2022 (12) TMI 874 - AT - Income Tax

Correct head of income - Addition on account of income from house property or business income - As argued assessee has granted the lease and earns rent income and thus the same cannot be treated as income from business - assessee is engaged in the business of construction and only profit on sale of constructed unit are shown as business income whereas unsold units which are shown as stock in trade forms the part of business of the assessee - HELD THAT - It is pertinent to note that the assessee has shown closing stock and received building use permission in respect of the same. As undisputed fact that the assessee is engaged in the business of construction and only profit on sale of constructed unit are shown as business income whereas unsold units which are shown as stock in trade forms the part of business of the assessee. CIT(A) has rightly held that since the assessee was a developer and held the unit in questions income from such unit can be taxed as only business income and not as income from house property. It is pertinent to note there is no concept of deemed rent while computing business income and the CIT(A) has rightly deleted the addition. In the case of Ansal Housing Finance and Leasing Co. Ltd. 2012 (11) TMI 323 - DELHI HIGH COURT will not be applicable in the present case as the assessee has already treated the said unsold unit as stock in trade. The decision of Hon ble Gujarat High Court in the case of CIT vs. Neha Builders 2006 (8) TMI 105 - GUJARAT HIGH COURT in fact is applicable in the present case as the issues herein are identical to the present case. If property is used as stock in trade then such property would become or partake the character of stock and any income from stock would be income from business and not income from property. CIT(A) was right in deleting the addition. Appeal of the Revenue is dismissed.

Summary

Issues:
Revenue's appeal against deletion of addition of income from house property by CIT(A) for Assessment Year 2016-17.

Analysis:
1. The Revenue challenged the deletion of an addition of Rs.2,57,78,644 on account of income from house property by the CIT(A). The Assessing Officer observed that the assessee, engaged in real estate development, did not declare house property income as per Sections 22/23 of the Income Tax Act, 1961, for a commercial complex developed during the year. The AO added the amount as income from house property.

2. The CIT(A) partly allowed the assessee's appeal, leading to the Revenue's appeal before the ITAT. The Revenue argued that the property should be taxed under 'income from house property' as the units were deemed let out, relying on a decision of the Delhi High Court. However, the assessee contended that the property was held as stock in trade, and any income derived from it should be taxable as business income, citing various precedents.

3. The ITAT noted that the assessee had shown closing stock and received building use permission for the commercial complex. As the assessee was engaged in construction and only recognized profit from unit sales as business income, the unsold units were considered stock in trade. The ITAT agreed with the CIT(A) that the income from such units should be taxed as business income, not income from house property. The concept of deemed rent was deemed inapplicable for business income calculation.

4. The ITAT distinguished the decision of the Delhi High Court cited by the Revenue, emphasizing that the unsold units were treated as stock in trade. Instead, the ITAT found the decision of the Gujarat High Court in a similar case more applicable. It held that if a property is used as stock in trade, income derived from it is considered business income, not income from property. Consequently, the ITAT upheld the CIT(A)'s decision to delete the addition, dismissing the Revenue's appeal.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of income from house property for the Assessment Year 2016-17.