I own two flats. One is treated as self-occupied and the other is deemed let out under s.23(4). The Assessing Officer has taken market rent plus ten per cent as the deemed rent. Can I insist on the municipal rateable value?
The Mumbai Tribunal held that you can, where the flat was never actually let out. It deleted the Assessing Officer's computation of market rent increased notionally by ten per cent and restricted the annual value of the deemed let out flat to the municipal rateable value, following the Bombay High Court in Pr.CIT v. Smt Laxmi Jain that in the case of a vacant property the tax on rental income under s.23 can be computed only on the basis of the rateable value assessed by the Municipal Corporation.
Decided by the ITAT (Shri Sandeep Gosain (Judicial Member) and Shri Girish Agrawal (Accountant Member), ITAT 'D' Bench, Mumbai) on 2025-09-16, reported as ITA No. 1907/MUM/2025, assessment year 2017-18; heard 15 July 2025, pronounced 16 September 2025. It bears on section 22, section 23, section 23(1)(a), section 23(4) of the Income Tax Act 1961, in House Property and Assessment & Scrutiny matters.
This is the ordinary situation for anyone owning a second flat, and the arithmetic gap is enormous — here the Assessing Officer's figure was Rs 25,12,440 for ten months and the accepted figure was Rs 5,026. Two limits deserve attention. First, the year: this is assessment year 2017-18, when s.23(4)(a) allowed only ONE house to be treated as self-occupied at nil value. From assessment year 2020-21 the Finance Act 2019 allows TWO houses, so on the same facts today the second flat would itself be nil and no deemed annual value would arise at all — the decision is useful for older years and for taxpayers with a third or further house. Second, the reasoning turns on the property never having been let; where the property has been let, or where the Assessing Officer can show on material that the rateable value does not represent the correct fair rent, the Delhi Full Bench in Moni Kumar Subba expressly permits him to depart from it. The proportionate computation is also worth noting: the flat was gifted away part way through the year and only ten months were brought to tax.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, an individual with income from salary, house property, capital gains and other sources, owned two flats in the building called 'Manek' — Flat No. 12B and Flat No. 14B. Flat No. 12B had been self-occupied by the assessee for more than twenty years and was gifted to his son by registered gift deed dated 30 January 2017. For assessment year 2017-18, Flat No. 12B was treated as deemed let out property under s.23(4)(b) for the ten months of the year during which the assessee held it. The assessee computed the deemed rent on the basis of the municipal rateable value. The Assessing Officer issued a show cause notice, adopted the market rent for the ten months and increased it notionally by ten per cent, assessing income from house property in respect of Flat No. 12B at Rs 25,12,440, the addition in dispute being Rs 19,40,400. The assessee's case for assessment year 2011-12 had been decided by a coordinate bench on the same issue, and appellate orders for earlier years had not been carried further by the Revenue.
The addition made by the Assessing Officer was deleted and the addition was restricted to Rs 5,026, representing the municipal valuation for ten months. The appeal was partly allowed, ground 6 not having been pressed.
The Tribunal held the issue to be squarely covered by its own earlier order in the assessee's case for assessment year 2011-12 on the same question of computing the annual value of Flat No. 12B, and by appellate orders for earlier assessment years which the Revenue had not contested before a higher forum. On the law, it relied on the Bombay High Court in Pr.CIT v. Smt Laxmi Jain, ITA No. 1285 of 2015, dated 16 April 2018, for the proposition that in the case of a vacant property the tax on rental income in terms of s.23 can be calculated only on the basis of the rateable value assessed by the Municipal Corporation. Since the flat had never been actually let out but had been in the assessee's own occupation, the municipal valuation was the applicable measure, and the Assessing Officer's adoption of market rent with a notional ten per cent uplift could not stand.
we delete the addition made by the ld. AO and direct to restrict the addition to the amount to Rs.5,026/- which represents the municipal valuation for 10 months. Accordingly, appeal of the assessee is partly allowed.
