Business use of property excludes house-property taxation and blocks notional annual letting value under section 23.

Property actually used for the assessee's business in the relevant year falls outside the charge to income from house property under section 22. Here, audited accounts, ledger records, balance-sheet schedules and receipts showed that the premises were actively used for running a pre-primary school, while the disputed receipts were advance collections and refundable deposits linked to that business. The Department's assumption of vacancy or passive ownership was unsupported. As the property was used for business purposes, no notional annual letting value could be added under section 23 on a percentage-of-cost basis, and the deletion of the addition was upheld.

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Issues: Whether the property acquired by the assessee was used for business purposes during the relevant previous year so as to fall outside section 22 and whether the notional annual letting value added under section 23 was sustainable.

Analysis: The assessee established through audited financial statements, ledger records, balance-sheet schedules, and contemporaneous receipts that the premises were actively deployed for running its pre-primary school and were not held as a passive investment. The receipts forming the disputed amount were shown to be advance collections and refundable deposits connected with school operations, later offered in the subsequent year in line with the matching principle. The Department's inference that the property was vacant or commercially idle was therefore inconsistent with the record. Once the property was found to be used for the purposes of business, the charging provision relating to income from house property did not apply, and the estimate of annual letting value on a percentage of cost basis had no legal foundation.

Conclusion: The addition made under section 23 was unsustainable and the deletion by the first appellate authority was upheld in favour of the assessee.

Ratio Decidendi: Property actually used for the assessee's business during the relevant year is excluded from the charge under section 22, and no notional annual letting value can be brought to tax under section 23 on a mere assumption of vacancy or earning capacity.

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