From THE HINDU group of publications
Sunday, November 04, 2001


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Vacancy allowance and HUF terms

T. Banusekar

I AM an 89-year old retired government official. I suffer from multiple fracture of the limbs and other ailments, including failing vision. My tax liability before rebate under Section 88B is Rs 1,500. After the rebate under Section 88B, available to senior citizens, my tax liability is nil. I would like to know whether I am required to furnish a return, and if so, if a failure will attract penalty under Section 271F to the extent of Rs 5,000.

K. Shankarappa


Under Section 139(1), every person is required to furnish the return before the due dates specified in that section if his total income exceeds the maximum amount chargeable to income-tax. As is apparent from the query, from the fact that the reader has a tax liability before the rebate under Section 88B, the reader has a total income exceeding the maximum amount not chargeable to tax.

The reader is, therefore, required to furnish a return notwithstanding the fact that his tax liability would be nil after taking into account the rebate available under Section 88B. Failure to furnish such return may entail the levy of penalty under Section 271F. The mere fact that the reader's tax liability is nil would not be a reason enough to not furnish a return as required under Section 139(1).


Both my parents died intestate. The property belonging to my parents was divided by way of a family arrangement in view of a regular partition. A small apartment belonging to my mother was allotted to me in this arrangement. This apartment remained vacant throughout the previous year as it could not be occupied due to lack of basic amenities. In this context, can you clarify the following doubts:

*Since no income is derived from this property, can the annual value of the property be taken as nil, in computing income under the head, `Income from house property', or is it required that the municipal valuation should be taken as the annual value and deductions claimed therefrom?

*Can I form a HUF with my wife in respect of this property and claim an exemption in respect of this property from tax?

R. Kannan


For the assessment year 2001-02 (previous year 2000-01), a deduction can be claimed under Section 24 by way of vacancy allowance. This deduction can be claimed where the property is let and was vacant during a part of the year. The deduction that may be allowed would be that part of the annual value proportionate to the period during which the property is unoccupied, or where the property is let out in parts, that portion of the annual value appropriate to any vacant part, proportionate to the period during which such part is wholly unoccupied.

This deduction is available, whether the vacancy precedes or follows the period during which the property was let. The Supreme Court in Liquidator of Mahamudabad Properties (P.) Ltd. versus CIT (1980) 124 ITR 31 (SC) has held that this deduction would not be available where the property was vacant throughout the previous year.

Therefore, the reader will not be able to claim a deduction in respect of vacancy allowance. One will, therefore, have to offer the sum for which the property might reasonably be expected to let as the gross annual value. He may, however, claim deductions available under Sections 23 and 24 and the balance shall be chargeable to tax.

For the assessment year 2002-03 (previous year 2001-02), however, such notional value will not be charged to tax as the annual value of the property. This will be so because where the property or any part of the property is let and was vacant during the whole or any part the previous year and for this reason, the actual rent received or receivable by the owner is less than the sum for which the property might reasonably be expected to let, the amount received or receivable would be taken as the annual value. This would mean in the reader's case, since no rent is received or receivable, the annual value of the property would be taken as nil.

The question of forming a HUF by the reader with his wife in respect of the property is probably founded on a misconception of the concept of HUF. It is not open to a person to form a HUF. A HUF comes into existence by operation of law and is not one that is created.

If this property had been owned by the HUF consisting of the reader's late father, mother and other members of the family, the property may have devolved as the Karta of the HUF consisting of the reader and his wife. It may not be possible in the absence of more specific information to advise the reader in the matter. The reader will be well advised to seek professional advice in the matter.

Business Line invites queries on personal taxation issues to this column. They will be answered in the forthcoming issues of Business Line . Queries may be addressed to Tax Talk, Business Line, Kasturi Buildings, 859, Anna Salai, Chennai 600002, or by e-mail to (Readers are requested to mention `Tax Talk' in the subject line of their e-mails.)

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