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S.Murlidharan

S. Murlidharan says that the lack of an explicit definition of self-occupation tilts the law in favour of the rich

AS IT is, there is a uniform tax-free limit of Rs 50,000 applicable across the board to, among others, all individuals. But the inherent distortions in the Income-tax Act, 1961, to the extent it deals with computation of income from house property, results in a further easing of this limit implicitly for the wealthy class. Consider a man having three lower income group (LIG) flats. He gets exemption on only one of the three even if all of them are self-occupied, with the remaining two being deemed to be let out and taxed on the basis of their annual value, which is a normative concept entailing a presumptive income. As against this, consider a wealthy man owning a sprawling bungalow in the heart of a bustling mega polis like Delhi. The entire bungalow is tax-free if it is self-occupied for his own residential purposes. What appears to be an egalitarian measure is, in fact, tilted in favour of the rich. To be sure, the combined annual value of all the three LIG houses of the first individual will pale in comparison to the annual value of the bungalow belonging to the wealthy man. Yet, the former is brought to account by the taxman even while the latter is left severely alone. In all fairness, exemption in respect of self-occupied residential house for individuals ought to be with reference to annual value and not to number of houses, given the fact that houses can differ greatly in size, quality, and location and on other touchstones as well.

The same distortion bedevils the wealth tax law as well.. But the distortion is not as invidious as the one under the income-tax law, given the fact that wealth tax is but a soft tax.

The delightfully vague position obtaining with reference to the number of self-occupied residential houses qualifying for tax-free status could further accentuate the skew in favour of the rich should they wake up to the possibility of tapping a loophole in the law. It has come to be tacitly accepted both by the taxpayers and the tax administration that an individual is eligible for exemption in respect of only one self-occupied residential house, though this view is not borne out by the language of the law, which confers exemption in respect of one self-occupied residential house comprised in a property. An intrepid tax planner might well succeed if he claims exemption in respect of his self-occupied single residential unit at Delhi and also on one residential unit at Mumbai which is self-occupied and comprised in a property having three floors.

While correcting the above distortions in law, the Finance Minister may also give an explicit definition of what constitutes self-occupation.

The Gujarat High Court, in Smt. Jashvidyaben C. Mehta vs CIT (1988 172 ITR 680), held that occupation by cousin is not the same as self-occupation, whereas the Allahabad High Court (CIT vs Rani Kaniz Abid — 1972 Tax LR 587) and the Madras High Court (CIT vs Sri Krishnachandra Ganapathi Narayana Deo, Raja of Parlakimidi — AIR 1926) seem to think that if a house is ready and available for assessee's own occupation, that is sufficient to make it a self-occupied house even if is occupied by someone else.

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