--- title: "Notional rent not chargeable on stock-in-trade | BNPS and Associates LLP" url: "https://bnpsca.com/insight/notional-rent-not-chargeable-on-stock-in-trade" description: "Tribunal upheld the deletion of notional rent income on property held as stock-in-trade." --- # Notional rent not chargeable on stock-in-trade Written by: **[CA Divyang J Shah](https://bnpsca.com/partner/ca-divyang-j-shah)** \| Topic: **Income Tax** ![Notional rent not chargeable on stock-in-trade](https://imageproxy.inlancer.in/pr:sharp/f:webp/rs:fit:1200:0/g:sm/plain/https://bnpsca.com/public/assets/upload/images/original/6a97b581c670c-480-F-190612024-BKjO.jpg)21-09-2026 Tribunal upheld the deletion of notional rent income on property held as stock-in-trade. **1. Facts** • The assessee is a real estate developer. It built a commercial project, “M2K Corporate Park”, in Gurgaon, and received the occupancy certificate on 21.10.2016. • Of the total built-up area of 2,75,444 sq. ft., about 91,150 sq. ft. was sold in the ordinary course of business. The remaining 1,84,294 sq. ft. was held as stock-in-trade and converted into investment on 01.01.2018. • During the year, the assessee let out 1,02,572 sq. ft. and offered rental income of Rs. 5.51 crore. • The Assessing Officer held that the entire area could have been let out for Rs. 9.91 crore. He added Rs. 4.39 crore as notional rent for the full year and assessed the income at Rs. 3.39 crore against the Rs. 1.01 crore returned. • The Revenue argued that section 23(1) provides for taxing notional rent, and that the part-letting proved the unsold area could also earn rent. **2. Views of the CIT(A)** • **Section 23(5) was ignored.** Notional rent is not chargeable on property held as stock-in-trade. As the conversion took place on 01.01.2018, notional rent could be considered only for January to March 2018. • **Vacant area was wrongly taken.** The AO assumed 81,722 sq. ft. as vacant without any inquiry. Based on lease agreements, tenancy records and the profit and loss account, the actual vacant area was 48,692 sq. ft. • **Rent rate.** Rs. 50 per sq. ft. per month was adopted, based on actual leases of similar units in the same premises. Notional rent for January to March 2018 works out to 48,692 sq. ft. × Rs. 50 × 3 months = Rs. 73,03,800. • **Standard deduction.** The 30% deduction under section 24(a) is mandatory once annual value is determined, and the AO had not allowed it. Deduction of Rs. 21,91,140 was allowed, leaving income from house property of Rs. 51,12,660. **Result**. The addition was thus reduced from Rs. 4.39 crore to Rs. 51.12 lakh. **3. Ruling of the ITAT** The Tribunal held that the CIT(A) had rightly applied section 23(5) in determining the annual letting value of the vacant area after the conversion from stock-in-trade to capital asset. It also found the CIT(A)’s decision reasonable and based on correct facts as regards the area on which notional rent was computed. There was no reason to interfere, and the Revenue’s appeal was dismissed. **4. Conclusion** Notional rent cannot be charged on unsold flats or shops while they are held as stock-in-trade. The tax on deemed rent begins only after the property is converted into investment, and only on the area that is actually vacant. The vacant area and the rent rate must be supported by facts and not by assumptions. Once annual value is worked out, the 30% standard deduction must be allowed. Developers should keep proper records of the conversion date, let-out area, vacant area and lease agreements. Read the order: --- *Disclaimer: This article is intended for general informational and knowledge-sharing purposes only and does not constitute legal or tax advice. Readers are advised to refer to the full text of the order and consult a qualified professional before relying on it for any specific matter.* - Tags: - [\#incometax #litigation #notionalrent #stockintrade #realestatedevelopers](#) ![CA Divyang J Shah](https://imageproxy.inlancer.in/pr:sharp/f:webp/rs:fit:200:0/g:sm/plain/https://bnpsca.com/public/assets/upload/images/original/6872083e9ad46-10.png)About the Author #### CA Divyang J Shah Ahmedabad Income tax Assessment & Appeals Public trust, Private Trust [View Profile ](https://bnpsca.com/partner/ca-divyang-j-shah) #### Share this on social media : [ Share ](http://www.facebook.com/sharer.php?u=https://bnpsca.com/insight/notional-rent-not-chargeable-on-stock-in-trade) [ Tweet ](https://twitter.com/intent/tweet?url=https://bnpsca.com/insight/notional-rent-not-chargeable-on-stock-in-trade) [ Post ](https://vk.com/share.php?url=https://bnpsca.com/insight/notional-rent-not-chargeable-on-stock-in-trade) [ post ](https://www.linkedin.com/shareArticle?mini=true&url=https://bnpsca.com/insight/notional-rent-not-chargeable-on-stock-in-trade) [ Share ](https://api.whatsapp.com/send?text=https://bnpsca.com/insight/notional-rent-not-chargeable-on-stock-in-trade) [ post ](https://reddit.com/submit?url=https://bnpsca.com/insight/notional-rent-not-chargeable-on-stock-in-trade) [ pin ](https://pinterest.com/pin/create/button/?url=https://bnpsca.com/insight/notional-rent-not-chargeable-on-stock-in-trade) ## You May Also Like Similar Articles You Might Find Interesting [ ![TDS/TCS changes from 1st October 2024](https://imageproxy.inlancer.in/pr:sharp/f:webp/rs:fit:500:0/g:sm/plain/https://bnpsca.com/public/assets/upload/images/original/688064a0140c2-466852974.jpeg) ](https://bnpsca.com/insight/tds-tcs-changes-from-1st-october-2024 "Blog Link")06-10-2024 #### [TDS/TCS changes from 1st October 2024](https://bnpsca.com/insight/tds-tcs-changes-from-1st-october-2024 "TDS/TCS changes from 1st October 2024") By nareshco [Continue Reading](https://bnpsca.com/insight/tds-tcs-changes-from-1st-october-2024) [ ![New-Income Tax Bill 2025 – Simplification ~Consolidation ~ Clarity](https://imageproxy.inlancer.in/pr:sharp/f:webp/rs:fit:500:0/g:sm/plain/https://bnpsca.com/public/assets/upload/images/original/68886745de300-image-income-tax-bil.png) ](https://bnpsca.com/insight/new-income-tax-bill-2025-%E2%80%93-simplification-consolidation-clarity "Blog Link")14-02-2025 #### [New-Income Tax Bill 2025 – Simplification ~Consolidation ~ Clarity](https://bnpsca.com/insight/new-income-tax-bill-2025-%E2%80%93-simplification-consolidation-clarity "New-Income Tax Bill 2025 – Simplification ~Consolidation ~ Clarity") By CA. 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