The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has upheld the right of a taxpayer to change his selection of a house property that would be treated as self-occupied and having a ‘nil’ annual value. Consequently, the notional rent from such a house will not be taxable.
In other words, if the taxpayer has in his Income-tax (I-T) return declared a particular house property to be self-occupied, he can at a later stage during the actual tax assessment of his case substitute this with another house property owned by him, which perhaps is in a more posh location.
By doing so, it may be possible for him to reduce the notional rent that has to be offered for tax and thus lower his I-T outgo.
Under the I-T Act, where an individual owns more than one house, he can only treat any one of his house properties as ‘self-occupied and having a nil annual value’. Annual value, in general terms, is the notional rent which the property would ordinarily fetch.
The other house properties, even if they are not given out on rent, are assumed to have been let out and I-T is payable on the notional rent. Certain deductions such as municipal taxes are permitted. Further, a standard deduction of 30% is allowed and I-T is payable on the balance component.
To mitigate I-T liability, taxpayers opt to choose that house property as ‘self-occupied and having a nil annual value’ which would otherwise have had the highest adjusted annual value and would entail a higher I-T outgo.
“The ITAT rightly held that the taxpayer can change his selection during assessment proceedings. Sometimes, in cases where a dispute arises with I-T authorities as the amount of annual value of a property, the taxpayer, since he has the choice, may change his selection during assessment proceedings, if it is advantageous to do so,” says Gautam Nayak, tax partner at CNK & Associates.
“It is high time the government reconsiders this taxation of deemed income. With housing finance being so readily available now, it is not only the rich people who have more than one house,” adds Nayak.
In this case adjudicated by ITAT, Venkatavarthan N Iyengar had three house properties located at Juhu, Santacruz East and Vasai. In his I-T return, he had declared his Vasai property as ‘self-occupied and having a nil annual value’. Later during course of tax assessment, he opted to substitute the Vasai property with his Juhu property.
The I-T officer held that making such a change during tax assessment proceedings is not permissible and the dispute finally reached the level of ITAT. Iyengar submitted to the ITAT that the I-T Act gives an option to the taxpayer to determine which of his house properties he should treat as selfoccupied and having a nil annual value. Further, the I-T Act does not prohibit substitution of the self-occupied property.
The ITAT, in its order of May 23, observed that “The I-T Act nowhere states that the option of selecting a self-occupied property, once exercised, cannot be changed.”
Thus, the tax tribunal directed the I-T officer to accept the substitution by the taxpayer and treat the Juhu property as self-occupied.