I live in my own house and earn nothing from it. Can Parliament tax me on a notional annual value as income from house property?
Yes. The Supreme Court refused leave and dismissed the petition, holding that including an amount computed under section 23(2) for a self-occupied house is within Parliament's power to tax income under Entry 82 of List I. Income in Entry 82 is not confined to money actually received. Even in its ordinary economic sense it includes not merely what comes in by exploiting property but what one saves by using it oneself, and what can be converted into income may reasonably be regarded as giving rise to income. The tax is on income from house property, computed in an artificial way, and not on the building.
Decided by the Supreme Court (Supreme Court of India - A.P. Sen and E.S. Venkataramiah, JJ (judgment by Venkataramiah, J)) on 1981-02-11, reported as AIR 1981 SC 907; (1981) 2 SCC 135; (1981) 128 ITR 315; (1981) 5 Taxman 7; 1981 SCC (Tax) 84. It bears on section 23(2), section 22, section 4 of the Income Tax Act 1961, in House Property matters.
This is the constitutional answer to the perennial objection that annual value taxation charges a fiction. It matters for two reasons beyond the house property head. First, it fixes the width of income in Entry 82: entries conferring legislative power are read liberally and in their widest amplitude, and the word carries all items that were taxable under the 1922 Act, which the framers had before them. Second, it explains the theory on which annual value works - possession of an interest in property is treated as giving rise to income, measured by a prescribed standard, and the absence of actual receipt is disregarded when the assessment is made. That reasoning underlies every notional or presumptive charge in the Act.
Binding on every court and authority in India.
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The petitioner was an assessee who occupied his own house for his residence. He had contended before the Madhya Pradesh High Court, in a petition under Article 226, that including any amount computed under section 23(2) in his income was unconstitutional, because no income at all accrued to him in the true sense of the term. On that footing, he argued, the liability imposed in respect of his residential house was in pith and substance a tax on buildings falling under Entry 49 of List II of the Seventh Schedule, so that Parliament could not impose it under Entry 82 of List I, which authorises only taxes on income other than agricultural income. The High Court rejected the plea and dismissed the writ petition. He applied to the Supreme Court for special leave under Article 136. Section 23(2) as it then stood provided that where the property consisted of a house in the owner's occupation for his own residence, its annual value was first to be determined as if it had been let and then reduced by half of that amount or Rs 1,800, whichever was less, and that where there was more than one such house the relief applied to one house of the assessee's choosing.
The Court found no ground to grant special leave, refused it and dismissed the petition, giving reasons because the case had been argued with some persistence. Including an amount computed under section 23(2) in the income of an assessee who occupies his own house is within Entry 82 of List I. Entries conferring legislative power must be read liberally and in their widest amplitude, taking in all ancillary and subsidiary matters fairly comprehended in them, and are not to be read narrowly. Income, in its ordinary economic sense, includes not merely what is received or comes in by exploiting the use of property but also what one saves by using it oneself, and that which can be converted into income can reasonably be regarded as giving rise to income. What the Act levies is a tax on income from house property, though computed in an artificial way, and not a tax on house property; Entry 49 of List II is therefore not attracted, and the levy falls squarely under Entry 82 of List I.
The Court reasoned from the meaning of income, from comparative practice and from the history of the constitutional entry. On meaning, income is a thing that comes in, or the gain derived from land, capital or labour, and the Court adopted the observation of Dixon J in Resch that the subject of income tax has never been confined to actual receipts, and that to include the annual value of a taxpayer's own residence introduces no new subject of tax. English practice under Schedule A was to the same effect: the theory is that possession of an interest in property gives rise to income, a theory not always borne out in fact, and the absence of income in fact is disregarded when the assessment is made, the standard prescribed for measuring the actual or hypothetical income being the annual value. Lord Atkinson in Rotunda Hospital put it that where the owner is himself in occupation it by no means follows that he derives an income equal to the annual value, but since he has the use and enjoyment of the property he is presumed for the purposes of the statute to do so. Under Indian law the Bombay High Court in D.M. Vakil and the Gujarat High Court in Sakarlal Balabhai had held tax payable on the bona fide annual value whether or not it was received. On history, section 9 of the 1922 Act already taxed the annual value of a self-occupied residence when the Government of India Act, 1935 and later the Constitution were framed, and the framers, who had that Act in view as Articles 270 and 366 show, must have understood income in Entry 82 to include at least what that Act charged.
