My flat was never let during the year. Can I take the annual value as nil under the vacancy clause?
No, on this High Court view. Section 23(1)(c) presupposes an actual letting - the clause covers a property that is let and is vacant for the whole or part of the year, and where the property has not been let out at all during the previous year there is no question of any vacancy allowance. The annual value then falls to be computed under s.23(1)(a).
Decided by the High Court (Andhra Pradesh High Court — V.V.S. Rao and Ramesh Ranganathan JJ (judgment delivered by Ramesh Ranganathan J)) on 2011-01-25, reported as [2011] 14 taxmann.com 146 / 202 Taxman 499 / 337 ITR 74 / 245 CTR 329 (AP); IT Tribunal Appeal No. 186 of 2007, against ITAT Hyderabad order in ITA No. 156/Hyd/06 dated 31 October 2006. 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 is the High Court authority the department relies on when it refuses vacancy allowance, and it is the one that has to be met before the Tribunal decisions the other way can be used. It also fixes a second limit that is easy to miss: on this reading the period of vacancy that clause (c) can absorb cannot exceed the period for which the property was let. Practitioners who plan on the intention-to-let argument should check whether their bench is bound by this.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee, a practising advocate, owned Flat No. 101, Marigold Apartments, Dwarakapuri Colony, Hyderabad. For assessment year 2002-03 he filed his return on 6 August 2002 declaring total income of Rs 3,01,610, and returned the annual value of the flat as nil under s.23(1)(c). In scrutiny a notice of 11 March 2005 asked why the annual value should not be included. By assessment order of 28 March 2005 the Assessing Officer held that clause (c) applies only where the property is let, that the flat had not been let at all during the accounting year, and that in the preceding year, relevant to assessment year 2001-02, it had been let for only fifteen days; he computed the annual value at Rs 1,44,000 under s.23(1)(a) on the basis of rent received in earlier years, which the assessee did not dispute. The Commissioner (Appeals) upheld that on 5 December 2005 and the Tribunal upheld it on 31 October 2006 in ITA No. 156/Hyd/06. The assessee appealed under s.260A. The year is the first to which the substituted s.23, inserted by the Finance Act 2001 with effect from 1 April 2002, applied.
The appeal was dismissed and the Tribunal's order upheld. Three conditions must be met for s.23(1)(c) to apply: the property or part of it must be let; it must have been vacant during the whole or any part of the previous year; and owing to that vacancy the actual rent received or receivable must be less than the sum in clause (a). Clause (c) does not apply where the property has not been let at all during the previous year, or where, though let, it was not vacant (para 11). The words 'where the property is let' cannot be read as 'where the property is intended to be let'; an intention to let coupled with efforts to let does not satisfy the clause, because that would require reading words into a taxing provision (para 12). Clause (c) does reach a property let for more than a year, which may then be vacant for the whole of a previous year (para 14). But the period for which a let-out property may remain vacant cannot exceed the period for which it has been let: if it was let for part of the previous year it can be vacant only for that part, and for the remainder clause (a) applies, subject to sub-sections (2) and (3) (para 15). Clause (c) was not inserted to exclude self-occupied property, which s.23(2) already covers (para 16). Where the property has not been let at all during the previous year under consideration there is no question of any vacancy allowance under s.23(1)(c) (para 16).
The Court traced the history: the pre-amended s.23 did not provide for the case where the rent actually received is less than the sum the property might reasonably fetch, and clause (c) was inserted by the Finance Act 2001 to deal with it, as the notes on clauses and Departmental Circular No. 14 of 2001 confirm (paras 6 to 8). Clause (c) is therefore a protection for an assessee whose let property has been vacant, and it must be read against the mischief it was inserted to cure (para 10). From there the Court applied a strict construction of a taxing statute, refusing to read 'is let' as 'is intended to be let' and collecting a long line of authority for the propositions that words must be given their natural grammatical meaning, that nothing may be implied or supplied, and that a casus omissus cannot be filled by interpretation (paras 12 and 13). It answered the assessee's structural argument — that 'property is let' and 'vacant for the whole of the previous year' cannot co-exist — by pointing out that a property let for two or more years can be vacant for a whole previous year (para 14). It answered the converse argument — that a single day's letting would fix the property with the status of let property for its whole life — by the outer limit at para 15. And it held that the exclusion of self-occupied property is achieved by s.23(2) read with s.23(3)(a), so clause (c) was not needed for that purpose (para 16).
In cases where the property has not been let out at all, during the previous year under consideration, there is no question of any vacancy allowance being provided thereto under section 23(l)(c) of the Act.
