Section 23(1)(a)

Section 23(1)(a) — the law in short

What the courts have decided on section 23(1)(a), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Sheila Kaushish v CIT Supreme CourtHelps taxpayer
  My client's shop is under rent control. The Assessing Officer has taken a notional market rent far above the standard rent as the annual value. Can he?
  No — not under the s.23(1)(a) limb. Where the property is governed by rent control legislation, the sum for which it might reasonably be expected to let cannot exceed the standard rent determinable under that legislation, and this is so even where the standard rent has never actually been fixed by the Rent Controller and even where the tenant's right to apply for fixation has become time-barred. But read the caveat: this was decided on s.23(1) before clause (b) existed, and today a higher actual rent received or receivable is taxed under s.23(1)(b) regardless of the standard rent.
• Tivoli Investment & Trading Co v ACIT High CourtHelps departmentNo later treatment found
  The officer says my declared rent is too low and has fixed a much higher annual value. Is he bound by the municipal rateable value?
  No. The Bombay High Court held that the municipal rateable value does not bind the Assessing Officer when he determines annual value under s.23(1)(a), and upheld an annual letting value of Rs 22,00,000 against a declared licence income of Rs 1,17,900 where the premises had been let to a bank for a nominal monthly fee alongside an interest-free security deposit of Rs 1.54 crore.
• Shivani Madan v PCIT High CourtHelps taxpayerNo later treatment found
  My husband and I are both on the sale deed. Must half the annual value be taxed on me?
  No. The Delhi High Court held that merely signing the instrument of conveyance raises no presumption that the income is to be assessed in that person's hands; taxability must reflect who actually obtained the benefit of the property, so an equal share cannot be assumed where the deed is silent.
• Ansal Housing & Construction Ltd v ACIT High CourtHelps departmentUnder appeal
  My unsold flats are stock in trade and were never let. Can the AO still tax notional rent?
  On this Delhi High Court view, yes. Vacancy allowance under s.23(1)(c) presupposes an actual letting, so where flats have never been let in any previous year the assessee cannot enter that clause at all and is taxed under s.23(1)(a) on the sum for which the property might reasonably be expected to let.
• Commissioner of Income Tax-12 v Tip Top Typography High CourtHelps taxpayer
  The officer says my rent is too low, has collected instances of higher rents in the locality and has also added notional interest on my interest-free deposit. When can he displace the rent I actually receive?
  Only on cogent material, and never by adding notional interest. The Bombay High Court held that the municipal rateable value is a safe guide and cannot be discarded in every case; to depart from it the officer needs cogent and reliable material. Market rate in the locality is an approved method for fixing fair rental value, but he may resort to it only where he is satisfied the case is suspicious and the parties' determination doubtful, and that satisfaction, that the bargain is inflated or deflated by fraud, emergency, relationship or the like, must come first. He must disclose the material to the assessee before using it. Notional interest on a refundable interest-free deposit cannot be treated as part of rent under section 23(1)(a).
• CIT v Sardar Exhibitors P Ltd High CourtHelps departmentNo later treatment found
  My client lets its shop to a group company at a low rent, and that company sub-lets to an outsider at many times the figure. Can the Assessing Officer assess my client on the sub-letting rent?
  The Delhi High Court refused to let that structure pass unexamined. It found the Tribunal had proceeded on the factually wrong footing that the tenant was not a sister concern, when the assessee had admitted the connection before the Assessing Officer, and it remitted the appeals to the Tribunal for fresh consideration, answering the question of law partly in favour of the Revenue. It expressly did not decide whether the sub-letting rent can be taxed in the owner's hands, and left that question open.
• CIT v Moni Kumar Subba (Full Bench) High CourtHelps taxpayer
  The property is not under rent control. My tenant paid a huge interest-free deposit and a small rent, and the Assessing Officer has added notional interest on the deposit to the annual letting value. Is that permissible, and what should the annual value be instead?
  Notional interest on an interest-free security deposit cannot be added to arrive at the annual letting value under s.23(1)(a) — the Full Bench held that view to be the consistent one across the High Courts and adopted it. What the Assessing Officer must do instead is determine the fair rent, for which the rateable value fixed under the municipal laws is a rational yardstick, though it is not binding on him and he may depart from it on material.
• Vivek Jain v ACIT High CourtHelps department
  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).
• Ravi K Sheth v DCIT ITATHelps taxpayer
  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.
• Ramesh Dungarshi Shah v DCIT ITATCuts both waysNo later treatment found
  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.
• Classic Mall Development Company Ltd v ACIT ITATHelps taxpayerNo later treatment found
  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.
• Sonu Realtors P Ltd v DCIT ITATHelps taxpayer
  The flat was let for three years, then lay empty for the whole of this year. Is the annual value nil?
  Yes, on this Tribunal view. Where a property was let in an earlier year and is found vacant for the whole of the year under consideration, s.23(1)(c) applies and the annual value is nil - provided the vacancy was not because the owner took the property back for his own occupation. The Tribunal read 'property is let' in clause (c) as deliberately different from 'house is actually let' used elsewhere in s.23.
• Saif Ali Khan Pataudi v ACIT ITATCuts both waysNo later treatment found
  The flat could not be let at all because it did not match the sanctioned plan and needed alteration. Am I still taxable on a notional annual value?
  The Tribunal held he was entitled to vacancy allowance under s.23(1)(c), on the footing that a flat which departs from the sanctioned plan and needs alteration is not in a position to be let until the defects are removed. The flat was found vacant for the whole of the assessment year. No proportionate computation was made: having decided entitlement, the Tribunal took the figure the assessee had himself offered in his grounds of appeal, Rs 11,83,723, and modified the order below to that extent.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.