My unsold flats are stock in trade and were never let. Can the AO still tax notional rent?
On this Delhi High Court view, yes. Vacancy allowance under s.23(1)(c) presupposes an actual letting, so where flats have never been let in any previous year the assessee cannot enter that clause at all and is taxed under s.23(1)(a) on the sum for which the property might reasonably be expected to let.
Decided by the High Court (High Court of Delhi - S. Ravindra Bhat and Sanjeev Sachdeva, JJ.) on 2017-11-03, reported as [2018] 89 taxmann.com 238 (Delhi); IT Appeal Nos. 931 and 934 of 2017 [Assessment years 2005-06 and 2006-07]. It bears on section 22, section 23, section 23(1)(a), section 23(1)(c) of the Income Tax Act 1961, in House Property matters.
This favours the revenue and is the decision the department leads with on notional rent from unsold stock. It matters for what it does to the alternative plea: builders usually fall back on vacancy allowance once the annual value is determined, and this reasoning shuts that door because clause (c) is a relieving provision drafted for property that is let and was vacant for part or all of the year. The point is heavily litigated and the library deliberately holds the opposite view as well - read this entry with Osho Developers and with Ramesh Dungarshi Shah on the years to which it can apply.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee carried on a construction business. For AYs 2005-06 and 2006-07 some of the flats it had constructed remained unsold and were not let out during the year. The flats were held as stock-in-trade of the business. The Assessing Officer brought to tax the annual value of these unsold flats under the head income from house property, computing it as the sum for which the property might reasonably be expected to let. The assessee resisted the addition and, in the alternative, claimed vacancy allowance under s.23(1)(c) on the footing that the properties were vacant during the whole of the previous year.
The assessee's appeals were dismissed. The Court agreed with the Andhra Pradesh High Court in Vivek Jain that an actual letting out of the property in the year in question, or in a previous year, is essential before s.23(1)(c) can apply; the flats held as stock-in-trade had never been let, so the clause could not assist and the annual value stood to be computed under s.23(1)(a) (para 8). It held separately that s.23(5), inserted by the Finance Act 2017 with effect from 1 April 2018, would have covered the assessee's situation squarely, but that it is worded neither as a clarification nor by way of abundant caution, applies prospectively only, and by being inserted as a separate sub-section shows that the legislature did not regard the situation as already covered by s.23(3) (paras 10 and 11). No substantial question of law arose (paras 12 and 13).
The Court proceeded on the structure of s.23. Clause (c) is a relieving provision that operates where the property 'is let' and was vacant during the whole or part of the year so that the actual rent falls short of the clause (a) figure; its language presupposes an actual letting. At para 7 the Court set out the competing reading of the Mumbai Tribunal in Premsudha Exports - that 'property is let' means held for letting with an intention to let and efforts made to let, the phrase 'actually let' in s.23(3) showing that 'is let' must mean something less - and recorded that it runs against Vivek Jain; but it held that the assessee failed even on that test, because stock-in-trade was neither held for letting nor were efforts made to let it. At para 8 it agreed with Vivek Jain that actual letting in the year or in an earlier year is essential. It then turned to s.23(5) and held it prospective (paras 10 and 11), so that for the years before AY 2018-19 unsold stock remains taxable on the notional annual letting value.
This Court is in agreement with the views of the Andhra Pradesh High Court in Vivek Jain (supra), that actual letting out of the properties in the concerned year, or any of the previous years, is essential for application of Section 23(1)(c).
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Handle my notice → Ask a CA on WhatsAppOn this Delhi High Court view, yes. Vacancy allowance under s.23(1)(c) presupposes an actual letting, so where flats have never been let in any previous year the assessee cannot enter that clause at all and is taxed under s.23(1)(a) on the sum for which the property might reasonably be expected to let. This was decided by the High Court (High Court of Delhi - S. Ravindra Bhat and Sanjeev Sachdeva, JJ.) and bears on section 22, section 23, section 23(1)(a), section 23(1)(c) of the Income Tax Act 1961. It is reported as [2018] 89 taxmann.com 238 (Delhi); IT Appeal Nos. 931 and 934 of 2017 [Assessment years 2005-06 and 2006-07]. This favours the revenue and is the decision the department leads with on notional rent from unsold stock. It matters for what it does to the alternative plea: builders usually fall back on vacancy allowance once the annual value is determined, and this reasoning shuts that door because clause (c) is a relieving provision drafted for property that is let and was vacant for part or all of the year. The point is heavily litigated and the library deliberately holds the opposite view as well - read this entry with Osho Developers and with Ramesh Dungarshi Shah on the years to which it can apply. If it applies to you, the first step is this: Fix the assessment year before anything else. For AY 2018-19 onwards s.23(5) applies and this judgment holds at para 11 that it is prospective, so the decisions record that no addition of this kind can be made for the earlier years covered by that sub-section.
