I'm a builder taxed on notional rent for unsold flats. From which year can that apply?
From AY 2018-19. The Tribunal followed the Delhi High Court in holding that notional rent must be determined on vacant unsold flats held as stock in trade under the head income from house property, but held that no such addition can be made for assessment years before AY 2018-19, when s.23(5) began to operate.
Decided by the ITAT (ITAT Mumbai Bench 'D' — Ms. Kavitha Rajagopal (Judicial Member) and Girish Agarwal (Accountant Member); IT Appeal No. 1220 (Mum.) of 2024; assessment year 2015-16) on 2025-05-14, reported as [2025] 174 taxmann.com 589 (Mumbai - Trib.) / [2025] 213 ITD 96 (Mumbai - Trib.); IT Appeal No. 1220 (Mum.) of 2024 (AY 2015-16). It bears on section 22, section 23, section 23(1)(a), section 23(4)(b), section 23(5) of the Income Tax Act 1961, in House Property matters.
This is the decision that reconciles the two High Court lines with the statute, and it is a mixed result rather than a win for either side. For pre-2018-19 years it removes the addition altogether. For later years it concedes the head but opens the quantum: applying CIT v Tip Top Typography (2014) 368 ITR 330 (Bom.)(HC), the annual value under s.23(1)(a) must be determined consistently with municipal laws and prevailing market conditions and cannot exceed standard or statutory rent limits, so the officer's estimate has to be reworked.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, an individual carrying on civil construction as proprietor of Advance Home Makers Group, filed his return for assessment year 2015-16 on 30 October 2015 declaring Rs. 3,84,95,290, including sale of flats of Rs. 18,58,75,250. The case was picked for limited scrutiny under CASS precisely because he had not declared income from house property on unsold shops and flats lying vacant during the year. He had shown closing stock of Rs. 7,30,66,564 in a completed project. By an assessment order of 21 December 2017 under section 143(3) the Assessing Officer took the annual value of the unsold units at Rs. 5,46,000 under section 23(4)(b) read with section 23(1) and, after the 30 per cent standard deduction of Rs. 1,63,800, added Rs. 3,82,200. The Commissioner (Appeals), NFAC, upheld the addition on 29 November 2023, relying on the co-ordinate bench decision in Dimple Enterprises. The appeal to the Tribunal was 47 days late and the delay was condoned. The assessee's case was that flats held as stock-in-trade bear no notional charge, that in any event section 23(5) means no such addition can be made before assessment year 2018-19, and that if anything is to be added it must follow the municipal rateable value.
The appeal was only partly allowed, and on the main question the assessee lost. For assessment year 2015-16 — a year before section 23(5) took effect — the Bench held that notional rent must be determined on vacant unsold flats held as stock-in-trade under the head income from house property, following the Delhi High Court in CIT v. Ansal Housing Finance and Leasing Co. Ltd. It rejected the argument that no such addition can be made for a year before assessment year 2018-19: section 23(5), inserted by the Finance Act 2017 with effect from 1 April 2018, is prospective and was not enacted as a clarification, and even before it deemed rent was determined under section 23(4)(b), so the charge existed already. What the assessee did win was the measure: applying the jurisdictional High Court decision in CIT v. Tip Top Typography, the Bench directed the Assessing Officer to determine the notional rent in accordance with the principles laid down there. That quantum question is therefore restored to the Assessing Officer and remains open.
