Section 23(1)(b) of the Income Tax Act
Income-tax Act, 2025: s.21
Section 23(1)(b) falls under section 23 of the Income-tax Act, 1961, which corresponds to section 21 (Determination of annual value) of the Income-tax Act, 2025.
Read section 21 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
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 of the 51 judgments on BharatTax that turn on this section.
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 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.
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.
