Notional annual letting value on unsold stock-in-trade cannot be taxed absent actual rent or a specific deeming provision.

Notional annual letting value of unsold units held as stock in trade by a builder could not be taxed as income from house property where no actual rent was received and no deeming provision brought such hypothetical income within the business head. The analysis applied section 23 but emphasised that a deeming fiction must be confined to its clear scope and cannot be extended beyond the statute. It further noted that the amount did not fall within the charging scope of section 5(1) because the assessee had only a hypothetical rental value, not actual income. The addition was therefore deleted.

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Issues: Whether annual letting value could be assessed under the head "Income from house property" in respect of unsold units held as stock in trade by a builder and developer, and whether such notional rental income could be brought to tax in the absence of actual letting or any deeming provision under the business head.

Analysis: The addition was made by applying section 23 of the Income-tax Act, 1961 to two unsold units treated as stock in trade. The earlier view that ownership alone justified taxation under the head "Income from house property" was reconsidered in the light of later Supreme Court authority, which emphasised that the nature of the operations and the statutory character of the income determine the head of income. The Court held that a deeming provision cannot be extended beyond its clear ambit and that no provision under Chapter IV-D deems notional rental income from unsold stock in trade as business income. Since the assessee had not actually earned rent and the amount was only hypothetical, it also did not fall within the charging scope of section 5(1) of the Income-tax Act, 1961.

Conclusion: The notional annual letting value of the unsold stock-in-trade units could not be taxed, and the addition was liable to be deleted.

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