Section 23 is the timing-shift provision for arrears of rent and unrealised rent recovered in a subsequent year. The recovered amount is taxable in the year of receipt regardless of when the rent originally accrued — preventing assessee…
23
ITA 2025 · Section 23
Section 23 — ARREARS OF RENT AND UNREALISED RENT
Section 23 is the timing-shift provision for arrears of rent and unrealised rent recovered in a subsequent year. The recovered amount is taxable in the year of receipt regardless of when the rent originally accrued — preventing assessee from claiming non-recovery and then refusing to disclose subsequent recovery. The 30% standard deduction (s. 22(a)) is allowed against the arrears.
STATUTORY ARCHITECTURE
Section 23 has two operative limbs: (a) Arrears of rent — rent which became due in earlier years but was received in a later year; (b) Unrealised rent recovered — rent which was earlier excluded from annual value u/s 21 (because of vacancy or non-recovery) and is subsequently realised. Both are taxable in the year of receipt, with 30% standard deduction allowed. The assessee need not be the owner of the property in the year of recovery — anti-avoidance ensures continuity of charge.
JUDICIAL EVOLUTION — Recovery Even After Property Sold
CIT v. P. Mariappa Gounder line of HC decisions — the s. 23 charge applies even where the property has been sold or transferred between the year of accrual and the year of recovery; the recovered amount is taxable in the original lessor's hands as HP income.
PLANNING NOTES
(i) For long-arrears recovery (often 3-5 years' rent at one go), claim s. 157 relief (1961 s. 89(1)) — Form 10E filed before return; without Form 10E, CPC denies relief. (ii) Verify whether the original-accrual-year ALV had already included the rent (in which case current taxation would be double-tax) — invoke first proviso. (iii) For ITR-2/3, Schedule HP arrears reporting is mandatory; document the recovery date and original-accrual period.
CROSS-REFERENCES