2018 (6) TMI 1781 - AT - Income Tax

Income from House Property u/s 22 - calculating notional ALV of the vacant units - adding the ALV of the unsold units which constitutes stock in trade - HELD THAT - As in case of Chennai Property 2015 (5) TMI 46 - SUPREME COURT held that when the company is primarily engaged in business of construction and development which is the main object of the assessee the income derived by assessee would be Income from Business . On the same analogy in the case in hand the assessee is engaged in the business of construction and development which is the main business of the assessee the units which could not be sold at the end of the year and were shown as stock-in-trade estimating rental income on notional ALV was not justified - when there is no evidence on record that these units were either given on rent or that the assessee has intention to let out those units. The Units which are not sold are stock-in-trade and the income arising of its sale is liable to be taxed as Business Income therefore we do not find any justification in calculating notional ALV of the vacant units. Therefore we direct the Assessing Officer to delete the addition made on estimate basis - Decided in favour of assessee.

Summary

Issues:
1. Tax treatment of unsold units as "Income from House Property" under section 22 of the Income Tax Act, 1961.
2. Applicability of notional Annual Letting Value (ALV) on unsold units treated as stock-in-trade.

Issue 1: Tax treatment of unsold units as "Income from House Property" under section 22 of the Income Tax Act, 1961:

The appellant challenged the order of the Assessing Officer adding the ALV of unsold units under the head "Income from House Property." The appellant argued that the unsold units were held as stock-in-trade for business purposes, not for rental income. The appellant cited relevant case laws to support this position. The Departmental Representative supported the lower authorities' decision based on a Delhi High Court judgment. However, both parties acknowledged the absence of a jurisdictional High Court decision on the matter.

Issue 2: Applicability of notional Annual Letting Value (ALV) on unsold units treated as stock-in-trade:

The Assessing Officer and the CIT(A) relied on a Delhi High Court decision to tax the notional ALV of unsold units under "Income from House Property." In contrast, the appellant cited a Gujarat High Court ruling that income derived from stock-in-trade should not be considered as "Income from House Property." The appellant treated the unsold units as stock-in-trade in their books and had offered the sold units under "Income from Business." The Tribunal agreed with the appellant, emphasizing that unsold units held as stock-in-trade should be assessed under "Income from Business," not "Income from House Property."

The Tribunal highlighted the principle that when two interpretations of a tax provision are possible, the one favoring the assessee should be adopted. Following this, the Tribunal accepted the Gujarat High Court's view over the Delhi High Court's decision. Additionally, the Tribunal referenced a Supreme Court judgment emphasizing that income derived from unsold units treated as stock-in-trade should be taxed as business income, not rental income. Consequently, the Tribunal directed the Assessing Officer to delete the addition based on the notional ALV of the vacant units. Ultimately, the Tribunal allowed the appeal filed by the assessee.

This detailed analysis of the judgment addresses the issues raised regarding the tax treatment of unsold units and the applicability of notional ALV, providing a comprehensive overview of the legal arguments and the Tribunal's decision.