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Section 23 of the Income-tax Act, 1961 - Income from house property - Annual value - Whether it is permissible to add notional interest on interest free security deposit to actual rent received for arriving at ALV - Held, no - Whether rateable value, if correctly determined under municipal laws, can be taken as ALV under section 23(1)(a); however, that value is not binding on Assessing Officer and if he can show that rateable value under municipal laws does not represent correct fair rent, then he may determine same on basis of material/evidence placed on record - Held, yes FACTS The assessee had let out certain property situated in Delhi. During assessment proceedings, the Assessing Officer noticed that apart from the monthly rent of Rs. 90,000 agreed between the assessee and the tenant, the assessee had also taken interest free security deposit of Rs. 10.78 crores. The Assessing Officer held that interest on interest free security deposit was an important fact for consideration while determining the fair rent within the meaning of section 23(1)(a). He, therefore, added the notional interest, on the aforesaid security deposit in the income of the assessee for the purpose of taxation. On appeal, the Commissioner (Appeals) deleted the addition by adopting rateable value of the property fixed by the Municipal Corporation even when that was done way back in the year 1996. The Tribunal dismissed the revenue's appeal. The revenue filed an appeal before the High Court. Since the issue involved in other appeals was also identical to the instant appeals, the Division Bench referred those appeals also to the Full Bench to be heard along with instant appeals. HELD Clause (c) of section 23(1), admittedly, did not apply to the facts of instant appeals, as none of the properties remained vacant during the whole or any part of the previous year. Properties remained let out during the entire year. Therefore, clause (b ) of section 23(1) came into play. It was also conceded that clause (a) of section 23(1) is applicable in those cases where property is not let out at all during the entire year. In such cases, the exercise is to be done to ascertain as to what would be the sum,…

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