2019 (5) TMI 1689 - AT - Income Tax

Income from house property - deemed income - Annual Lettable Value‟ of the vacant unsold units held by the assessee as stock-in-trade of its business of a real estate developer , were liable to be brought to tax under the head Income from house property , or not ? - HELD THAT - We find that the Hon‟ble High Court of Gujarat in the case of CIT Vs. Neha Builders (P) ltd. 2006 (8) TMI 105 - GUJARAT HIGH COURT had observed that if the business of the assessee is to construct property and sell it or to construct and let out the same, then any income derived from the immovable properties held by it as its stock-in-trade cannot be assessed under the head Income from house property . In HAWARE ENGINEERS BUILDERS PRIVATE LIMITED 2018 (10) TMI 1500 - ITAT MUMBAI had concluded that if an immovable property in the shape of flats/shops is held by the assessee as stock-in-trade of its business, then it becomes part of its trading operations, and any income derived there from would be its business income‟ and not Income from house property‟. On the basis of the aforesaid deliberations, the Tribunal while disposing off the aforesaid appeal had vacated the addition of the ALV‟ that was made by the lower authorities in respect of the flats/shops which were held by the assessee before them as stock-in-trade of its business of a real estate developer. - Decided in favour of assessee.

Summary

Issues Involved:
1. Taxation of notional income as income from house properties in respect of unsold units held as stock-in-trade.
2. Estimation of Annual Lettable Value (ALV) of unsold units held as stock-in-trade.

Issue-wise Detailed Analysis:

1. Taxation of Notional Income as Income from House Properties in Respect of Unsold Units Held as Stock-in-Trade:

The primary issue in the appeals for A.Y. 2013-14 and A.Y. 2014-15 was whether the notional income from unsold units, held by the assessee as stock-in-trade, should be taxed under the head "Income from house property." The Assessing Officer (A.O) and the Commissioner of Income Tax (Appeals) [CIT(A)] had concluded that the Annual Lettable Value (ALV) of these unsold units should be taxed as income from house property, based on precedents like CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 180 (Del). The A.O. estimated the ALV at 8.5% of the cost of construction and made additions to the income accordingly.

The assessee contested this, arguing that the unsold units were stock-in-trade and thus any income derived should be considered "business income" and not "income from house property." The assessee relied on judgments such as CIT Vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj) and Pr. CIT, Central-1 Vs. M/s Classique Associates Ltd. (ITA No.1216 of 2016, dated 28.01.2019) (Bom), which supported the view that income from properties held as stock-in-trade should be treated as business income.

2. Estimation of Annual Lettable Value (ALV) of Unsold Units Held as Stock-in-Trade:

The A.O. had estimated the ALV of the unsold units at 8.5% of the construction cost, leading to a deemed income from house property. The CIT(A) upheld this estimation. The assessee argued that this estimation was exorbitant and not justified, as the properties were held as stock-in-trade.

Judgment Analysis:

The Tribunal examined the issue in light of the relevant judicial precedents. It noted that the Hon’ble High Court of Gujarat in CIT Vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj) had held that if the business of the assessee is to construct and sell or let out properties, then any income derived from such properties held as stock-in-trade should be treated as business income. The Tribunal also referred to the Bombay High Court's decision in Pr. CIT, Central-1 Vs. M/s Classique Associates Ltd., which concurred with the Gujarat High Court's view.

The Tribunal further noted that similar issues had been adjudicated in favor of the assessee's sister concerns, where it was held that income from properties held as stock-in-trade should be classified as business income. The Tribunal found that the lower authorities had erred in treating the ALV of the properties held as stock-in-trade as income from house property.

Conclusion:

The Tribunal allowed the appeals for both A.Y. 2013-14 and A.Y. 2014-15, vacating the additions made by the A.O. and sustained by the CIT(A). The Tribunal concluded that the ALV of the unsold units held as stock-in-trade should not be taxed under the head "Income from house property," but should be considered as business income. The orders of the CIT(A) were set aside, and the appeals were allowed in favor of the assessee.