Eight units in my mall stayed empty for the whole year. The Assessing Officer relies on Vivek Jain and says section 23(1)(c) needs the unit to have been actually let during the year, so he has taxed deemed rent under section 23(1)(a). How do I meet that?
The Tribunal held the annual value of units vacant for the whole year to be nil under section 23(1)(c) and deleted the addition of Rs 56,26,656. It construed the word 'let' in section 23(1)(c) purposively as meaning intended to be let or available to let, so that actual letting during the year is not a pre-requisite where the property was let in an earlier period, remained vacant for the whole year in question and continued to be held for letting. Counsel's submission that the Andhra Pradesh High Court's decision in Vivek Jain is a non-jurisdictional decision of persuasive force only was recorded at paragraph 8.3, and the Tribunal at paragraph 10 said it found force in the submissions of counsel and was in agreement with them; the Tribunal did not itself analyse the point.
Decided by the ITAT (Amit Shukla, Judicial Member and Girish Agrawal, Accountant Member) on 2025-03-21, reported as ITA No. 5320/MUM/2024 (ITAT Mumbai, C Bench), assessment year 2016-17. It bears on section 22, section 23, section 23(1), section 23(1)(a), section 23(1)(b), section 23(1)(c), section 24 of the Income Tax Act 1961, in House Property and How Tax Law Is Read matters.
This is the standard commercial-property version of the vacancy dispute and the Department's whole case usually rests on Vivek Jain v ACIT [2011] 337 ITR 74 (AP). Two answers were deployed here and both should be pleaded. The construction answer is that reading section 23(1)(c) to require actual letting during the year renders the words 'vacant during the whole ... of the previous year' nugatory, since a property cannot be let and vacant for the whole year at the same time. The precedent answer is that a decision of a non-jurisdictional High Court has persuasive force only, on the authority of the Bombay High Court in Thana Electricity Supply and Consolidated Pneumatic Tool, as applied by the Special Bench in Mahindra and Mahindra. The evidence that mattered was intent to let: the objects clause, letters of intent to prospective tenants, and a year-by-year occupancy table showing the units let before and after. Note that a Tribunal cannot resolve a divergence between High Courts, and that the Revenue side of this line is stronger than Vivek Jain alone. The Punjab and Haryana High Court in Susham Singla v CIT, Patiala (I.T.A. No. 371 of 2015, decided 23 December 2016) held that section 23(1)(c) applies only to a property that was actually let and for which rent was actually received or receivable, and the Supreme Court dismissed the special leave petition against it on 10 April 2017 (SLP(C) No. 9968/2017) as being without merit. A dismissal in limine declares no law, but a taxpayer outside Bombay should expect the Department to press both Vivek Jain and Susham Singla, and should be ready to distinguish Susham Singla on the fact that there the property had never been let at all.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee develops malls, entertainment centres and multiplexes; its objects include acquiring, developing, letting and commercially exploiting real estate including shopping malls. It completed a mall in financial year 2012-13 and began operations in January 2013. For assessment year 2016-17 it returned income of Rs 9,70,79,650. Of 261 units in the mall, 253 were let and the rental income was offered under the head income from house property, which was not in dispute. Eight units aggregating 16,746 sq. ft. were not let during the year. The assessee said it had been constantly looking for tenants but could not let these units for want of competitive customers, that they were let in the following financial year, and that the base rent for all units was Rs 60 per sq. ft., differential rates being charged according to location, visibility from the main entrance, distance from the lift and floor. It filed an occupancy table showing that the units had been let in preceding years, were vacant in the year in question, and were let again in later years, and produced letters of intent and offer-cum-terms sheets from prospective tenants for three of the units. The Assessing Officer, relying on Vivek Jain v. ACIT [2011] 337 ITR 74 (AP), held that section 23(1)(a) applied because the units were not let at all during the year, that vacancy allowance arises only if the unit is let, that no Rent Control Act applied so standard rent was irrelevant, and that expected reasonable rent was the higher of fair rent and municipal value; applying Rs 60 per sq. ft. per month he arrived at a gross annual value of Rs 80,30,080 and, after the thirty per cent deduction, added Rs 56,26,656. The Commissioner (Appeals) confirmed, holding that clauses (b) and (c) apply only where the property was actually let and rent was actually received or receivable.
