2019 (5) TMI 1640 - AT - Income Tax

Taxability of property held in stock in trade - owner of the house property u/s 22 - deemed annual letting value - finished apartments - absence of occupancy / completion certificate - assessee submitted that it was not the owner of the said premises as they had already been allotted to various allottees - HELD THAT - Once the appellant had executed requisite documentation evidencing the allotment of specific units / apartments in favour of intending purchasers and thereafter received consideration amounts in accordance with the terms of allotment, then the rights of specific performance as well as right to obtain conveyance in respect of the specified apartment had accrued in favour of the respective purchaser. In the circumstances even though the husk of a title, if any, vested in the Owner, in law such person could not be considered to be the owner of the house property for the purposes of Section 22. Annual value of the property is to be determined as per the actual rent received or receivable by the owner of the property which is capable of being let legally. The legislative intention that the property which is legally habitable but it is not occupied by the owner then the annual value of such lettable property shall be deemed as income under the head House Property . Hon ble Bombay High Court in the case of Shree Nirmal Commercial Ltd Vs CIT 1991 (4) TMI 91 - BOMBAY HIGH COURT wherein it was held that if the property is of such nature that it is inherently incapable of being let out and the assessee owner thereof, then the charge u/s 22 cannot arise. In present case the property in question was granted the occupancy / completion certificate only on 01.07.2015, so the property in question for the both the assessment years 2011-12 and 2012-13 could not have construed to be properties capable of being legally let so as attract the rigors of Section 23(1)(c). We note that the view entertained by us now finds legislative support in sub-section (5) of Sec. 23, wherein the Legislature has provided where a builder holds flats as its stock in trade then the annual value of such property shall be taken as NIL for a period of two years from the end of the financial year in which the certificate of completion of construction of the properties obtained from the competent authority is obtained. In view of the latter enactment it is now abundantly clear that until the completion certificate is not issued by the competent authority and two years thereafter; annual value of the unsold units shall be NIL. For the reasons set out in the foregoing and the fact that the completion certificate was issued only on 01.07.2015, we delete the addition being the deemed notional annual value of the apartments included in the Inventory as on 31.03.2011. - appeals of assessee are allowed

Summary

Issues Involved:
1. Addition of deemed annual value of apartments held as closing inventory.
2. Determination of ownership and applicability of Section 22 and Section 23 of the Income Tax Act.
3. Validity of completion certificate and its impact on the assessment of deemed annual value.

Detailed Analysis:

Issue 1: Addition of Deemed Annual Value of Apartments Held as Closing Inventory
The primary grievance of the assessee was against the action of the CIT(A) in confirming the addition of the AO of deemed annual value of apartments held as closing inventory for the assessment years 2011-12 and 2012-13. The AO observed that the assessee held finished apartments valued at ?4,86,600/- under the head 'Inventories' in its balance sheet. The AO contended that income from house property should be assessed on the annual letable value of these apartments, as the assessee was the owner. The AO relied on the Delhi High Court decision in CIT vs Ansal Housing Finance & Leasing Co. Ltd. and computed the deemed rental value using average rental values from real estate websites. The AO added ?39,26,919/- as income from house property for AY 2011-12 and ?42,07,090/- for AY 2012-13, which was confirmed by the CIT(A).

Issue 2: Determination of Ownership and Applicability of Section 22 and Section 23 of the Income Tax Act
The assessee contended that it was engaged in the business of constructing and selling flats, treating the unsold flats as stock-in-trade and not as capital assets. The possession of flats was handed over to buyers upon full payment, and the revenue was recognized accordingly. The assessee argued that it was not the owner of the flats as they were allotted to buyers, who were in exclusive possession. The Tribunal noted that the appellant was a joint sector company promoted by the West Bengal Housing Board for constructing housing complexes. The appellant's role was limited to being a developer, and it was never intended to own the completed apartments. The Tribunal concluded that the appellant could not be regarded as the 'owner' of the finished apartments for the purposes of Section 22 of the Act.

Issue 3: Validity of Completion Certificate and Its Impact on the Assessment of Deemed Annual Value
The assessee argued that the completion certificate from the Newtown Kolkata Development Authority (NTKDA) was mandatory for the flats to be legally habitable and let out. The Tribunal noted that the occupancy certificate for the 'Uttara' project was issued only on 01.07.2015. Without the completion certificate, the property could not be legally let out, and thus Section 22 and 23 could not be invoked. The Tribunal also referred to the legislative support in sub-section (5) of Section 23, which states that the annual value of property held as stock-in-trade shall be NIL for two years from the end of the financial year in which the completion certificate is obtained. Therefore, for both AY 2011-12 and 2012-13, the deemed notional annual value could not be assessed as the completion certificate was issued only in 2015.

Judgment:
The Tribunal allowed both appeals of the assessee, deleting the additions of ?39,26,919/- for AY 2011-12 and ?42,07,090/- for AY 2012-13, being the deemed notional annual value of the apartments included in the inventory. The Tribunal concluded that the appellant was not the owner of the finished apartments for the purposes of Section 22 and 23 of the Act, and the completion certificate was a mandatory requirement for the property to be legally let out. The order was pronounced in the open court on 24 May, 2019.