Notional annual value on unsold stock-in-trade flats was not taxable before section 23(5) came into force.

Unsold flats held as stock-in-trade could not be brought to tax on a notional annual value basis for a year prior to the insertion of section 23(5) of the Income-tax Act, 1961. The property was held as trading stock, not as an investment asset, and the specific charging provision taxing such stock-in-trade properties was introduced only from 1 April 2018. In the absence of an applicable charging provision for the assessment year in question, the notional house property addition was unsustainable and was deleted.

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Issues: Whether notional annual value of unsold flats held as stock-in-trade could be brought to tax as income from house property for assessment year 2014-15.

Analysis: The property was held by the assessee as stock-in-trade and not as an investment asset. The provision specifically taxing property held as stock-in-trade, namely section 23(5) of the Income-tax Act, 1961, was inserted with effect from 01.04.2018 and was not applicable to the year under appeal. In the absence of a specific charging provision for the relevant year, the completed unsold units could not be subjected to notional annual value on the facts of the case.

Conclusion: The addition on account of notional annual value was unsustainable and was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded on the core issue and the addition under the head income from house property was set aside.

Ratio Decidendi: For a year prior to the insertion of section 23(5), unsold property held as stock-in-trade could not be assessed to notional annual value in the absence of an applicable charging provision.

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