Vacancy-based annual value and inherited-asset indexation under the Income-tax Act depend on the applicable statutory acquisition basis.

Section 23(1)(c) governs annual value where a let property remains vacant during the relevant previous year and the actual rent is lower than the notional value under section 23(1)(a), so the vacancy-based computation applies in preference to the general rule. For inherited shares and securities, section 49 deems the cost of acquisition to be that of the previous owner, and indexation under section 48 must follow the same acquisition base year; the indexed cost cannot be split between different years. The farm house rental issue at Masudpur was not finally determined on the existing record and required fresh examination by the Assessing Officer, including the claim concerning agricultural income.

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Issues: (i) Whether the annual value of a let property lying vacant during part of the previous year had to be computed under section 23(1)(c) instead of section 23(1)(a) of the Income-tax Act, 1961; (ii) Whether, for inherited shares and securities, indexation had to be computed with reference to the year in which the previous owner acquired the asset; (iii) Whether the rental income from the farm house at Masudpur had to be assessed under section 22 or the matter required fresh consideration.

Issue (i): Whether the annual value of a let property lying vacant during part of the previous year had to be computed under section 23(1)(c) instead of section 23(1)(a) of the Income-tax Act, 1961.

Analysis: Section 23(1)(c) applies where a property is let and remains vacant during the whole or any part of the previous year, and the actual rent received or receivable because of such vacancy is less than the annual value under section 23(1)(a). The provision was introduced by the Finance Act, 2001 with effect from 1 April 2002. On the facts, the property at Vasant Vihar had remained vacant after being let, so the lower authorities were not justified in applying section 23(1)(a) alone.

Conclusion: The annual value had to be determined under section 23(1)(c), and the addition in respect of the Vasant Vihar property was deleted.

Issue (ii): Whether, for inherited shares and securities, indexation had to be computed with reference to the year in which the previous owner acquired the asset.

Analysis: Under section 49, where capital assets devolve on an assessee by succession or inheritance, the cost of acquisition is deemed to be the cost for which the previous owner acquired the asset. The same basis governs indexation under section 48, so the period of holding and the indexed cost cannot be fragmented by taking one base year for acquisition and another for indexation. The indexed cost therefore had to be computed with reference to the year in which the husband originally acquired the securities.

Conclusion: Indexation had to be granted with reference to the previous owner's acquisition year, and the assessee succeeded on this issue.

Issue (iii): Whether the rental income from the farm house at Masudpur had to be assessed under section 22 or the matter required fresh consideration.

Analysis: The farm house issue was not finally concluded on the existing record. The matter required examination of the assessee's submissions and the scope of agricultural income under section 2(2A)(c), so a fresh decision by the Assessing Officer was necessary.

Conclusion: The issue was remanded to the Assessing Officer for fresh adjudication.

Final Conclusion: The assessee obtained relief on the vacancy-based annual value issue and on the computation of indexed cost for inherited securities, while the farm house issue was sent back for reconsideration.

Ratio Decidendi: Where a let property remains vacant during the relevant period, section 23(1)(c) governs annual value; and where capital assets devolve by inheritance, indexation must follow the previous owner's acquisition basis under sections 48 and 49.

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