The Bench framed two questions: whether a notional addition could be made at all for the year, and, if so, on what value. On the first it worked from the structure of the statute. Section 23(4)(b) already provided for deemed rent, the annual value being determined as if the house had been let, so a charge on vacant unsold flats did not depend on the later amendment; and section 23(5), inserted by the Finance Act 2017 with effect from 1 April 2018, is not worded as a clarification or as enacted for abundant caution, so it operates prospectively and its enactment shows the situation was not already covered by sub-section (3). Its effect, when it does apply, is relieving: the annual value is nil for two years — one year as originally enacted, raised by the Finance Act 2019 — from the end of the financial year in which the completion certificate is obtained. On the conflict of authority the Bench recorded that the Gujarat High Court in CIT v. Neha Builders treats such income as business income while the Delhi High Court in Ansal Housing treats it as house property income, but said the question before it was not the head of charge; on that head the jurisdictional High Court had already decided in CIT v. Sane and Doshi Enterprises and CIT v. Gundecha Builders that rental income from unsold flats held as stock-in-trade is income from house property. It also dealt with the decision the assessee relied on, Dy. CIT v. Inorbit Malls: although that decision says section 23(5) applies prospectively, it went on to decide against the assessee by following Ansal Housing. On the second question the Bench applied CIT v. Tip Top Typography, which follows the Full Bench decision in CIT v. Moni Kumar Subba: the annual letting value under section 23(1)(a) must be arrived at in accordance with municipal laws, allowing for rent inflated or deflated by extraneous circumstances, and cannot exceed the standard rent under the applicable rent control legislation.
As it is now a settled proposition of law post the decision of the Ansal Housing Finance and Leasing Co. Ltd., (supra) that notional rent has to be determined on vacant unsold flats held as stock-in-trade as 'Income from house property', the issue now remains for adjudication is what should be the rental value that the ld. AO will have to apply for determination of the notional rent.
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Handle my notice → Ask a CA on WhatsAppFrom AY 2018-19. The Tribunal followed the Delhi High Court in holding that notional rent must be determined on vacant unsold flats held as stock in trade under the head income from house property, but held that no such addition can be made for assessment years before AY 2018-19, when s.23(5) began to operate. This was decided by the ITAT (ITAT Mumbai Bench 'D' — Ms. Kavitha Rajagopal (Judicial Member) and Girish Agarwal (Accountant Member); IT Appeal No. 1220 (Mum.) of 2024; assessment year 2015-16) and bears on section 22, section 23, section 23(1)(a), section 23(4)(b), section 23(5) of the Income Tax Act 1961. It is reported as [2025] 174 taxmann.com 589 (Mumbai - Trib.) / [2025] 213 ITD 96 (Mumbai - Trib.); IT Appeal No. 1220 (Mum.) of 2024 (AY 2015-16). This is the decision that reconciles the two High Court lines with the statute, and it is a mixed result rather than a win for either side. For pre-2018-19 years it removes the addition altogether. For later years it concedes the head but opens the quantum: applying CIT v Tip Top Typography (2014) 368 ITR 330 (Bom.)(HC), the annual value under s.23(1)(a) must be determined consistently with municipal laws and prevailing market conditions and cannot exceed standard or statutory rent limits, so the officer's estimate has to be reworked. If it applies to you, the first step is this: Check the assessment year first - for years before AY 2018-19 the addition cannot be sustained on this reasoning.
The assessee, an individual carrying on civil construction as proprietor of Advance Home Makers Group, filed his return for assessment year 2015-16 on 30 October 2015 declaring Rs. 3,84,95,290, including sale of flats of Rs. 18,58,75,250. The case was picked for limited scrutiny under CASS precisely because he had not declared income from house property on unsold shops and flats lying vacant during the year. He had shown closing stock of Rs. 7,30,66,564 in a completed project. By an assessment order of 21 December 2017 under section 143(3) the Assessing Officer took the annual value of the unsold units at Rs. 5,46,000 under section 23(4)(b) read with section 23(1) and, after the 30 per cent standard deduction of Rs. 1,63,800, added Rs. 3,82,200. The Commissioner (Appeals), NFAC, upheld the addition on 29 November 2023, relying on the co-ordinate bench decision in Dimple Enterprises. The appeal to the Tribunal was 47 days late and the delay was condoned. The assessee's case was that flats held as stock-in-trade bear no notional charge, that in any event section 23(5) means no such addition can be made before assessment year 2018-19, and that if anything is to be added it must follow the municipal rateable value. The matter was decided on 2025-05-14 by the ITAT (ITAT Mumbai Bench 'D' — Ms. Kavitha Rajagopal (Judicial Member) and Girish Agarwal (Accountant Member); IT Appeal No. 1220 (Mum.) of 2024; assessment year 2015-16). On those facts the ITAT held as follows. The appeal was only partly allowed, and on the main question the assessee lost. For assessment year 2015-16 — a year before section 23(5) took effect — the Bench held that notional rent must be determined on vacant unsold flats held as stock-in-trade under the head income from house property, following the Delhi High Court in CIT v. Ansal Housing Finance and Leasing Co. Ltd. It rejected the argument that no such addition can be made for a year before assessment year 2018-19: section 23(5), inserted by the Finance Act 2017 with effect from 1 April 2018, is prospective and was not enacted as a clarification, and even before it deemed rent was determined under section 23(4)(b), so the charge existed already. What the assessee did win was the measure: applying the jurisdictional High Court decision in CIT v. Tip Top Typography, the Bench directed the Assessing Officer to determine the notional rent in accordance with the principles laid down there. That quantum question is therefore restored to the Assessing Officer and remains open.
