2022 (1) TMI 1041 - AT - Income Tax

Income from house property OR business income - Addition towards deemed rent on unsold vacant flats and shops held by the assessee as stock-in-trade - HELD THAT - As decided in M/S. COSMOPOLIS CONSTRUCTION, SHAH KHANDELWAL JAIN ASSOCIATES 2018 (9) TMI 1621 - ITAT PUNE House property can result in respect of unsold flats held by a builder as stock in trade at the year-end. While disposing off the above referred case, the Tribunal observed that income from unsold flats could be considered only under the head Profits and Gains from business or profession and not Income from House Property . CIT(A) considered these observations of the Tribunal qua the inclusion of income, if any, under the head Business Income and directed to include deemed annual value as business income in the impugned order. He however, did not appreciate that the Tribunal nowhere held for the inclusion of the deemed rental income under the head Profits and Gains from business or profession . It simply directed that income, if any, from unsold flats held as stock in trade can be considered only as Business Income . In the ultimate analysis, the Tribunal eventually deleted the addition. It is but natural that if a particular income is to be taxed under a specific head, the computational mechanism governing that head only can come into play. There is no provision under the head Profits and Gains from business or profession which deems the rental income from unsold flats held as stock as 'Business income'. Considering the above factual and legal position, we are of the considered opinion that the addition made by the AO and as sustained in the first appeal, is not called for - Decided in favour of assessee.

Summary

Issues:
Confirmation of addition of deemed rent on unsold vacant flats and shops held as stock-in-trade.

Analysis:
The appeal pertains to the confirmation of the addition of deemed rent on unsold vacant flats and shops held as stock-in-trade by the assessee for the assessment year 2015-16. The Assessing Officer (AO) computed the monthly rental income for the vacant units based on the rent received from other properties. Subsequently, an amount of ?8,52,902 was added to the assessee's total income under the head "Income from House Property." The CIT(A) upheld this addition as "Business Income" based on certain Tribunal orders, directing the inclusion of deemed annual value as business income. However, the Tribunal noted that prior to the relevant amendment, income from unsold flats held as stock-in-trade was not to be taxed under "Income from House Property" but under "Profits and Gains from business or profession." The Tribunal observed that the computational mechanism governing a specific head should apply for taxation. Consequently, the Tribunal concluded that the addition made by the AO and sustained by the CIT(A) was unwarranted, leading to its deletion.

The Tribunal highlighted that the Finance Act, 2017 amendment introducing sub-section (5) to section 23, which considers the annual value of unsold properties for inclusion under "Income from House Property," was not applicable for the assessment year in question. The Tribunal referenced previous cases, including Cosmospolis Construction vs. ITO, where it was established that income from unsold flats held as stock-in-trade should be categorized as "Business Income" rather than "Income from House Property." The Tribunal emphasized that the income from unsold flats should be taxed under the appropriate head, and since no provision deems rental income from such properties as "Business Income," the addition made by the AO and CIT(A) was deemed unnecessary and directed to be deleted.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee by directing the deletion of the addition of ?8,52,902 made under the head "Income from House Property." The judgment was pronounced in the Open Court on 18th January 2022.