2021 (10) TMI 441 - AT - Income Tax

Income from house property - deemed rent u/s. 23(4) - Deemed rental income on unsold flats - main contention of ld. AR is that the unsold flats forms part of stock in trade and there is no intention for the assessee to let out the said unsold flats but only to sell in the market - HELD THAT - The first condition being that the property or its part should be occupied by the assessee as an owner. There is no material evidence to show before us that the assessee is not occupied the said unsold 6 flats. The second condition is that any business or profession should be carried on by the assessee. We note that the assessee filed return showing income from such business and also engaged in the business of property development. The third condition is that the occupation of the property should be for the purpose of business or profession wherein the assessee before us shown the said 6 unsold flats as stock in trade. The last condition is that profits of such business or profession should be chargeable to income-tax. In the present case that there is no dispute that the profits of the business of construction by the assessee are chargeable to income-tax. Therefore, in our view that the unsold 6 flats are occupied by the assessee are as owner; business of construction is carried on by the assessee; the occupation of the flats is for the purpose of business; and profits of such business are chargeable to Income-tax. Thus, in our opinion, all the four conditions provided in exclusion clause in section 22 of the Act are to be excluded, therefore, we hold that no addition on account of deemed rent on unsold 6 flats can be made in the hands of the assessee - Decided in favour of assessee.

Summary

Issues:
Consideration of deemed rental income on unsold flats under section 23(4) of the Income Tax Act for assessment year 2013-14.

Analysis:
The appeal pertains to the addition of deemed rental income on unsold flats by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)). The key issue is whether the CIT(A) was justified in confirming this addition. The assessee, a private limited company engaged in construction activities, declared a loss in its income tax return. The AO added an amount on account of deemed rent under section 23(4) of the Act. The CIT(A) upheld this addition.

During assessment proceedings, it was revealed that the assessee held 6 completed unsold flats. The AO sought an explanation for not charging deemed rent on these flats under section 22 of the Act. The assessee contended that the unsold flats were part of its stock in trade and not intended for renting but for sale. The AO, after field inquiry, calculated the deemed rental income. The CIT(A) agreed with the AO's view. However, a similar issue was addressed by the Tribunal in a previous case involving the assessee's sister concern. The Tribunal held that certain conditions under section 22 of the Act must be met for exclusion of deemed rent, which the assessee satisfied.

The Tribunal noted that the assessee occupied the unsold flats as an owner, conducted business activities, used the flats as stock in trade, and the profits were taxable. As all conditions for exclusion were met, no addition for deemed rent was warranted. Consequently, the CIT(A)'s order was set aside, and the grounds raised by the assessee were allowed. The appeal was thus allowed in favor of the assessee.

In conclusion, the Tribunal ruled in favor of the assessee, holding that no addition on account of deemed rent on unsold flats was justified. The decision was based on the fulfillment of all conditions for exclusion under section 22 of the Act.