“Section 23(3)”
The decision most relied on for Section 23(3) is Chennai Properties & Investments Ltd. v. CIT (373 ITR 673), cited in 381 judgments on BharatTax.
Leading authorities on Section 23(3)
Income from immovable property, such as unsold flats or shops, held by an assessee as stock-in-trade in their business of acquiring and holding properties is taxable as 'business income' and not 'income from house property'. Consequently, notional annual letting value under Section 23 cannot be attributed to such stock-in-trade.
Annual Letting Value (ALV) of unsold stock-in-trade flats/shops held by a real estate developer can be assessed under Section 22 of the Income Tax Act, 1961, as income from house property. This approach was followed by the Assessing Officer (AO) based on this decision.
The rule of consistency does not override the correct application of law and should not be applied if it leads to an anomalous outcome.
Income from unsold flats held as stock-in-trade by a builder or developer is assessable as business income, not income from house property, for assessment years prior to the insertion of Section 23(5) of the Income-tax Act.
Interest expenditure on borrowed funds, especially when used for making advances, should generally be allowed under Section 36(1)(iii) if its nature and business expediency remain consistent with previous assessment years. The character of an outstanding amount at the start of an accounting year is considered the same as at the end of the prior year, reinforcing the rule of consistency.
If an assessee company's main business object is to acquire and rent out properties, the rental income derived is taxable as 'Profits and gains of business or profession', rather than 'Income from house property', as the nature of the activity constitutes a business.
Income taxability depends on the real nature of the receipt and actual or constructive receipt of income, not merely on book entries. An amount is only "deemed to be received" if explicitly provided by the Income Tax Act, not by an assessee's unilateral intention.
Disallowance under Section 14A for interest expenditure is not justified if an assessee uses its own interest-free funds for investments generating exempt income, and borrowed funds are entirely utilized for business purposes, without evidence of diversion to earn tax-free income.
