Annual letting value on unsold stock-in-trade was unsustainable for years before section 23(5) came into force.

For assessment years before section 23(5) of the Income-tax Act, 1961 took effect, unsold units held by a builder as stock in trade could not be subjected to annual letting value taxation in the absence of an express deeming or charging provision. The Finance Act, 2017 amendment applied only from 01.04.2018, so it did not govern assessment year 2017-18. The addition made on this basis therefore lacked legal support and was deleted.

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Issues: Whether annual letting value could be added in respect of unsold units held by a builder as stock in trade for assessment year 2017-18.

Analysis: The Finance Act, 2017 introduced sub-section (5) to section 23 of the Income-tax Act, 1961 with effect from 01.04.2018. The assessment year involved was 2017-18, so that provision did not apply. For the year under consideration, there was no provision under the head "Profits and Gains from business or profession" deeming rental income from unsold flats held as stock in trade as business income. The addition sustained in appeal therefore lacked legal basis.

Conclusion: The addition on account of annual letting value of the unsold units was not sustainable and was directed to be deleted.

Final Conclusion: The assessee succeeded on the sole issue, and the impugned addition was deleted.

Ratio Decidendi: For assessment years prior to the commencement of section 23(5) of the Income-tax Act, 1961, unsold units held by a builder as stock in trade cannot be subjected to annual letting value taxation under the head "Income from house property" or treated as deemed business income in the absence of an express charging or deeming provision.

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