Section 23(1) of IT Act provides for computation of annual value of property.
Section 23(1)(a) provides that annual value shall be the sum for which the property might reasonably be expected to let from year to year. However, Section 23(1)(b) provides that where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable shall be the annual value.
Section 23(1)(c) deals with a situation, wherein the property is vacant for whole or part of the previous year. Section 23(1)(c) provides that ‘where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable’ shall be the annual value.
Issues arise in interpretation of section 23(1)(c), particularly about the possibility of claiming the benefit of section 23(1)(c), in cases where the property was not let out during the year and had remained vacant throughout the year. Further, issue arises in a case where attempts are made to let out the property without success, or where the property was let out during the preceding previous year, but had remained vacant throughout the previous year.
Case Laws in favour of Assessee
Premsudha Exports (P) Ltd v ACIT (ITAT Mum) 17 SOT 293, 110 ITD 158 – The Assessee was owner of property and during the previous year, the said property remained vacant, though the assessee made continuous efforts to let out the property. Applying provisions of Section 23(1)(c), the assessee computed ALV at nil. The AO applied 23(1)(a) and computed ALV. The Tribunal held that he words ‘property is let’ cannot mean actual letting out of the property. The Tribunal held that if the property is held by the owner for letting out and efforts are made to let it out, that property is covered by section 23(1)(c) and this requirement has to be satisfied in each year that the property was being held to let out but remained vacant for whole or part of the year. The additions were thus deleted.
Smt. Poonam Sawhney v. AO  20 SOT 69 (DELHI) – Held that where owner of property with intention to earn rent has let out property but for reasons beyond control of owner or for some other good reasons, property (whole or in part) remains vacant during whole or any part of previous year, and actual rent received or receivable is less than ALV referred to in clause (a), then such houses would be assessed under clause (c) of section 23(1).
Vikas Keshav Garud [TS-385-ITAT-2016(PUN)], 71 taxmann.com 214 – The Property was vacant throughout the PY. AO computed the deemed let out value. The ITAT noted that the property was let out in earlier PY’s and could not be let during current PY. The Tribunal held that section 23(1)(c) covered cases where the property was not let out for entire year. The Tribunal also rejected the reliance of Revenue on Vivek Jain case.
Raj Landmark P Ltd v ITO (2018) 97 taxman.com 214 (Jaipur) – The Tribunal held that provisions of section 23(1)(a) cannot be applied to a property constructed by the assessee, construction whereof was completed in the month of February and property remained unsold and vacant, as it is not possible to let out property just after its completion i.e. only after one month.
Saif Ali Khan Pataudi v ACIT (2018) 96 taxmann.com 476 (Mum ITAT) – In the instant case, the property construction was not fully in accordance with the sanctioned plan and some alteration was required to bring it under proper plan. The Tribunal allowed the benefit of vacancy allowance in respect of the period taken for carrying out necessary alterations.
Sonu Realtors P Ltd v DCIT (2018) 97 taxmann.com 534 (Mum-Trib) – Annual value would be Nil where property was let out for 36 months and thereafter could not be let out and remained vacant during the year. The Tribunal observed that section 23(1)(c) is applicable as long as the property is let out in earlier year and is found vacant for the whole year under consideration subject to the condition that such vacancy of the property is not for self occupation of the same by the assessee.
Priyankanki Singh Sood vs. ACIT  101 taxmann.com 45 (Delhi-Trib.) – The Tribunal observed that the property at Madras which was in dispute remained vacant after assessment year 2002-03 till date. The Tribunal noted that since the property could not be let out due to inherent defects. The said property after being vacant also was not under self-occupation of the assessee. Further, it was not the case of the revenue that the property was not let out prior to assessment year 2002-03. Under the circumstances, the Tribunal, following the decision of the co-ordinate bench in Premsudha Exports (P.) Ltd. vs. ACIT  110 ITD 158 (Mum.) held that the assessee was entitled to benefit u/s. 23(1)(c) of the Act.
Other decisions in favour of assessee:
- Kamal Mishra v ITO (2008) 19 SOT 251 (Delhi ITAT)
- Smt. Shakuntala Devi (Bang ITAT) ITA No. 1524/Bang/2010 – The properties were earlier let out and were vacant for whole of the year. The Tribunal held that additions cannot be made.
- Informed Technologies 162 ITD 153
- Prabha Sanghi (2012) 27 taxmann.com 317 (Delhi ITAT)
- Purshotamdas Goenka v ACIT TS-984-ITAT-2021 (Mum ITAT)
- Kamal Kumar v. ACIT  140 taxmann.com 106 (Delhi – Trib.) – The Tribunal held that no notional rental income if property remained vacant due to sealing drive conducted by Govt.
Case Laws in Favour of Revenue
Vivek Jain v ACIT 337 ITR 74 (AP HC), (2011) 14 taxmann.com 146 – The AO computed ALV for flat which was vacant for whole of the year. The CIT(A) and the Tribunal held in favour of the Revenue. The HC held that in order to attract section 23(1)(c ), the following requirements must be fulfilled (i) the property, or any part thereof, must be let; and (ii) it should have been vacant during the whole or any part of the previous year; (iii) owing to such vacancy the actual rent received or receivable by the owner in respect thereof should be less than the sum referred to in clause (a ). The HC held that it is only if these three conditions are satisfied, clause (c) of section 23(1) would apply in which event the amount received or receivable, in terms of clause (c) of section 23(1), shall be deemed to be the annual value of the property. Clause (c) does not apply to situations where the property has either not been let out at all during the previous year or, even if let out, was not vacant during the whole or any part of the previous year. The HC held that the words “where the property is let” cannot be read as “where the property is intended to be let”. The HC further held that the contention, that if the owner had let out the property even for a day, it would acquire the status of “let out property” for the purpose of clause (c ) for the entire life of the property even without any intention to let it out in the relevant year, is also not tenable. The HC observed that under section 23(1)(c), the period for which a let out property may remain vacant cannot exceed the period for which the property has been let out. The Assessee appeal was therefore dismissed.
Sharan Hospitality ITA No 6717/Mum/2012 – The Assessee had acquired the property in December 2008 and entered into negotiation to let out the property. The property was let from 1.4.2009. The AO computed ALV for 3 months. The ITAT held that benefit was section 23(1)© was not available if property was vacant throughout the year.
Other decisions in favour of Revenue:
- Ramesh Chand vs. ITO 29 SOT 570 (Agra)
- Indra S. Jain vs. ITO, 52 SOT 270 (Mum.),
- Hercules Hoists Ltd. v ACIT  35 taxmann.com 592 (Mumbai – Trib.)
- Ansal Housing & Construction Ltd. v ACIT  89 taxmann.com 238 (Delhi HC). SLP granted by SC (2018) 95 taxmann.com 17.
Articles on the issue
- Controversies 51 (2017) 49B BCAJ