction is not dependent on self-occupation or tenancy - Deduc­tion towards fire insurance premium is admissible irrespective of the fact that the property is let out or not - Liquidator of Mahamudabad Properties (P.) Ltd. v. CIT [1980] 124 ITR 31 (SC).

Annual charge

Meaning of ‘voluntarily’  - A charge created by the assessee voluntarily will not be admissi­ble for such deduction. The term ‘voluntarily’ is an adverb. An act is said to be voluntary (adjective) when it is deliberate, discretionary, effected by choice. It is a free, intended, self-willed, volitional act of the maker; a wilful, unprompted act done without any compulsion - CIT v. Satyanarayan Sikaria [2000] 108 Taxman 41 (Gauhati).

There must be a charge on the property as well as liability to pay - The word ‘charge’ in the statutory expression ‘annual charge’ in section 9(1)(iv) of the 1922 Act connotes something more than a mere liability to pay, something more than the annual payment. Both the concepts are involved, liability to pay and a charge on the house property for the discharge of that liability. That charge can be contractual or statutory, it can be express or it can be implied. If, for instance, the income from the property is shown as the source from which the liability is to be discharged, law would imply a charge for that amount - AV.R.A. Veerappa Chettiar v. CIT [1959] 35 ITR 322 (Mad.).

Recurrent monthly payment is an ‘annual charge’ - If any amount is payable monthly and such payment is to recur year after year, the liability must be treated as one for making an annual payment and the property which is charged with such payment must be said to be charged with annual charge - CIT v. S.B. Bakshi Dalip Singh [1980] 122 ITR 96 (Bom.).

Charge need not be for acquiring/constructing the property - It is not necessary that the annual charge should have been created for the purpose of acquiring or constructing house property which is yielding income - CIT v. Rajah Dhanrajgiriji [1985] 154 ITR 719 (AP).

Meeting an existing, genuine, legal or contractual obligation is not a voluntary charge - The expression used is ‘voluntarily’, which must be understood as distinct from, and as opposed to, the expression ‘involuntarily’. The word ‘involuntarily’ means, without there being any option, i.e., under an enforceable obli­gation. On this reasoning where a person creates an annual charge to meet an existing, genuine, legal or contractual obligation, it would not be a case of creating a charge voluntarily - CIT v. Rajah Dhanrajgiriji [1985] 154 ITR 719 (AP).

Ground rent

Actual payment is not necessary - The payment in respect of the ground rent is not dependent upon whether it is paid or not - CIT v. Abdul Hussein Essaji Arsiwalla  [1968] 69 ITR 38 (Bom.)/Gulab Singh & Sons (P.) Ltd. v. CIT [1974] 94 ITR 537 (Delhi).

Payment for regularising of unauthorised user is ‘ground rent’ - Where the assessee had obtained a plot on perpetual lease from the Government, the payments made by the assessee, in addition to the normal lease rent, to regularise the unauthorised use of the building for non-residential purpose were ‘ground rent’ within the meaning of section 24(1)(v) and thus allowable deduction in computing the income from property - P.N. Sikand v. CIT [1981] 131 ITR 9 (Delhi).

Interest on ground rent is not deductible - Where ground rent on land taken on lease was enhanced because of the violation of the terms of the lease deed by the lessee, and the lessee was also made liable to pay interest on ground rent, interest so paid was not an allowable deduction in computing income from property built on that land, since there was no provision in the Act to allow such a deduction - Gulab Singh & Sons (P.) Ltd. v. CIT [1974] 94 ITR 537 (Delhi).

Interest on borrowed capital

Relationship of borrower - lender must exist - The relationship of borrower and lender must come into exist­ence before it can be said that any amount, capital or any other money, is borrowed by one person from another and there must be a real transaction of borrowing and lending in order to amount to any borrowing - CIT v. Rajkot Seeds, Oil & Bullion Merchants Association Ltd. [1975] 101 ITR 748 (Guj.)/CIT  v.  Four Fields (P.) Ltd.  [1998] 96 Taxman 143 (Punj. & Har.).

If interest has fallen due for payment, it can be deducted even if not paid - The deduction has not been made dependent on the actual payment of the amount claimed as deduction. If the amount of interest sought to be deducted had fallen due or a liability in that regard had been incurred in the previous years relevant to the assessment year in question, whether factually the amount of interest is paid or not, it is a permissible deduction under section 24(1)(vi) of the Act - CIT v. Devendra Bros. & Co. [1993] 200 ITR 146 (All.).

Interest on overdue interest is not deductible - What the asses­see is entitled to deduct is the interest payable by him on the capital charge and not the additional interest which because of his failure to pay the interest on the due date is considered as a part of the loan - Shew Kissen Bhatter v. CIT [1973] 89 ITR 61 (SC).

