2019 (3) TMI 1656 - AT - Income Tax

Computing the deemed rental income u/s 22 under the head of income from house property even when these unsold flat lying as stock in trade in completed project - HELD THAT - Assessee stated that this issue is squarely covered by various decisions of co-ordinate bench wherein view is taken that there are two different views of High Courts namely Hon ble High Court of Gujarat in the case of CIT vs. Neha Builders P. Ltd. 2006 (8) TMI 105 - GUJARAT HIGH COURT has held that the property hold as stock in trade becomes or partake character of the stock and no income derived therefrom whatever income from business cannot be held as income from house property. Similarly the opposite view is taken in the case of CIT v. Ansal Housing and Construction Ltd 2012 (11) TMI 323 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Appeal against the order of CIT(A) confirming the computation of deemed rental income under section 22 of the Income Tax Act for unsold flats held as stock in trade in completed projects.

Analysis:
The appeals filed by the assessee challenge the CIT(A)'s decision confirming the AO's computation of deemed rental income under section 22 of the Act for unsold flats held as stock in trade. The AO estimated the annual letting value (ALV) of unsold flats based on the area and rate per square foot, resulting in taxable income under the head of income from house property. The assessee contended that properties held as stock in trade lose their character as properties owned by the assessee, citing conflicting views of High Courts. Notably, the Gujarat High Court held that income from properties held as stock in trade is business income, not house property income, while the Delhi High Court took the opposite view. The Tribunal referred to various precedents and emphasized that properties held as stock in trade should not be assessed under the head of income from house property.

The Tribunal analyzed the statutory provisions and previous judgments to conclude that properties held as stock in trade by a developer should not be assessed as income from house property. It highlighted the distinction between properties owned for business purposes and those held as stock in trade. Relying on the principle that a construction favoring the taxpayer should be adopted in case of ambiguity in taxing provisions, the Tribunal favored the view that income from unsold flats held as stock in trade should not be taxed under the head of income from house property. The Tribunal referenced multiple cases and decisions supporting this interpretation, ultimately setting aside the CIT(A)'s order and allowing the assessee's appeal in both assessment years.

In light of the above analysis and legal reasoning, the Tribunal allowed the assessee's appeals for both assessment years, emphasizing that the notional lettable value of unsold flats held as stock in trade should not be brought to tax under the head of income from house property. The decision was based on a thorough examination of statutory provisions, judicial precedents, and the specific circumstances of the case.