The expression 'income' includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself.
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Handle my notice → Ask a CA on WhatsAppYes. The Supreme Court refused leave and dismissed the petition, holding that including an amount computed under section 23(2) for a self-occupied house is within Parliament's power to tax income under Entry 82 of List I. Income in Entry 82 is not confined to money actually received. Even in its ordinary economic sense it includes not merely what comes in by exploiting property but what one saves by using it oneself, and what can be converted into income may reasonably be regarded as giving rise to income. The tax is on income from house property, computed in an artificial way, and not on the building. This was decided by the Supreme Court (Supreme Court of India - A.P. Sen and E.S. Venkataramiah, JJ (judgment by Venkataramiah, J)) and bears on section 23(2), section 22, section 4 of the Income Tax Act 1961. It is reported as AIR 1981 SC 907; (1981) 2 SCC 135; (1981) 128 ITR 315; (1981) 5 Taxman 7; 1981 SCC (Tax) 84. This is the constitutional answer to the perennial objection that annual value taxation charges a fiction. It matters for two reasons beyond the house property head. First, it fixes the width of income in Entry 82: entries conferring legislative power are read liberally and in their widest amplitude, and the word carries all items that were taxable under the 1922 Act, which the framers had before them. Second, it explains the theory on which annual value works - possession of an interest in property is treated as giving rise to income, measured by a prescribed standard, and the absence of actual receipt is disregarded when the assessment is made. That reasoning underlies every notional or presumptive charge in the Act. If it applies to you, the first step is this: Do not challenge a notional charge on the ground that nothing was received; that argument is foreclosed at the constitutional level by this decision.
The petitioner was an assessee who occupied his own house for his residence. He had contended before the Madhya Pradesh High Court, in a petition under Article 226, that including any amount computed under section 23(2) in his income was unconstitutional, because no income at all accrued to him in the true sense of the term. On that footing, he argued, the liability imposed in respect of his residential house was in pith and substance a tax on buildings falling under Entry 49 of List II of the Seventh Schedule, so that Parliament could not impose it under Entry 82 of List I, which authorises only taxes on income other than agricultural income. The High Court rejected the plea and dismissed the writ petition. He applied to the Supreme Court for special leave under Article 136. Section 23(2) as it then stood provided that where the property consisted of a house in the owner's occupation for his own residence, its annual value was first to be determined as if it had been let and then reduced by half of that amount or Rs 1,800, whichever was less, and that where there was more than one such house the relief applied to one house of the assessee's choosing. The matter was decided on 1981-02-11 by the Supreme Court (Supreme Court of India - A.P. Sen and E.S. Venkataramiah, JJ (judgment by Venkataramiah, J)). On those facts the Supreme Court held as follows. The Court found no ground to grant special leave, refused it and dismissed the petition, giving reasons because the case had been argued with some persistence. Including an amount computed under section 23(2) in the income of an assessee who occupies his own house is within Entry 82 of List I. Entries conferring legislative power must be read liberally and in their widest amplitude, taking in all ancillary and subsidiary matters fairly comprehended in them, and are not to be read narrowly. Income, in its ordinary economic sense, includes not merely what is received or comes in by exploiting the use of property but also what one saves by using it oneself, and that which can be converted into income can reasonably be regarded as giving rise to income. What the Act levies is a tax on income from house property, though computed in an artificial way, and not a tax on house property; Entry 49 of List II is therefore not attracted, and the levy falls squarely under Entry 82 of List I.
The Court reasoned from the meaning of income, from comparative practice and from the history of the constitutional entry. On meaning, income is a thing that comes in, or the gain derived from land, capital or labour, and the Court adopted the observation of Dixon J in Resch that the subject of income tax has never been confined to actual receipts, and that to include the annual value of a taxpayer's own residence introduces no new subject of tax. English practice under Schedule A was to the same effect: the theory is that possession of an interest in property gives rise to income, a theory not always borne out in fact, and the absence of income in fact is disregarded when the assessment is made, the standard prescribed for measuring the actual or hypothetical income being the annual value. Lord Atkinson in Rotunda Hospital put it that where the owner is himself in occupation it by no means follows that he derives an income equal to the annual value, but since he has the use and enjoyment of the property he is presumed for the purposes of the statute to do so. Under Indian law the Bombay High Court in D.M. Vakil and the Gujarat High Court in Sakarlal Balabhai had held tax payable on the bona fide annual value whether or not it was received. On history, section 9 of the 1922 Act already taxed the annual value of a self-occupied residence when the Government of India Act, 1935 and later the Constitution were framed, and the framers, who had that Act in view as Articles 270 and 366 show, must have understood income in Entry 82 to include at least what that Act charged. In the words reproduced by the source cited on this page: "The expression 'income' includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself."