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Handle my notice → Ask a CA on WhatsAppThe Mumbai Tribunal held that you can, where the flat was never actually let out. It deleted the Assessing Officer's computation of market rent increased notionally by ten per cent and restricted the annual value of the deemed let out flat to the municipal rateable value, following the Bombay High Court in Pr.CIT v. Smt Laxmi Jain that in the case of a vacant property the tax on rental income under s.23 can be computed only on the basis of the rateable value assessed by the Municipal Corporation. This was decided by the ITAT (Shri Sandeep Gosain (Judicial Member) and Shri Girish Agrawal (Accountant Member), ITAT 'D' Bench, Mumbai) and bears on section 22, section 23, section 23(1)(a), section 23(4) of the Income Tax Act 1961. It is reported as ITA No. 1907/MUM/2025, assessment year 2017-18; heard 15 July 2025, pronounced 16 September 2025. This is the ordinary situation for anyone owning a second flat, and the arithmetic gap is enormous — here the Assessing Officer's figure was Rs 25,12,440 for ten months and the accepted figure was Rs 5,026. Two limits deserve attention. First, the year: this is assessment year 2017-18, when s.23(4)(a) allowed only ONE house to be treated as self-occupied at nil value. From assessment year 2020-21 the Finance Act 2019 allows TWO houses, so on the same facts today the second flat would itself be nil and no deemed annual value would arise at all — the decision is useful for older years and for taxpayers with a third or further house. Second, the reasoning turns on the property never having been let; where the property has been let, or where the Assessing Officer can show on material that the rateable value does not represent the correct fair rent, the Delhi Full Bench in Moni Kumar Subba expressly permits him to depart from it. The proportionate computation is also worth noting: the flat was gifted away part way through the year and only ten months were brought to tax. If it applies to you, the first step is this: Fix the assessment year first. For assessment year 2019-20 and earlier only one house can be nil under s.23(4)(a); for assessment year 2020-21 onwards two houses can be, and the deemed annual value question only arises from the third house.
The assessee, an individual with income from salary, house property, capital gains and other sources, owned two flats in the building called 'Manek' — Flat No. 12B and Flat No. 14B. Flat No. 12B had been self-occupied by the assessee for more than twenty years and was gifted to his son by registered gift deed dated 30 January 2017. For assessment year 2017-18, Flat No. 12B was treated as deemed let out property under s.23(4)(b) for the ten months of the year during which the assessee held it. The assessee computed the deemed rent on the basis of the municipal rateable value. The Assessing Officer issued a show cause notice, adopted the market rent for the ten months and increased it notionally by ten per cent, assessing income from house property in respect of Flat No. 12B at Rs 25,12,440, the addition in dispute being Rs 19,40,400. The assessee's case for assessment year 2011-12 had been decided by a coordinate bench on the same issue, and appellate orders for earlier years had not been carried further by the Revenue. The matter was decided on 2025-09-16 by the ITAT (Shri Sandeep Gosain (Judicial Member) and Shri Girish Agrawal (Accountant Member), ITAT 'D' Bench, Mumbai). On those facts the ITAT held as follows. The addition made by the Assessing Officer was deleted and the addition was restricted to Rs 5,026, representing the municipal valuation for ten months. The appeal was partly allowed, ground 6 not having been pressed.
The Tribunal held the issue to be squarely covered by its own earlier order in the assessee's case for assessment year 2011-12 on the same question of computing the annual value of Flat No. 12B, and by appellate orders for earlier assessment years which the Revenue had not contested before a higher forum. On the law, it relied on the Bombay High Court in Pr.CIT v. Smt Laxmi Jain, ITA No. 1285 of 2015, dated 16 April 2018, for the proposition that in the case of a vacant property the tax on rental income in terms of s.23 can be calculated only on the basis of the rateable value assessed by the Municipal Corporation. Since the flat had never been actually let out but had been in the assessee's own occupation, the municipal valuation was the applicable measure, and the Assessing Officer's adoption of market rent with a notional ten per cent uplift could not stand. In the words reproduced by the source cited on this page: "we delete the addition made by the ld. AO and direct to restrict the addition to the amount to Rs.5,026/- which represents the municipal valuation for 10 months. Accordingly, appeal of the assessee is partly allowed." The decision followed or applied Pr.CIT v. Smt Laxmi Jain, ITA No. 1285 of 2015 (Bombay High Court), dated 16 April 2018 — followed; The assessee's own case for assessment year 2011-12 before a coordinate bench — followed.
