“Section 23(1)(b)”
The decision most relied on for Section 23(1)(b) is Commissioner of Income Tax v. J. K. Investors (Bombay) Ltd. (248 ITR 723), cited in 47 judgments on BharatTax.
Leading authorities on Section 23(1)(b)
The annual value of house property under Section 23 of the Income Tax Act cannot include notional interest on interest-free security deposits received from tenants. Notional interest cannot be added to an interest-free security deposit to arrive at the annual value for income from house property.
The annual value of a house property for income tax purposes is to be determined based on the higher of the actual rent received or the annual value determined by the municipal/local authority, provided the municipal assessment is contemporaneous and reflects the true annual value. In cases where the property is self-occupied or not actually let, the municipal valuation serves as a reasonable guide for determining the annual letting value.
The deemed rental value of unsold flats held as stock-in-trade is covered by Section 23(4)(b), and a subsequent amendment provided relief for unsold flats by making their annual value NIL for two years from the end of the financial year of obtaining the completion certificate.
The Assessing Officer can determine the annual value of a property based on what it might reasonably be let for from year to year or its annual ratable value, especially when rent is not charged or is below market rates. This approach is permissible under Section 23(1)(a) of the Income-tax Act.
The annual value fixed by municipal authorities can serve as a rational yardstick for determining the annual value of a property for income tax purposes, provided it bears a close proximity to the assessment year. Changes in circumstances that affect the annual value must be considered.
A decision of the Delhi Tribunal in ACIT vs. Samrat Rice Mills (P) Ltd. (2012) 23 taxmann.com 350 (Delhi) is not relevant when an addition has been deleted due to the availability of surplus interest-free funds with the assessee, irrespective of whether the funds were used for business or non-business purposes.
The annual letting value (ALV) of a property for income tax purposes is to be determined on the basis of the municipal valuation, unless the actual rent received is higher. The municipal valuation is not binding on the Assessing Officer if the actual rent is demonstrably higher.
