Annual value cannot include notional interest on tenant deposits, and business loss set-off may follow commercial character of stock-in-trade dividends.

Notional interest on interest-free security deposits could not be added to actual rent when computing annual value of property income, because annual value must be based on the rent actually received and cannot be enhanced without statutory basis. Carried forward business loss was allowed to be set off against dividend income where the shares were held as stock-in-trade, since the commercial character of the receipt prevailed for the purpose of section 72 notwithstanding its separate tax treatment under another head. The revenue challenge failed on the first issue and the assessee obtained relief on the set-off issue.

---

---

Issues: (i) Whether notional interest on interest-free security deposits received from tenants could be added to actual rent while determining the annual value of property income. (ii) Whether carried forward business loss could be set off against dividend income assessed under the head "Income from other sources" where the shares were held as stock-in-trade.

Issue (i): Whether notional interest on interest-free security deposits received from tenants could be added to actual rent while determining the annual value of property income.

Analysis: The addition of notional interest was rejected because the same question had already been decided in the assessee's own case for an earlier year. The Tribunal followed its earlier view that, for computing income from house property, the annual value cannot be enhanced by imputing interest on interest-free deposits merely because the deposits are substantial. The actual rent received remained the relevant figure.

Conclusion: The notional interest on interest-free security deposits could not be added to the actual rent, and the revenue's challenge failed.

Issue (ii): Whether carried forward business loss could be set off against dividend income assessed under the head "Income from other sources" where the shares were held as stock-in-trade.

Analysis: The Tribunal applied the principle that classification under a head of income does not determine the true commercial character of the receipt. Since the shares were part of the trading assets and held as stock-in-trade, the dividend income retained its business character for the limited purpose of section 72. The Tribunal followed the rule that carried forward business loss can be set off against profits and gains of business assessable for the relevant year, even if the receipt is separately taxed under another head.

Conclusion: The assessee was entitled to set off the carried forward business loss against the dividend income, and the assessee's appeal succeeded.

Final Conclusion: The revenue's appeal was rejected and the assessee's claim for set-off was accepted, resulting in relief to the assessee on both contested issues.

Ratio Decidendi: For the purpose of carrying forward and setting off business losses, the commercial character of the receipt prevails over its head-of-income classification, and notional interest on tenant security deposits cannot be imported into annual value without statutory basis.

---