It was decided by the ITAT on 2025-09-16 and is reported as ITA No. 1907/MUM/2025, assessment year 2017-18; heard 15 July 2025, pronounced 16 September 2025. 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), 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 addition made by the Assessing Officer was deleted and the addition was restricted to Rs 5,026, representing the municipal valuation for ten months. The appeal was partly allowed, ground 6 not having been pressed. It arises in House Property and Assessment & Scrutiny matters, on section 22, section 23, section 23(1)(a), section 23(4) of the Income Tax Act 1961, and was decided by Shri Sandeep Gosain (Judicial Member) and Shri Girish Agrawal (Accountant Member), ITAT 'D' Bench, Mumbai. 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. Exercise and document the specification under s.23(4)(a) deliberately — the assessee may specify which house is treated as self-occupied, and the sensible choice is the house whose deemed annual value would otherwise be highest. Obtain the municipal rateable value for the flat for the relevant year from the Corporation and file it with the return or in reply to the show cause notice, rather than producing it for the first time in appeal. Where the house was held for only part of the year — sold, gifted or acquired mid-year — compute the annual value proportionately for the months of ownership, as was done here for ten months. Anticipate the Revenue's answer: be ready to show the rateable value is of recent fixation and not a stale figure, since that is the condition the Delhi Full Bench attached to using it.
Still good law. The citation graph shows nothing, but the Mumbai Bench has since applied this order. In M/s. Starlight Systems (I) LLP v. DCIT and the connected departmental appeal (4 August 2026) the Bench quoted para 5.1 of this order and, following the jurisdictional High Court in PCIT v. Laxmi Jain together with the coordinate Benches, held that annual letting value must be computed on the municipal rateable value. Note the scope: what was adopted is the rateable-value measure of annual value, applied there to unsold flats held as stock-in-trade under s.23(5), not the s.23(4) second-house point as such. Nothing overruling or doubting the order was found and no s.260A appeal was traced. 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 retrieved text was internally inconsistent on two points and I have not resolved them. First, on which flat was self-occupied: the order records that Flat No. 12B had been self-occupied by the assessee for more than twenty years, yet it is Flat No. 12B that was treated as deemed let out under s.23(4)(b) and that carried the addition, the other flat in the same building being Flat No. 14B; the order as retrieved does not explain the switch. Second, on what the first appellate authority decided: one pass returned a direction by the CIT (Appeals) that the annual letting value of Flat 12B be computed as per the municipal rateable value, while the framing of the grounds indicates the assessee was still contesting an addition of Rs 19,40,400 before the Tribunal. The figures also do not reconcile exactly — the assessee's own computation is recorded as Rs 6,030 at one place and the Tribunal restricted the addition to Rs 5,026 as the municipal valuation for ten months. The operative direction is not in doubt; the intermediate history is. The assessment year and the Tribunal's final direction are the parts I would rely on. 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 addition made by the Assessing Officer was deleted and the addition was restricted to Rs 5,026, representing the municipal valuation for ten months. The appeal was partly allowed, ground 6 not having been pressed.
TaxSphere, “Ravi K Sheth v DCIT”, https://taxnotice.vittsphere.com/caselaw/case/ravi-k-sheth-23-4-second-house-deemed-annual-value/ (validity last checked 2026-09-07)
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I owned two houses at the start of the year and sold one in July. I treated the second house as deemed let out for those first months and claimed the full section 24(b) interest for that period. The Assessing Officer says there is no such thing as a split-year claim and has capped me at Rs 2,00,000. Who is right?
My client set off the whole house property loss against salary for AY 2018-19, not knowing about the new Rs 2,00,000 cap. The officer restricted it and has levied a s.270A penalty for under-reporting. Can the penalty be resisted?
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