The appeal was allowed and the addition was deleted (paragraphs 11 and 12). Under the deeming provision of section 23(1)(c), the annual value of a property vacant for the whole of the year is taken at nil (paragraph 10). The requirement that the house be actually let during the year is not a pre-requisite for section 23(1)(c) so long as the property was let in the earlier period and remains vacant for the whole of the year under consideration while the assessee continues to hold it for letting (paragraph 6.3).
The Tribunal set out section 23(1) as substituted by the Finance Act 2001, the notes on clauses and CBDT Circular No. 14 of 2001, and analysed the three clauses: clause (a) fixes a fair estimate; clause (b) takes the higher of the actual rent and that estimate where the property is let; clause (c) takes the lower of the two where the property is let and was vacant for the whole or any part of the year, so that where a property is vacant for the whole year the actual rent is nil and the annual value becomes nil (paragraphs 5 to 5.3.2). It noted that the Explanation to section 23(1) excludes unrealised rent from actual rent for clauses (b) and (c), and that where a property is vacant for the whole year there is no occasion to realise rent at all (paragraph 5.3.3), and that clause (c) was inserted as a protection to the assessee, the pre-amendment position under the erstwhile section 24(2)(ix) having given vacancy allowance only where a let property was vacant for part of the year (paragraphs 5.3.4 and 6.3). Applying a purposive construction so as not to render the words 'vacant for the whole year' nugatory, it held that 'let' must be read as intended to be let or available to let, there being no situation in which a property is simultaneously let and vacant for the whole year (paragraph 6.3). It found the intent to let established by the objects clause, the letters of intent for three units, and the occupancy table (paragraphs 6.1 and 6.2). On Vivek Jain, counsel pointed out that the Andhra Pradesh High Court had itself accepted that a property let for two or more years could be vacant for a whole previous year and so fall within clause (c), and that the decision was of a non-jurisdictional High Court with persuasive value only, relying on the Bombay High Court in Thana Electricity Supply Ltd. and Consolidated Pneumatic Tool Co. (India) Ltd. as applied by the Mumbai Special Bench in Mahindra and Mahindra Ltd. (paragraphs 8 to 8.3). The Tribunal followed the coordinate bench in Sonu Realtors Pvt. Ltd. v. DCIT and an earlier order in the case of the holding company Phoenix Mills Ltd. for assessment years 2009-10 and 2010-11 on identical facts (paragraphs 8.4 and 9), and concluded that the actual rent was nil on account of vacancy and, compared with the sum in clause (a), produced an annual value of nil (paragraph 10).
Accordingly, under the deeming provision of section 23(1)(c), in the case of a property which is vacant for whole of the year, its annual value is taken at 'Nil'.