The assessee carried on a construction business. For AYs 2005-06 and 2006-07 some of the flats it had constructed remained unsold and were not let out during the year. The flats were held as stock-in-trade of the business. The Assessing Officer brought to tax the annual value of these unsold flats under the head income from house property, computing it as the sum for which the property might reasonably be expected to let. The assessee resisted the addition and, in the alternative, claimed vacancy allowance under s.23(1)(c) on the footing that the properties were vacant during the whole of the previous year. The matter was decided on 2017-11-03 by the High Court (High Court of Delhi - S. Ravindra Bhat and Sanjeev Sachdeva, JJ.). On those facts the High Court held as follows. The assessee's appeals were dismissed. The Court agreed with the Andhra Pradesh High Court in Vivek Jain that an actual letting out of the property in the year in question, or in a previous year, is essential before s.23(1)(c) can apply; the flats held as stock-in-trade had never been let, so the clause could not assist and the annual value stood to be computed under s.23(1)(a) (para 8). It held separately that s.23(5), inserted by the Finance Act 2017 with effect from 1 April 2018, would have covered the assessee's situation squarely, but that it is worded neither as a clarification nor by way of abundant caution, applies prospectively only, and by being inserted as a separate sub-section shows that the legislature did not regard the situation as already covered by s.23(3) (paras 10 and 11). No substantial question of law arose (paras 12 and 13).
The Court proceeded on the structure of s.23. Clause (c) is a relieving provision that operates where the property 'is let' and was vacant during the whole or part of the year so that the actual rent falls short of the clause (a) figure; its language presupposes an actual letting. At para 7 the Court set out the competing reading of the Mumbai Tribunal in Premsudha Exports - that 'property is let' means held for letting with an intention to let and efforts made to let, the phrase 'actually let' in s.23(3) showing that 'is let' must mean something less - and recorded that it runs against Vivek Jain; but it held that the assessee failed even on that test, because stock-in-trade was neither held for letting nor were efforts made to let it. At para 8 it agreed with Vivek Jain that actual letting in the year or in an earlier year is essential. It then turned to s.23(5) and held it prospective (paras 10 and 11), so that for the years before AY 2018-19 unsold stock remains taxable on the notional annual letting value. In the words reproduced by the source cited on this page: "This Court is in agreement with the views of the Andhra Pradesh High Court in Vivek Jain (supra), that actual letting out of the properties in the concerned year, or any of the previous years, is essential for application of Section 23(1)(c)."
It was decided by the High Court on 2017-11-03 and is reported as [2018] 89 taxmann.com 238 (Delhi); IT Appeal Nos. 931 and 934 of 2017 [Assessment years 2005-06 and 2006-07]. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 22, section 23, section 23(1)(a), section 23(1)(c), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The assessee's appeals were dismissed. The Court agreed with the Andhra Pradesh High Court in Vivek Jain that an actual letting out of the property in the year in question, or in a previous year, is essential before s.23(1)(c) can apply; the flats held as stock-in-trade had never been let, so the clause could not assist and the annual value stood to be computed under s.23(1)(a) (para 8). It held separately that s.23(5), inserted by the Finance Act 2017 with effect from 1 April 2018, would have covered the assessee's situation squarely, but that it is worded neither as a clarification nor by way of abundant caution, applies prospectively only, and by being inserted as a separate sub-section shows that the legislature did not regard the situation as already covered by s.23(3) (paras 10 and 11). No substantial question of law arose (paras 12 and 13). It arises in House Property matters, on section 22, section 23, section 23(1)(a), section 23(1)(c) of the Income Tax Act 1961, and was decided by High Court of Delhi - S. Ravindra Bhat and Sanjeev Sachdeva, JJ.. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not claim vacancy allowance under s.23(1)(c) for a property never let in any year; on this reasoning the clause is unavailable and the claim invites the clause (a) computation. Outside Delhi, argue the contrary line through Osho Developers and CIT v Neha Builders (P) Ltd (2008) 296 ITR 661 (Guj.)(HC) rather than conceding on this decision. Say in terms that the decision is under appeal: leave was granted to the assessee on 4 May 2018 in SLP (C) Nos. 11016-11017 of 2018, the appeal is tagged with C.A. No. 5221 of 2013, and no judgment in either has been delivered. If the department produces a Supreme Court order said to have dismissed an SLP in an Ansal case, check the cause title - the 2020 dismissal is in CIT v. Ansal Housing Finance & Leasing Co. Ltd. on s.32AB and depreciation, was the revenue's own petition withdrawn for low tax effect, and affirms nothing on s.23.
