Notional rent on unsold stock-in-trade flats could not be taxed for the relevant year absent actual rent or a charging provision.

Unsold flats held as stock-in-trade by a builder could not be taxed on a notional annual value for assessment year 2013-14. Section 23(5), which deems the annual value of such property nil for a limited period, was held prospective and therefore inapplicable to that year; accordingly, no income could be imputed under the head Income from house property. Taxation as business income also failed because there was no actual rent received and no specific charging provision in Chapter IV-D to tax hypothetical rental income. The notional rental addition was therefore deleted.

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Issues: Whether notional rent or annual value of unsold flats held as stock-in-trade could be taxed for assessment year 2013-14, either under the head Income from house property or as business income.

Analysis: The assessee was a builder and developer and the flats remained unsold as stock-in-trade. Section 23(5) of the Income-tax Act, 1961, inserted by the Finance Act, 2017 with effect from 01.04.2018, provides a specific rule that the annual value of such stock-in-trade property shall be taken as nil for a limited period. The provision was held to be prospective and therefore not applicable to assessment year 2013-14. In the absence of that amendment, no rental income could be presumed from the unsold flats under the head Income from house property. The attempt to tax the same amount as business income also failed because there was no actual rent received and no specific provision in Chapter IV-D permitting taxation of such hypothetical income.

Conclusion: The notional rental addition on unsold flats held as stock-in-trade was not taxable for assessment year 2013-14 and the addition was directed to be deleted.

Ratio Decidendi: Before the prospective insertion of section 23(5), notional annual value of unsold flats held as stock-in-trade could not be brought to tax in the absence of actual rental income or a specific charging provision.

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