KSLU Solved Question Papers
Law of Taxation
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 7
2018 Jun Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 7 Law of Taxation 2018 Jun Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Contents
The questions below are the paper as Karnataka State Law University set it at the 2018 Jun examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2018 Jun examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 13 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1What is annual value ? How it is determined ?[16]
Answer
For full marks, cover: the meaning of annual value and why the Act taxes it rather than actual rent (section 22 of the Income-tax Act, 1961); how it is determined under section 23(1), in four steps: (1) the expected rent, built from municipal value, fair rent and the standard rent cap (Shiela Kaushish, following Dewan Daulat Rai Kapoor); (2) the actual rent received or receivable, less unrealised rent (Explanation, rule 4); (3) the comparison, with the vacancy rule in clause (c); (4) municipal taxes actually paid by the owner (proviso); special cases: self-occupied and vacant houses (section 23(2) to (4), old and new wording), unsold stock (section 23(5)), part let and part occupied, co-owners (section 26); worked illustrations; the Income-tax Act, 2025 (section 21).
Meaning
Section 22 charges, under "Income from house property", the annual value of buildings and land appurtenant to them, in the hands of their owner. Annual value is not the rent the owner happens to receive. It is the yearly letting value of the property, fixed by the rules in section 23. The Act taxes the capacity of the property to earn rent. That is why even a house kept vacant, or let to a friend at a low rent, can have a positive annual value.
How annual value is determined: section 23(1)
Section 23(1) gives three clauses. They are applied in four steps.
Step 1: the expected rent (clause (a)). This is "the sum for which the property might reasonably be expected to let from year to year". It is a hypothetical rent between a willing landlord and a willing tenant. Three figures guide it:
- Municipal value, the value on which the local authority levies its property tax.
- Fair rent, the rent that similar property in the same locality would fetch.
- Standard rent, where a rent control law applies. No landlord can lawfully expect more than the standard rent.
The usual working is to take the higher of the municipal value and the fair rent, but not more than the standard rent.
Shiela Kaushish v. Commissioner of Income-tax, Delhi, AIR 1981 SC 1729, decided on 18 August 1981. The assessee let a warehouse in Delhi to one tenant at Rs 34,797 a month. The Delhi Rent Control Act, 1958 applied to the area. The Income-tax Officer took the actual rent as the annual value. The Supreme Court held that the annual value was the standard rent determinable under the Rent Act, not the actual rent. It followed Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee, decided on the identical definition in the Delhi municipal laws. A landlord cannot reasonably expect a hypothetical tenant to pay more than the standard rent. This holds even if the Controller has not yet fixed the standard rent.
Section 23(1) has since been recast. Clause (b) now takes the actual rent where it is higher than the expected rent. So the standard rent today caps only the expected rent in clause (a).
Step 2: the actual rent (clause (b)). Where the property is let, take the actual rent received or receivable for the year. Under the Explanation to section 23(1), unrealised rent is left out. Rule 4 of the Income-tax Rules, 1962 allows this only where four conditions are met:
- the tenancy is bona fide;
- the defaulting tenant has vacated, or steps have been taken to make him vacate;
- he is not in occupation of any other property of the assessee; and
- the assessee has taken all reasonable steps to sue for the rent, or shows that suing would be useless.
Step 3: compare.
- If the actual rent is higher than the expected rent, the actual rent is the annual value (clause (b)).
- The actual rent may be lower only because the property was vacant for part of the year. Then the actual rent is the annual value (clause (c)).
- Otherwise the expected rent is the annual value (clause (a)).
Step 4: deduct municipal taxes (proviso). Taxes levied by a local authority on the property are deducted. Three conditions apply:
- they must be borne by the owner, not the tenant;
- they must be actually paid in the year, whenever they fell due; and
- arrears paid in the year are deducted in that year.
The result is the net annual value. The deductions of section 24, 30 per cent and interest, are then made from it.
Special cases
1. A house occupied by the owner (section 23(2)). The annual value of a house the owner occupies for his own residence is nil. From 1 April 2025, it is also nil where he cannot actually occupy it for any reason. Under the earlier wording, at the time of this paper, that second limb applied only where he lived elsewhere because of employment, business or profession.
2. When the nil value is lost (section 23(3)). It does not apply if the house is actually let for any part of the year, or the owner derives any other benefit from it.
3. More than two houses (section 23(4)). The nil value is allowed for two houses of the owner's choice. Before the assessment year 2020-21 it was allowed for one house only. The others are deemed let, and their annual value is the expected rent under clause (a).
4. Unsold flats held as stock (section 23(5)). A builder may hold unlet flats as stock-in-trade. Their annual value is nil for two years from the end of the financial year in which the completion certificate is obtained. After that, a notional annual value is charged, as if the flats could be let.
5. Part let, part occupied. Each part is valued separately. The let part is valued under section 23(1), and the self-occupied part under section 23(2).
6. Co-owners (section 26). The shares of co-owners may be definite and known. Each is then taxed on his share of the income, and the property is not assessed as an association of persons.
Worked illustrations
All figures are yearly. Municipal value Rs 1,20,000; fair rent Rs 1,50,000; standard rent Rs 1,40,000. The expected rent is the higher of Rs 1,20,000 and Rs 1,50,000, capped at Rs 1,40,000, that is Rs 1,40,000.
| Case | Actual rent | Annual value | Why |
|---|---|---|---|
| Let all year at Rs 1,80,000 | 1,80,000 | 1,80,000 | actual rent higher (clause (b)) |
| Let all year at Rs 1,00,000 to a relative | 1,00,000 | 1,40,000 | expected rent higher (clause (a)) |
| Let at Rs 1,50,000 a year, vacant for four months | 1,00,000 | 1,00,000 | lower only because of vacancy (clause (c)) |
| Case | Actual rent | Annual value | Why |
|---|---|---|---|
| Let at Rs 1,80,000, Rs 30,000 unrealised under rule 4 | 1,50,000 | 1,50,000 | unrealised rent excluded, still higher |
| Occupied by the owner as his home | none | nil | section 23(2) |
If the owner paid municipal tax of Rs 12,000 in the year in the first case, the net annual value would be Rs 1,68,000. Where an owner has several let properties, the same four steps are applied to each property separately.
The Income-tax Act, 2025
From 1 April 2026, section 21 of the 2025 Act gives the same rules in simpler order. Annual value is the higher of the expected rent and the actual rent. A vacancy reduces it to the actual rent. Taxes paid to a local authority are deducted, and unrealised rent is excluded under the rules. Unsold stock is nil for two years. A house the owner occupies, or cannot occupy for any reason, is nil, for up to two houses (section 21(6), (7)).
Conclusion. Annual value is the yearly letting value of a building, the notional figure on which section 22 taxes house property. Section 23(1) fixes it by finding the expected rent, built from municipal value and fair rent and capped by standard rent, as Shiela Kaushish holds. That expected rent is compared with the actual rent receivable, less unrealised rent under rule 4. The higher figure is taken, unless a vacancy alone lowers the actual rent. Municipal taxes actually paid by the owner are then deducted. A house occupied by the owner has a nil value, for up to two houses, and so do unsold flats for two years. The 2025 Act keeps the scheme in section 21.
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