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2018 (12) TMI 211 - AT - Income TaxIncome from house property - determining the notional lettable value of the unsold flats held by the assessee company as stock-in-trade of its business of builders and property developers - Held that - Respectfully following the judgment of the Hon ble High Court of Gujarat in the case of CIT Vs. Neha Builders (P) Ltd. 2006 (8) TMI 105 - GUJARAT HIGH COURT and the aforesaid orders of the coordinate benches of the Tribunal we are of the considered view that the lower authorities had erred in determining the notional lettable value of the unsold flats held by the assessee company as stock-in-trade of its business of builders and property developers and bringing the same to tax in the hands of the assessee under the head Income from house property . We thus in terms of our aforesaid observations set aside the order of the CIT(A). - decided in favour of assessee.
Issues Involved:
1. Computation of deemed income under the head "Income from House Property" for unsold flats held as stock-in-trade. 2. Applicability of Section 22 of the Income Tax Act, 1961 to unsold flats. 3. Determination of Gross Annual Value (GAV) of unsold flats. 4. Allowance of deduction under Section 24 of the Income Tax Act, 1961. Detailed Analysis: 1. Computation of Deemed Income under "Income from House Property" for Unsold Flats Held as Stock-in-Trade: The primary issue was whether the deemed Annual Lettable Value (ALV) of unsold flats held by the assessee as stock-in-trade should be taxed under the head "Income from House Property." The Assessing Officer (A.O) held that the deemed ALV of these unsold flats should be brought to tax under this head, relying on the judgment of the Delhi High Court in CIT Vs. Ansal Housing Finance and Leasing Co. Ltd. The CIT(A) upheld this view, but the assessee contended that these properties, being stock-in-trade, should not be taxed under "Income from House Property" but rather under "Income from Business." 2. Applicability of Section 22 of the Income Tax Act, 1961 to Unsold Flats: The A.O argued that passive occupation of the property did not amount to "own occupation" in the course of business, thereby not qualifying for exemption under Section 22. However, the assessee relied on the Gujarat High Court judgment in CIT Vs. Neha Builders (Pvt. Ltd.), which stated that if the property is used as stock-in-trade, the income derived should be considered as business income, not property income. The Tribunal favored this view, emphasizing that properties held as stock-in-trade lose their character as mere properties and should be treated as business assets. 3. Determination of Gross Annual Value (GAV) of Unsold Flats: The A.O determined the GAV of the unsold flats at RNA Mirage, Worli, Mumbai, at ?50 per sq. ft. per month, totaling ?4,51,29,000/-. The CIT(A) confirmed this valuation. However, the Tribunal found that the lower authorities erred in determining the notional ALV of the unsold flats held as stock-in-trade and bringing it to tax under "Income from House Property." The Tribunal supported its decision by referencing multiple judgments, including those of the Gujarat High Court and various ITAT benches, which held that such properties should be treated as business stock. 4. Allowance of Deduction under Section 24 of the Income Tax Act, 1961: The assessee argued for a deduction under Section 24, which allows for a 30% deduction on the GAV computed. However, since the Tribunal concluded that the unsold flats should not be taxed under "Income from House Property," the question of deduction under Section 24 became moot. Conclusion: The Tribunal, following the Gujarat High Court's judgment in CIT Vs. Neha Builders (P) Ltd. and other supportive ITAT decisions, concluded that the lower authorities erred in taxing the notional lettable value of unsold flats held as stock-in-trade under the head "Income from House Property." The appeal of the assessee was allowed, and the order of the CIT(A) was set aside. The Tribunal emphasized that properties held as stock-in-trade should be treated as business assets, and any income derived therefrom should be considered business income.
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