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Handle my notice → Ask a CA on WhatsAppThe Tribunal held the annual value of units vacant for the whole year to be nil under section 23(1)(c) and deleted the addition of Rs 56,26,656. It construed the word 'let' in section 23(1)(c) purposively as meaning intended to be let or available to let, so that actual letting during the year is not a pre-requisite where the property was let in an earlier period, remained vacant for the whole year in question and continued to be held for letting. Counsel's submission that the Andhra Pradesh High Court's decision in Vivek Jain is a non-jurisdictional decision of persuasive force only was recorded at paragraph 8.3, and the Tribunal at paragraph 10 said it found force in the submissions of counsel and was in agreement with them; the Tribunal did not itself analyse the point. This was decided by the ITAT (Amit Shukla, Judicial Member and Girish Agrawal, Accountant Member) and bears on section 22, section 23, section 23(1), section 23(1)(a), section 23(1)(b), section 23(1)(c), section 24 of the Income Tax Act 1961. It is reported as ITA No. 5320/MUM/2024 (ITAT Mumbai, C Bench), assessment year 2016-17. This is the standard commercial-property version of the vacancy dispute and the Department's whole case usually rests on Vivek Jain v ACIT [2011] 337 ITR 74 (AP). Two answers were deployed here and both should be pleaded. The construction answer is that reading section 23(1)(c) to require actual letting during the year renders the words 'vacant during the whole ... of the previous year' nugatory, since a property cannot be let and vacant for the whole year at the same time. The precedent answer is that a decision of a non-jurisdictional High Court has persuasive force only, on the authority of the Bombay High Court in Thana Electricity Supply and Consolidated Pneumatic Tool, as applied by the Special Bench in Mahindra and Mahindra. The evidence that mattered was intent to let: the objects clause, letters of intent to prospective tenants, and a year-by-year occupancy table showing the units let before and after. Note that a Tribunal cannot resolve a divergence between High Courts, and that the Revenue side of this line is stronger than Vivek Jain alone. The Punjab and Haryana High Court in Susham Singla v CIT, Patiala (I.T.A. No. 371 of 2015, decided 23 December 2016) held that section 23(1)(c) applies only to a property that was actually let and for which rent was actually received or receivable, and the Supreme Court dismissed the special leave petition against it on 10 April 2017 (SLP(C) No. 9968/2017) as being without merit. A dismissal in limine declares no law, but a taxpayer outside Bombay should expect the Department to press both Vivek Jain and Susham Singla, and should be ready to distinguish Susham Singla on the fact that there the property had never been let at all. If it applies to you, the first step is this: Build the occupancy history unit by unit across preceding and subsequent years and put it on record; the Tribunal reproduced it and relied on it.
The assessee develops malls, entertainment centres and multiplexes; its objects include acquiring, developing, letting and commercially exploiting real estate including shopping malls. It completed a mall in financial year 2012-13 and began operations in January 2013. For assessment year 2016-17 it returned income of Rs 9,70,79,650. Of 261 units in the mall, 253 were let and the rental income was offered under the head income from house property, which was not in dispute. Eight units aggregating 16,746 sq. ft. were not let during the year. The assessee said it had been constantly looking for tenants but could not let these units for want of competitive customers, that they were let in the following financial year, and that the base rent for all units was Rs 60 per sq. ft., differential rates being charged according to location, visibility from the main entrance, distance from the lift and floor. It filed an occupancy table showing that the units had been let in preceding years, were vacant in the year in question, and were let again in later years, and produced letters of intent and offer-cum-terms sheets from prospective tenants for three of the units. The Assessing Officer, relying on Vivek Jain v. ACIT [2011] 337 ITR 74 (AP), held that section 23(1)(a) applied because the units were not let at all during the year, that vacancy allowance arises only if the unit is let, that no Rent Control Act applied so standard rent was irrelevant, and that expected reasonable rent was the higher of fair rent and municipal value; applying Rs 60 per sq. ft. per month he arrived at a gross annual value of Rs 80,30,080 and, after the thirty per cent deduction, added Rs 56,26,656. The Commissioner (Appeals) confirmed, holding that clauses (b) and (c) apply only where the property was actually let and rent was actually received or receivable. The matter was decided on 2025-03-21 by the ITAT (Amit Shukla, Judicial Member and Girish Agrawal, Accountant Member). On those facts the ITAT held as follows. The appeal was allowed and the addition was deleted (paragraphs 11 and 12). Under the deeming provision of section 23(1)(c), the annual value of a property vacant for the whole of the year is taken at nil (paragraph 10). The requirement that the house be actually let during the year is not a pre-requisite for section 23(1)(c) so long as the property was let in the earlier period and remains vacant for the whole of the year under consideration while the assessee continues to hold it for letting (paragraph 6.3).