Under appeal, and the appeal has not been decided. Leave has been granted against this judgment and the appeal is undecided. On 4 May 2018 the Supreme Court (A.K. Sikri and Ashok Bhushan, JJ.) granted leave in SLP (C) Nos. 11016-11017 of 2018 and directed the appeal to be tagged with C.A. No. 5221 of 2013; the order is reported at [2018] 95 taxmann.com 17/[2018] 256 Taxman 294 (SC) and reads, in its entirety, 'Leave granted' and 'Tag along with C.A. No.5221/2013'. A search of a subscription database whose case coverage runs to July 2026 returns no judgment in either the tagged appeal or the tagging appeal, so the appeal is confirmed pending and the outcome is unknown. No later decision applying, following or affirming this judgment was traced. Two further things qualify it. It is one side of a live High Court conflict, and this library deliberately holds the other - see the Osho Developers entry, which follows CIT v. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj.)(HC) to the opposite effect. And the position has been overtaken prospectively by s.23(5), inserted by the Finance Act 2017 with effect from AY 2018-19, which this judgment itself holds to be prospective at para 11; Kumar Properties and Real Estate P. Ltd. v. Dy. CIT (2021) 190 ITD 212 (Pune)(Trib.) records the amendment as prospective from AY 2018-19, and Ramesh Dungarshi Shah v. DCIT (2025) 213 ITD 96 (Mum.)(Trib.) applies the Delhi rule but holds no addition can be made for years before AY 2018-19. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment has now been read in full, and the date, the Bench, the appeal numbers and the assessment years come from it. The sentence this entry previously quoted as the holding was a digest headnote and has been replaced by the Court's own words at para 8. Three things have moved and they should be kept apart. First, this is one side of a live High Court conflict, and the Osho Developers entry in this library holds the other side. Second, leave was granted to the assessee on 4 May 2018 and the appeal, tagged with C.A. No. 5221 of 2013, has not been decided. Third, s.23(5) has overtaken the position prospectively from AY 2018-19, and it is this judgment itself that holds that sub-section prospective, at para 11. Two traps on citation. The more frequently cited Delhi decision CIT v. Ansal Housing Finance and Leasing Co. Ltd. (2013) 354 ITR 180 (Delhi)(HC) is a different case, and the Supreme Court order dismissing an SLP in that case decides nothing about s.23 - see the alert. And the case review in this judgment records Vivek Jain as followed at para 8 and Premsudha Exports as distinguished at para 8, which is later treatment for both. It does not tell you the outcome of the appeal in which the Supreme Court granted leave on 4 May 2018, because none has been delivered on any source whose coverage runs to July 2026. It does not decide what happens where a property held as stock-in-trade was in fact let in an earlier year, and it says nothing about how s.23(5) works once it applies - only that it does not apply before AY 2018-19. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The assessee's appeals were dismissed. The Court agreed with the Andhra Pradesh High Court in Vivek Jain that an actual letting out of the property in the year in question, or in a previous year, is essential before s.23(1)(c) can apply; the flats held as stock-in-trade had never been let, so the clause could not assist and the annual value stood to be computed under s.23(1)(a) (para 8). It held separately that s.23(5), inserted by the Finance Act 2017 with effect from 1 April 2018, would have covered the assessee's situation squarely, but that it is worded neither as a clarification nor by way of abundant caution, applies prospectively only, and by being inserted as a separate sub-section shows that the legislature did not regard the situation as already covered by s.23(3) (paras 10 and 11). No substantial question of law arose (paras 12 and 13).
TaxSphere, “Ansal Housing & Construction Ltd v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/ansal-housing-construction-v-acit-unsold-flats-23-1-a/ (validity last checked 2026-08-19)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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My flat was never let during the year. Can I take the annual value as nil under the vacancy clause?
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