Section 23(1)

Section 23(1) — the law in short

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

• CIT v Dalhousie Properties Ltd Supreme CourtHelps taxpayerSuperseded by amendment
  The municipal taxes on my client's let-out property have been levied and are under dispute before the Corporation, and only part has been paid. Can I still deduct the whole amount, relying on Dalhousie Properties?
  Not any more. The Supreme Court did hold, on the proviso to s.23(1) as it stood for assessment year 1966-67, that the words 'borne by the owner' referred to the liability the owner had to discharge and not to the sum actually paid, so that neither non-payment nor a dispute before the local authority defeated the deduction. That proviso has since been replaced: the proviso now in force allows the deduction only in the previous year in which the taxes are actually paid by the owner, and the Court in this very judgment noted that the proviso as it then stood had not been happily worded and had since been suitably modified.
• CIT v Uberoi Sons (Machines) Ltd High CourtHelps taxpayerNo later treatment found
  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?
  No. The Delhi High Court held that until the decree the assessee's right to the arrears was a contingent and inchoate right, that the arrears received as mesne profits could not be brought to tax for the previous years when they fell due and could be brought to tax only in the year of receipt, and that the reopening under section 147 beyond four years was not sustainable because there was no failure to disclose material facts.
• 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.
• Statutory position — s.25A: arrears of rent and unrealised rent are charged in the year you receive them, thirty per cent comes off, and it makes no difference that you no longer own the property CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  A tenant who stopped paying years ago has finally paid up, and I sold the flat in between. The officer wants to tax the whole amount now. Which year is it taxable in, do I get any deduction, and does it matter that the property is not mine any more?
  Section 25A charges arrears of rent and unrealised rent in the financial year you actually receive or realise them, and it says in terms that it does not matter whether you own the property in that year. Sub-section (2) allows a flat thirty per cent of the amount as a deduction, and that is the only deduction the section gives. The section you are reading is not the old one: with effect from 1 April 2017 a single section 25A was substituted for the three provisions that used to do this work — the old section 25A, section 25AA and section 25B — and the substitution is what first gave unrealised rent the thirty per cent, which section 25AA had never allowed. It joins up with section 23: the Explanation to section 23(1) keeps rent the owner cannot realise out of the annual value when it falls due, and section 25A brings it back when the money comes in, so the earlier year is never reopened. Section 25A governs an amount received or realised up to 31 March 2026; for an amount received on or after 1 April 2026 the provision is section 23 of the Income-tax Act, 2025.

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.