The Tribunal set out section 23(1) as substituted by the Finance Act 2001, the notes on clauses and CBDT Circular No. 14 of 2001, and analysed the three clauses: clause (a) fixes a fair estimate; clause (b) takes the higher of the actual rent and that estimate where the property is let; clause (c) takes the lower of the two where the property is let and was vacant for the whole or any part of the year, so that where a property is vacant for the whole year the actual rent is nil and the annual value becomes nil (paragraphs 5 to 5.3.2). It noted that the Explanation to section 23(1) excludes unrealised rent from actual rent for clauses (b) and (c), and that where a property is vacant for the whole year there is no occasion to realise rent at all (paragraph 5.3.3), and that clause (c) was inserted as a protection to the assessee, the pre-amendment position under the erstwhile section 24(2)(ix) having given vacancy allowance only where a let property was vacant for part of the year (paragraphs 5.3.4 and 6.3). Applying a purposive construction so as not to render the words 'vacant for the whole year' nugatory, it held that 'let' must be read as intended to be let or available to let, there being no situation in which a property is simultaneously let and vacant for the whole year (paragraph 6.3). It found the intent to let established by the objects clause, the letters of intent for three units, and the occupancy table (paragraphs 6.1 and 6.2). On Vivek Jain, counsel pointed out that the Andhra Pradesh High Court had itself accepted that a property let for two or more years could be vacant for a whole previous year and so fall within clause (c), and that the decision was of a non-jurisdictional High Court with persuasive value only, relying on the Bombay High Court in Thana Electricity Supply Ltd. and Consolidated Pneumatic Tool Co. (India) Ltd. as applied by the Mumbai Special Bench in Mahindra and Mahindra Ltd. (paragraphs 8 to 8.3). The Tribunal followed the coordinate bench in Sonu Realtors Pvt. Ltd. v. DCIT and an earlier order in the case of the holding company Phoenix Mills Ltd. for assessment years 2009-10 and 2010-11 on identical facts (paragraphs 8.4 and 9), and concluded that the actual rent was nil on account of vacancy and, compared with the sum in clause (a), produced an annual value of nil (paragraph 10). In the words reproduced by the source cited on this page: "Accordingly, under the deeming provision of section 23(1)(c), in the case of a property which is vacant for whole of the year, its annual value is taken at 'Nil'." The decision followed or applied Sonu Realtors Pvt. Ltd. v. DCIT, ITA No. 2892/Mum/2016 dated 19.09.2018 — followed; Phoenix Mills Ltd., ITA Nos. 241 and 242/Mum/2015 — followed on identical facts in the holding company's case; CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 (Bom) — cited by counsel at para 8.3, through the Special Bench in Mahindra and Mahindra, on the binding force of a non-jurisdictional High Court decision; not independently analysed by the Tribunal; Consolidated Pneumatic Tool Co. (India) Ltd. v. CIT [1994] 209 ITR 277 (Bom) — cited by counsel at para 8.3; Mahindra and Mahindra Ltd. v. DCIT [2009] 30 SOT 374 (Mum) (SB) — cited by counsel at para 8.3; the passage on binding precedent is that Special Bench reproducing the Bombay High Court, i.e. doubly quoted material; Vivek Jain v. ACIT [2011] 337 ITR 74 (AP) — relied on by the Assessing Officer; distinguished on the strength of its own paragraphs 14 and 15.