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Handle my notice → Ask a CA on WhatsAppNo, on this High Court view. Section 23(1)(c) presupposes an actual letting - the clause covers a property that is let and is vacant for the whole or part of the year, and where the property has not been let out at all during the previous year there is no question of any vacancy allowance. The annual value then falls to be computed under s.23(1)(a). This was decided by the High Court (Andhra Pradesh High Court — V.V.S. Rao and Ramesh Ranganathan JJ (judgment delivered by Ramesh Ranganathan J)) 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 [2011] 14 taxmann.com 146 / 202 Taxman 499 / 337 ITR 74 / 245 CTR 329 (AP); IT Tribunal Appeal No. 186 of 2007, against ITAT Hyderabad order in ITA No. 156/Hyd/06 dated 31 October 2006. This is the High Court authority the department relies on when it refuses vacancy allowance, and it is the one that has to be met before the Tribunal decisions the other way can be used. It also fixes a second limit that is easy to miss: on this reading the period of vacancy that clause (c) can absorb cannot exceed the period for which the property was let. Practitioners who plan on the intention-to-let argument should check whether their bench is bound by this. If it applies to you, the first step is this: Establish an actual letting first - in the year in question, or on the Tribunal line, in an earlier year - before claiming under s.23(1)(c).
The assessee, a practising advocate, owned Flat No. 101, Marigold Apartments, Dwarakapuri Colony, Hyderabad. For assessment year 2002-03 he filed his return on 6 August 2002 declaring total income of Rs 3,01,610, and returned the annual value of the flat as nil under s.23(1)(c). In scrutiny a notice of 11 March 2005 asked why the annual value should not be included. By assessment order of 28 March 2005 the Assessing Officer held that clause (c) applies only where the property is let, that the flat had not been let at all during the accounting year, and that in the preceding year, relevant to assessment year 2001-02, it had been let for only fifteen days; he computed the annual value at Rs 1,44,000 under s.23(1)(a) on the basis of rent received in earlier years, which the assessee did not dispute. The Commissioner (Appeals) upheld that on 5 December 2005 and the Tribunal upheld it on 31 October 2006 in ITA No. 156/Hyd/06. The assessee appealed under s.260A. The year is the first to which the substituted s.23, inserted by the Finance Act 2001 with effect from 1 April 2002, applied. The matter was decided on 2011-01-25 by the High Court (Andhra Pradesh High Court — V.V.S. Rao and Ramesh Ranganathan JJ (judgment delivered by Ramesh Ranganathan J)). On those facts the High Court held as follows. The appeal was dismissed and the Tribunal's order upheld. Three conditions must be met for s.23(1)(c) to apply: the property or part of it must be let; it must have been vacant during the whole or any part of the previous year; and owing to that vacancy the actual rent received or receivable must be less than the sum in clause (a). Clause (c) does not apply where the property has not been let at all during the previous year, or where, though let, it was not vacant (para 11). The words 'where the property is let' cannot be read as 'where the property is intended to be let'; an intention to let coupled with efforts to let does not satisfy the clause, because that would require reading words into a taxing provision (para 12). Clause (c) does reach a property let for more than a year, which may then be vacant for the whole of a previous year (para 14). But the period for which a let-out property may remain vacant cannot exceed the period for which it has been let: if it was let for part of the previous year it can be vacant only for that part, and for the remainder clause (a) applies, subject to sub-sections (2) and (3) (para 15). Clause (c) was not inserted to exclude self-occupied property, which s.23(2) already covers (para 16). Where the property has not been let at all during the previous year under consideration there is no question of any vacancy allowance under s.23(1)(c) (para 16).
The Court traced the history: the pre-amended s.23 did not provide for the case where the rent actually received is less than the sum the property might reasonably fetch, and clause (c) was inserted by the Finance Act 2001 to deal with it, as the notes on clauses and Departmental Circular No. 14 of 2001 confirm (paras 6 to 8). Clause (c) is therefore a protection for an assessee whose let property has been vacant, and it must be read against the mischief it was inserted to cure (para 10). From there the Court applied a strict construction of a taxing statute, refusing to read 'is let' as 'is intended to be let' and collecting a long line of authority for the propositions that words must be given their natural grammatical meaning, that nothing may be implied or supplied, and that a casus omissus cannot be filled by interpretation (paras 12 and 13). It answered the assessee's structural argument — that 'property is let' and 'vacant for the whole of the previous year' cannot co-exist — by pointing out that a property let for two or more years can be vacant for a whole previous year (para 14). It answered the converse argument — that a single day's letting would fix the property with the status of let property for its whole life — by the outer limit at para 15. And it held that the exclusion of self-occupied property is achieved by s.23(2) read with s.23(3)(a), so clause (c) was not needed for that purpose (para 16). In the words reproduced by the source cited on this page: "In cases where the property has not been let out at all, during the previous year under consideration, there is no question of any vacancy allowance being provided thereto under section 23(l)(c) of the Act."
