“Section 23(5)”
The decision most relied on for Section 23(5) is CIT v. Ansal Housing Finance & Leasing Co. Ltd. (354 ITR 180), cited in 208 judgments on BharatTax.
Leading authorities on Section 23(5)
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.
For computing income from house property, the Annual Letting Value (ALV) cannot be arbitrarily estimated by the Assessing Officer, but must be determined based on the Municipal ratable value of the property.
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.
The Legislature abolished terminal depreciation under section 32(1)(iii) and the taxing of balancing charge under section 41(2), replacing these provisions with the requirement to reduce sale proceeds of depreciable assets from the block of assets.
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.
Property held as stock-in-trade is not assessable under the head 'Income from House Property' (Section 23). An Assessing Officer's decision not to tax such income, when supported by inquiry, typically cannot be considered erroneous and prejudicial under Section 263.
Rental income from unsold property held by a real-estate developer is assessable under the head 'Income from House Property' and not as 'Business Income'. The treatment in books of account as stock-in-trade does not alter the income's character for tax purposes.