It was decided by the Supreme Court on 1981-02-11 and is reported as AIR 1981 SC 907; (1981) 2 SCC 135; (1981) 128 ITR 315; (1981) 5 Taxman 7; 1981 SCC (Tax) 84. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 23(2), section 22, section 4, 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 Court found no ground to grant special leave, refused it and dismissed the petition, giving reasons because the case had been argued with some persistence. Including an amount computed under section 23(2) in the income of an assessee who occupies his own house is within Entry 82 of List I. Entries conferring legislative power must be read liberally and in their widest amplitude, taking in all ancillary and subsidiary matters fairly comprehended in them, and are not to be read narrowly. Income, in its ordinary economic sense, includes not merely what is received or comes in by exploiting the use of property but also what one saves by using it oneself, and that which can be converted into income can reasonably be regarded as giving rise to income. What the Act levies is a tax on income from house property, though computed in an artificial way, and not a tax on house property; Entry 49 of List II is therefore not attracted, and the levy falls squarely under Entry 82 of List I. It arises in House Property matters, on section 23(2), section 22, section 4 of the Income Tax Act 1961, and was decided by Supreme Court of India - A.P. Sen and E.S. Venkataramiah, JJ (judgment by Venkataramiah, J). 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. Argue instead within the computation - the annual value determined as if the property were let, the statutory reliefs, and which property is specified as self-occupied where more than one is held. Keep the distinction the Court drew: this is a tax on income from house property computed artificially, not a tax on buildings under the State entry, so a pith and substance argument will not succeed. Where a presumptive or deemed provision is in issue elsewhere in the Act, expect this reasoning to be applied to it, and direct the attack at the terms of the provision rather than at the concept.
Still good law. A citator search returns 131 later decisions citing this judgment. Its construction of income, that the word includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself, was applied by the Mumbai Tribunal in Toyo Engineering India Ltd v Jt CIT (13 September 2005) and by the Kerala High Court in T.K. Aboobacker v Union of India (6 April 1989) and P. Kunhammed Kutty Haji v Union of India (17 February 1989). Its holding on the width of Entry 82 of List I was applied by the Bombay High Court, A.S. Oka J., in a batch of decisions delivered on 24 April 2019, including M/s Navbharat Potteries Pvt Ltd v State of Maharashtra, to uphold a State Act permitting a municipal corporation to levy property tax on rateable value, the tax remaining a property tax and not becoming a tax on income. The Supreme Court referred to it in M/s Chelmsford Club v CIT (2 March 2000). A second search by case name and citation returned 28 decisions, none overruling, doubting or referring it to a larger bench. The reliefs in section 23(2) have been rewritten since 1981, which does not touch this constitutional holding. 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 sets out section 23(2) as it stood in 1981, with the half or Rs 1,800 relief and the option where more than one house is self-occupied; the provision has been substantially recast since, and this decision says nothing about the present computation. It decides the constitutional question and does not deal with how annual value is to be determined in any particular case. The batch line listed sections 2(24) and 23 generally; I have taken the sections from the judgment. 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 Court found no ground to grant special leave, refused it and dismissed the petition, giving reasons because the case had been argued with some persistence. Including an amount computed under section 23(2) in the income of an assessee who occupies his own house is within Entry 82 of List I. Entries conferring legislative power must be read liberally and in their widest amplitude, taking in all ancillary and subsidiary matters fairly comprehended in them, and are not to be read narrowly. Income, in its ordinary economic sense, includes not merely what is received or comes in by exploiting the use of property but also what one saves by using it oneself, and that which can be converted into income can reasonably be regarded as giving rise to income. What the Act levies is a tax on income from house property, though computed in an artificial way, and not a tax on house property; Entry 49 of List II is therefore not attracted, and the levy falls squarely under Entry 82 of List I.
TaxSphere, “Bhagwan Dass Jain v Union of India”, https://taxnotice.vittsphere.com/caselaw/case/bhagwan-dass-jain-v-union-of-india/ (validity last checked 2026-08-29)
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