It was decided by the High Court on 2011-01-25 and is reported as [2011] 14 taxmann.com 146 / 202 Taxman 499 / 337 ITR 74 / 245 CTR 329 (AP); IT Tribunal Appeal No. 186 of 2007, against ITAT Hyderabad order in ITA No. 156/Hyd/06 dated 31 October 2006. 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 appeal was dismissed and the Tribunal's order upheld. Three conditions must be met for s.23(1)(c) to apply: the property or part of it must be let; it must have been vacant during the whole or any part of the previous year; and owing to that vacancy the actual rent received or receivable must be less than the sum in clause (a). Clause (c) does not apply where the property has not been let at all during the previous year, or where, though let, it was not vacant (para 11). The words 'where the property is let' cannot be read as 'where the property is intended to be let'; an intention to let coupled with efforts to let does not satisfy the clause, because that would require reading words into a taxing provision (para 12). Clause (c) does reach a property let for more than a year, which may then be vacant for the whole of a previous year (para 14). But the period for which a let-out property may remain vacant cannot exceed the period for which it has been let: if it was let for part of the previous year it can be vacant only for that part, and for the remainder clause (a) applies, subject to sub-sections (2) and (3) (para 15). Clause (c) was not inserted to exclude self-occupied property, which s.23(2) already covers (para 16). Where the property has not been let at all during the previous year under consideration there is no question of any vacancy allowance under s.23(1)(c) (para 16). 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 Andhra Pradesh High Court — V.V.S. Rao and Ramesh Ranganathan JJ (judgment delivered by Ramesh Ranganathan 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. If there has never been a letting, argue the annual value under s.23(1)(a) on comparable or municipal figures instead of pressing the vacancy clause. Check which authority binds your assessment: the corpus holds Sachin R. Tendulkar v. DCIT and Ansal Housing & Construction Ltd v. ACIT, which pull in different directions on this clause. Where the property was let in earlier years and lay vacant for the whole of this one, run the case on Sonu Realtors rather than on intention to let.
Still good law. Followed by a High Court. In Ansal Housing & Construction Ltd. v. ACIT [2018] 89 taxmann.com 238 (Delhi), decided 3 November 2017 by S. Ravindra Bhat and Sanjeev Sachdeva JJ in IT Appeal Nos. 931 and 934 of 2017, this judgment is set out and followed at para 8, the Delhi Court holding that actual letting out of the property in the year in question, or in any previous year, is essential for s.23(1)(c) to apply, so that flats held as stock in trade and never let could not attract the clause. It is also applied by the Mumbai Bench in Smt. Indra S. Jain [2012] 21 taxmann.com 471 at para 5. One qualification travels with the upgrade: leave to appeal against the Delhi judgment was granted by the Supreme Court on 4 May 2018, [2018] 95 taxmann.com 17 (SC), and the outcome of that appeal was not traced, so the follower is itself before the Supreme Court. The position below is not uniform: the Pune Bench in Vikas Keshav Garud v. ITO [2016] 71 taxmann.com 214 went the other way on a property vacant throughout with an intention to let, and this corpus holds Sonu Realtors (P.) Ltd. v. DCIT and Sachin R. Tendulkar v. DCIT on the other side. 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. It is a Division Bench of the Andhra Pradesh High Court, V.V.S. Rao and Ramesh Ranganathan JJ, the judgment delivered by Ranganathan J, in IT Tribunal Appeal No. 186 of 2007, decided 25 January 2011, on appeal from ITA No. 156/Hyd/06. The year, 2002-03, is the first to which the substituted s.23 applied, and much of the judgment is devoted to the strict construction of a taxing statute rather than to the mechanics of vacancy. Two features to hold on to. The Court expressly agreed with the Tribunal's construction of the clause at para 15, so the reasoning is shared between the two orders. And the flat had been let for fifteen days in the preceding year, which is why the outer limit stated at para 15 matters more here than the headnote suggests. Do not cite this as settling the question nationally: the Tribunal line is squarely the other way in several benches. The judgment has now been read in full. It does not say how a property let for part of the year and vacant for the rest is to be treated in practice, because the outer limit it stated on that at para 15 has never been applied by any decision traced. It says nothing about s.23(5), which deals with a developer's unsold stock in trade and was inserted with effect from 1 April 2018; the Delhi High Court in Ansal Housing held at its para 11 that sub-section (5) operates prospectively and was not already covered by the earlier sub-sections. 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 dismissed and the Tribunal's order upheld. Three conditions must be met for s.23(1)(c) to apply: the property or part of it must be let; it must have been vacant during the whole or any part of the previous year; and owing to that vacancy the actual rent received or receivable must be less than the sum in clause (a). Clause (c) does not apply where the property has not been let at all during the previous year, or where, though let, it was not vacant (para 11). The words 'where the property is let' cannot be read as 'where the property is intended to be let'; an intention to let coupled with efforts to let does not satisfy the clause, because that would require reading words into a taxing provision (para 12). Clause (c) does reach a property let for more than a year, which may then be vacant for the whole of a previous year (para 14). But the period for which a let-out property may remain vacant cannot exceed the period for which it has been let: if it was let for part of the previous year it can be vacant only for that part, and for the remainder clause (a) applies, subject to sub-sections (2) and (3) (para 15). Clause (c) was not inserted to exclude self-occupied property, which s.23(2) already covers (para 16). Where the property has not been let at all during the previous year under consideration there is no question of any vacancy allowance under s.23(1)(c) (para 16).
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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