Interest on borrowals invested in properties owned by wife/minor children is deductible - Where the assessee had borrowed money at interest to purchase certain house property in the names of his wife and minor children and the income from that property was included in the assessee’s total income under the provisions of section 64(1)(iv) and (v), it was held that the assessee’s claim for deduction of interest on borrowed money under section 24(1)(vi), read with section 27(1), could not be rejected on the ground that the borrowing had been effected, not in the name of the assessee’s wife or minor children, but in his own name - S.M.A. Siddique v. CIT [1984] 148 ITR 307 (Mad.).

Local taxes/levies

Deduction is on actual payment basis - The use of the word ‘paid’ and not ‘payable’ or ‘chargeable’ under section 24(1)(vii) shows that emphasis is on actual payment and not payability. According­ly, urban land tax of prior years, even if paid in relevant year, is deductible in full in the relevant year - CIT v. M. CT. Muthiah [1979] 118 ITR 104 (Mad.)/CIT v. P.J. Irani [1983] 143 ITR 540 (Mad.)/CIT v. East India Industries (M) (P.) Ltd. [1983] 139 ITR 1059 (Mad.).

All taxes levied by State Government are allowable on payment basis - The expression ‘any sums paid on account of’ qualifies not only land revenue but also any other tax levied by the State Government. Thus, taxes, including urban land tax, levied by State Government are deducti­ble in year of payment and not on accrual basis - Express News­papers (P.) Ltd. v. CIT [1984] 145 ITR 461 (Mad.).

Compounding fee is deductible -  Payment of compounding fee was a legitimate deduction - CIT v. Smt. Laxmi Devi Jain [1996] 84 Taxman 396/217 ITR 840 (All.).

Vacancy allowance

No allowance can be availed of if property is vacant throughout the year - Section 24(1)(ix), which speaks of property which is let and which was vacant during a part of the year, must be read to mean proper­ty which was let during the previous year and was vacant during a part of the year. It cannot refer to property which was not let at all during the previous year - Liquidator of Mahamudabad Properties (P.) Ltd. v. CIT [1980] 124 ITR 31 (SC)/CIT v. Pra­deepkumar M. Shah [1981] 130 ITR 118 (Ker.) (FB).

Letting may precede or succeed vacancy period - In order that clause (ix) of section 24(1) is attracted, the property in ques­tion must have been let and also vacant during a part of the year. Both the events must have occurred within the same year. If the property had been let, not in the relevant year, but in an earlier year, the clause will not be attracted. It is, however, not necessary that letting must precede vacancy. The benefit will accrue equally if the order is reversed - CIT v. Joy P. Jacob [1985] 151 ITR 19 (Ker.).

Allowance is admissible even if part of property falls vacant - Even where a part of property is vacant for the first 11 months of previous year and is let out for last month alone, vacancy allowance is allowable, on proportionate income relating to that part - CIT v. K.A. Vamana Pai [1986] 158 ITR 211 (Ker.).

Others - Where the owner of the house voluntarily had forgone the right to collect the rent, since the agreement holder was in occupation of the property as per the sale agreement by way of part performance of the contract of sale, the property could not be deemed to be vacant so as to allow vacancy allowance under section 24(1)(ix) - CIT v. Dhun D. Dalal [1997] 143 CTR (Mad.) 359.

Unrealised rent

There is no prohibition on deducting more than one year’s rent - Neither clause (x) of section 24(1) nor rule 4 of the Rules contains any prohibition of deduction of more than one year’s rent - CIT v. Dr. N. Brahmachari [1992] 107 CTR (Cal.) 270.

Proof of irrecoverability is essential - Where there was no proof of irrecoverability, the suit was still pending and nowhere the assessee had shown that the tenant had become incapable of satis­fying the decree as and when the Court made a decree, the asses­see was not entitled to claim deduction of unrealised rent - CIT v. Airflo Transport (I) (P.) Ltd. [1991] 192 ITR 572/59 Taxman 479 (Ker.).

Mere institution of legal proceedings will suffice; not its termination - Rule 4 merely requires the taking of all steps necessary for institution or commencement of legal proceedings. Institution of legal proceedings denotes merely commencement and not its culmination. Strictly speaking, actual institution of legal proceedings itself is not a pre-condition; mere taking necessary steps for such institution is enough. For example, if the law requires a notice of minimum period is necessary before instituting a suit, giving of such notice in the previous year laying the foundation for instituting the suit after expiry of notice, followed with the actual filing of a suit within a reasonable period after the expiry of the notice period in the succeeding year may fulfil the condition under rule 4 in the previous year relevant to the assessment year in question in which the notice has been given, notwithstanding the filing of the suit after the end of the previous year. The question has to be determined not as if the rent has in fact become unrealisable and irrecoverable finally, but it is founded on reasonable esti­mation of the assessee about the possibility of its non-realisa­tion in spite of making all efforts to recover it. But holding the efforts to recover, which have not fructified so far, as an evidence of the fact that the rents are realisable is contrary to the clear language as well as the object of the rule laying down the conditions for claiming such deduction - Shree Niketan v. CIT [2000] 241 ITR 355 (Guj.).