The Bench framed two questions: whether a notional addition could be made at all for the year, and, if so, on what value. On the first it worked from the structure of the statute. Section 23(4)(b) already provided for deemed rent, the annual value being determined as if the house had been let, so a charge on vacant unsold flats did not depend on the later amendment; and section 23(5), inserted by the Finance Act 2017 with effect from 1 April 2018, is not worded as a clarification or as enacted for abundant caution, so it operates prospectively and its enactment shows the situation was not already covered by sub-section (3). Its effect, when it does apply, is relieving: the annual value is nil for two years — one year as originally enacted, raised by the Finance Act 2019 — from the end of the financial year in which the completion certificate is obtained. On the conflict of authority the Bench recorded that the Gujarat High Court in CIT v. Neha Builders treats such income as business income while the Delhi High Court in Ansal Housing treats it as house property income, but said the question before it was not the head of charge; on that head the jurisdictional High Court had already decided in CIT v. Sane and Doshi Enterprises and CIT v. Gundecha Builders that rental income from unsold flats held as stock-in-trade is income from house property. It also dealt with the decision the assessee relied on, Dy. CIT v. Inorbit Malls: although that decision says section 23(5) applies prospectively, it went on to decide against the assessee by following Ansal Housing. On the second question the Bench applied CIT v. Tip Top Typography, which follows the Full Bench decision in CIT v. Moni Kumar Subba: the annual letting value under section 23(1)(a) must be arrived at in accordance with municipal laws, allowing for rent inflated or deflated by extraneous circumstances, and cannot exceed the standard rent under the applicable rent control legislation. In the words reproduced by the source cited on this page: "As it is now a settled proposition of law post the decision of the Ansal Housing Finance and Leasing Co. Ltd., (supra) that notional rent has to be determined on vacant unsold flats held as stock-in-trade as 'Income from house property', the issue now remains for adjudication is what should be the rental value that the ld. AO will have to apply for determination of the notional rent." The decision followed or applied CIT v. Ansal Housing Finance and Leasing Co. Ltd. (2013) 354 ITR 180 (Delhi)(HC) — followed; CIT v. Tip Top Typography (2014) 368 ITR 330 (Bom.)(HC) — followed.
