2018 (2) TMI 1707 - AT - Income Tax

Deemed rental income - Addition of notional annual letting value of unsold flats held as stock in trade - Income from house property - Held that - In the case on hand before us it is an undisputed fact that both assessees have treated the unsold flats as stock in trade in the books of account and the flats sold by them were assessed under the head income from business . Thus we hold that the unsold flats which are stock in trade when they were sold they are assessable under the head income from business when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respect of those unsold flats under the head income from house property . Thus, we direct the AO to delete the addition made under Section 23 of the Act as income from house property. - Decided in favour of assessee.

Summary

Issues:
The common issue in the appeals is whether the AO erred in making an addition on account of alleged notional annual letting value of unsold flats held as stock in trade.

Analysis:
The assessees, engaged in the business of builders and developers, filed returns for A.Y. 2012-13. The AO computed the annual letting value of unsold flats held as stock in trade, treating them as income from house property. The assessees argued that income from sale of developed property should be assessed as business income and not under income from house property. The AO referred to a decision and computed the notional annual letting value, which was upheld by the CIT(A).

The assessees contended that if the property is used as stock in trade, income derived should be considered business income. They cited a decision and argued that unsold flats in stock in trade should not be assessed under income from house property. The D.R. supported the lower authorities' orders and cited a different decision.

The Tribunal noted that the assessees were engaged in the business of builders and developers, treating their projects as stock in trade. Flats sold were assessed as business income, but unsold flats were treated as income from house property. Citing a decision, the Tribunal held that income from unsold flats in stock in trade should be assessed as business income, not under income from house property. The appeals were allowed, directing deletion of the addition under Section 23 of the Act.

The judgments highlighted the distinction between income from business and income from property, emphasizing that income from stock in trade should be assessed as business income. The decisions considered the main objective of the assessees' business activities and concluded that unsold flats held as stock in trade should not be taxed as income from house property. The Tribunal's decision aligned with the principles established in the cited judgments, leading to the allowance of the appeals.

In conclusion, the Tribunal ruled in favor of the assessees, holding that unsold flats held as stock in trade should be assessed as income from business and not as income from house property. The AO was directed to delete the addition made under Section 23 of the Act.