2019 (12) TMI 1484 - AT - Income Tax

Taxation of notional rental income on unsold stock-in-trade - Business income OR Income from house property - assessee is a builder and developer and during the course of assessment proceedings it was found that the assessee was having unsold flats/shops - AO computed notional rental on such stock-in-trade under the head Income from house property - HELD THAT - Similar issue came up for consideration before the Pune Benches of the Tribunal in M/s. Cosmopolis Construction vs. ITO. 2018 (9) TMI 1621 - ITAT PUNE has held that no rental income can be computed when flats are held as stock in trade. In reaching this conclusion, the Tribunal relied on certain other judgments and the orders. In the absence of any distinguishing fact having been brought to my notice by the ld. DR and respectfully following the precedent, overturn the impugned order on this score and direct to delete the addition. As the Finance Act, 2017, w.e.f. 1.4.2018 has inserted sub-section (5) of section 23 providing that Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to two years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.‟ This amendment has the effect of providing that from the A.Y. 2018-19, stock in trade of buildings etc. shall be liable to be considered for computation of annual value under the head Income from house property‟ after two years from the end of the financial year in which the certificate of completion of construction of the property is obtained. As the assessment year under consideration is 2015-16, the amended section 23 will not apply - Decided in favour of assessee.

Summary

Issues:
Taxation of notional rental income on unsold stock-in-trade as Business income.

Analysis:
The appeal pertains to the assessment year 2015-16 where the only issue raised is the taxation of notional rental income of &8377; 5,54,400 on unsold stock-in-trade as Business income. The assessee, a builder and developer, contested that the income should be considered under the head "Profits and gains of business and profession." The CIT(A) upheld the contention based on a Pune Bench Tribunal order and taxed the income as income from Business. However, the assessee challenged the inclusion of the amount in the total income. The Tribunal, after considering relevant material and precedent, overturned the impugned order. It was held that no rental income can be computed when flats are held as stock in trade, as per previous judgments and orders. The Tribunal directed the deletion of the addition, citing similar views taken in other cases by the Pune benches of the Tribunal.

Additionally, it was noted that the Finance Act, 2017, inserted sub-section (5) of section 23, effective from 1.4.2018, which provides guidelines for the computation of annual value of stock-in-trade properties under the head "Income from house property." However, since the assessment year in question is 2015-16, the amended section 23 does not apply, and the case is governed by the decisions discussed earlier. Therefore, the appeal was allowed, and the order was pronounced on 23rd December 2019.