It was decided by the ITAT on 2025-05-14 and is reported as [2025] 174 taxmann.com 589 (Mumbai - Trib.) / [2025] 213 ITD 96 (Mumbai - Trib.); IT Appeal No. 1220 (Mum.) of 2024 (AY 2015-16). 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)(a), section 23(4)(b), section 23(5), 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 cuts both ways and is cited by both sides. The appeal was only partly allowed, and on the main question the assessee lost. For assessment year 2015-16 — a year before section 23(5) took effect — the Bench held that notional rent must be determined on vacant unsold flats held as stock-in-trade under the head income from house property, following the Delhi High Court in CIT v. Ansal Housing Finance and Leasing Co. Ltd. It rejected the argument that no such addition can be made for a year before assessment year 2018-19: section 23(5), inserted by the Finance Act 2017 with effect from 1 April 2018, is prospective and was not enacted as a clarification, and even before it deemed rent was determined under section 23(4)(b), so the charge existed already. What the assessee did win was the measure: applying the jurisdictional High Court decision in CIT v. Tip Top Typography, the Bench directed the Assessing Officer to determine the notional rent in accordance with the principles laid down there. That quantum question is therefore restored to the Assessing Officer and remains open. It arises in House Property matters, on section 22, section 23, section 23(1)(a), section 23(4)(b), section 23(5) of the Income Tax Act 1961, and was decided by ITAT Mumbai Bench 'D' — Ms. Kavitha Rajagopal (Judicial Member) and Girish Agarwal (Accountant Member); IT Appeal No. 1220 (Mum.) of 2024; assessment year 2015-16. 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. If the year is covered, shift the fight to quantum and require the annual value to be fixed consistently with municipal law, market conditions and any applicable standard or statutory rent limit. Ask the officer to put the basis of his annual value estimate in writing so it can be tested against that standard.
Validity check could not be completed. No later decision applying, following or affirming this order was found, and it carries no citator entry. What it applies is High Court authority: the Delhi High Court in CIT v. Ansal Housing Finance and Leasing Co. Ltd. [2013] 29 taxmann.com 303 / 354 ITR 180 on the charge, and the Bombay High Court in CIT v. Tip Top Typography [2014] 48 taxmann.com 191 / 368 ITR 330 on the measure. It sits in direct tension with the same Tribunal's earlier decision in Osho Developers v. ACIT (Mum.)(Trib.) dated 3 November 2020, which held that no house property charge arises on a builder's stock-in-trade at all; the library holds both, and this Bench proceeded on the footing that the Bombay High Court decisions in CIT v. Sane and Doshi Enterprises and CIT v. Gundecha Builders had settled the head of charge against that view. That finding was checked against a published source, which is linked on this page, on 2026-08-25. 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.
This entry previously stated one of the holdings backwards, and the correction matters. The assessment year here is 2015-16, before section 23(5) took effect, and the Bench sustained the notional rent charge for that year: it treated the argument that no addition can be made before assessment year 2018-19 as the assessee's contention and rejected it, holding that section 23(5) is prospective and not clarificatory and that deemed rent was already determinable under section 23(4)(b). The assessee succeeded only on the measure, the Bench directing the Assessing Officer to determine the annual letting value on the principles in CIT v. Tip Top Typography - municipal law valuation, adjusted for rent inflated or deflated by extraneous circumstances, capped by the standard rent - so the quantum is restored and open. Two source problems recorded earlier are resolved. The reference to section 23(4)(b) is not a typographical error: that is the provision the Assessing Officer invoked and the provision the Bench reasoned from. And the nil-value window can now be stated: the order records it as two years, one year as originally enacted and raised by the Finance Act 2019, from the end of the financial year in which the completion certificate is obtained, which matches the successor provision, section 21(5) of the Income-tax Act, 2025. This decision sits in direct tension with Osho Developers v. ACIT (Mum.)(Trib.) dated 3 November 2020; the library holds both, and you should know which line the bench you are before has followed. The quantum of the addition is not finally settled: the annual letting value goes back to the Assessing Officer to be determined on the Tip Top Typography principles. Whether either side took the matter further is not recorded. 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 only partly allowed, and on the main question the assessee lost. For assessment year 2015-16 — a year before section 23(5) took effect — the Bench held that notional rent must be determined on vacant unsold flats held as stock-in-trade under the head income from house property, following the Delhi High Court in CIT v. Ansal Housing Finance and Leasing Co. Ltd. It rejected the argument that no such addition can be made for a year before assessment year 2018-19: section 23(5), inserted by the Finance Act 2017 with effect from 1 April 2018, is prospective and was not enacted as a clarification, and even before it deemed rent was determined under section 23(4)(b), so the charge existed already. What the assessee did win was the measure: applying the jurisdictional High Court decision in CIT v. Tip Top Typography, the Bench directed the Assessing Officer to determine the notional rent in accordance with the principles laid down there. That quantum question is therefore restored to the Assessing Officer and remains open.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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