It was decided by the ITAT on 2025-03-21 and is reported as ITA No. 5320/MUM/2024 (ITAT Mumbai, C Bench), assessment year 2016-17. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 22, section 23, section 23(1), section 23(1)(a), section 23(1)(b), section 23(1)(c), section 24, 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 taxpayer. The appeal was allowed and the addition was deleted (paragraphs 11 and 12). Under the deeming provision of section 23(1)(c), the annual value of a property vacant for the whole of the year is taken at nil (paragraph 10). The requirement that the house be actually let during the year is not a pre-requisite for section 23(1)(c) so long as the property was let in the earlier period and remains vacant for the whole of the year under consideration while the assessee continues to hold it for letting (paragraph 6.3). It arises in House Property and How Tax Law Is Read matters, on section 22, section 23, section 23(1), section 23(1)(a), section 23(1)(b), section 23(1)(c), section 24 of the Income Tax Act 1961, and was decided by Amit Shukla, Judicial Member and Girish Agrawal, Accountant Member. 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. Produce documentary proof of the intention to let for the vacant year itself: letters of intent, offer and terms sheets, brokerage records, advertisements. Take the construction point that the words 'vacant during the whole of the previous year' would be rendered nugatory on the Department's reading, and support it with the notes on clauses to the Finance Act 2001 and CBDT Circular No. 14 of 2001. If you are outside Andhra Pradesh, Telangana, Punjab or Haryana, plead expressly that Vivek Jain and Susham Singla are non-jurisdictional High Court decisions with persuasive value only, and cite Thana Electricity Supply; and distinguish Susham Singla on the facts, because there the property was never let at any time. Read Vivek Jain closely: its paragraphs 14 and 15 accept that a property let for two or more years can be vacant for the whole of a previous year and so fall within clause (c); that concession is what the Tribunal in Sonu Realtors and here relied on.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator returns nothing. A case-name search returns 32 documents, but the Bombay High Court judgments in this assessee's name (24 July 2023, 23 January 2024, 25 January 2024, 1 February 2024) are reassessment writ petitions that predate this order, and the Supreme Court order of 17 July 2026 in SLP (C) Diary No. 57648/2024 - the Revenue's petition dismissed 'both on the ground of delay as well as on merits' - challenges the High Court's judgment in W.P. No. 795/2015, not this order. Nothing treats the s.23(1)(c) holding on vacant mall units. 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 order runs to 12 numbered paragraphs and contains several slips. At paragraph 6.3 it refers to 'section 23(2)(c)', plainly a slip for section 23(1)(c). Paragraph numbering repeats: there are two paragraphs numbered 2.3. The table at paragraph 2.2 lists seven rows covering the eight units while the later table of additions lists nine rows and repeats 'S 50 2,878 9,67,008' twice, although the total of Rs 56,26,656 on 16,746 sq. ft. is consistent. Paragraph 8.2 quotes an article in a chartered accountants' journal; that is counsel's material, not the Tribunal's reasoning. Paragraphs 8.1 to 8.4 are all the submissions of counsel, introduced as such ('ld. Counsel also pointed …', 'ld. Counsel also submitted …', 'Furthermore, he pointed out …'), and not the Tribunal's own reasoning. Paragraph 8.3 in particular is counsel citing the Mumbai Special Bench in Mahindra and Mahindra, which itself reproduces the Bombay High Court in Thana Electricity Supply, so the passage on binding precedent is doubly quoted material. The Tribunal adopts these submissions only by reference, at paragraph 10 ('we find force in the submissions made by the ld. Counsel for the assessee and are in agreement with the same, not repeated here for the sake of brevity'). Of independent value: paragraph 5 sets out the text of section 23 sub-sections (1) to (5) as it stood when the order was pronounced on 21 March 2025, including section 23(4) in its 'more than two houses' and 'two of such houses' form (the Finance Act 2019 position, from assessment year 2020-21) and section 23(5) with the period 'up to two years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority'. That reproduction was used in this batch to verify those two amendments. Paragraph 5's reproduction of section 23 was re-verified on this build through the plain document URL and cross-checked against ITAT Ahmedabad in Vandemataram Projects P. Ltd. (25 February 2025); the commencement dates were separately sourced from section 12 of the Finance Act 2017 (s.23(5) inserted, 'one year', w.e.f. 1 April 2018) and section 4 of the Finance Act 2019 ('one year' to 'two years' and 'one house' to 'two houses', w.e.f. 1 April 2020). 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 appeal was allowed and the addition was deleted (paragraphs 11 and 12). Under the deeming provision of section 23(1)(c), the annual value of a property vacant for the whole of the year is taken at nil (paragraph 10). The requirement that the house be actually let during the year is not a pre-requisite for section 23(1)(c) so long as the property was let in the earlier period and remains vacant for the whole of the year under consideration while the assessee continues to hold it for letting (paragraph 6.3).
TaxSphere, “Classic Mall Development Company Ltd v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/classic-mall-development-vacant-mall-units-23-1-c/ (validity last checked 2026-09-08)
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My tenant overstayed, I sued, and years later the court decreed mesne profits at a much higher rate. The Assessing Officer has reopened the earlier years and taxed the enhanced figure as annual value in each of them. Can he?
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