2018 (5) TMI 45 - AT - Income Tax

Annual letting value ( ALV ) of the property brought to tax - Determination of the rental income - whether the authorities below are justified in bringing the notional income to tax under the head income from house property instead of returning a finding that any income from such building has to be assessed as business income and in the absence of any real income from the building, nothing has to be brought to tax? - Held that - The facts and contentions advance in the case of Ansal Housing Finance and Leasing Co. Ltd. 2012 (11) TMI 323 - DELHI HIGH COURT are almost identical to the facts and contentions involved in this matter. Hence, while respectfully following the same, we hold that the levy of income-tax in this case shall not be on the premise whether the assessee carries on business as landlord, but on the basis of ownership, as such, the authorities below have rightly held that the ALV of this building has to be brought to tax. Quantification of ALV - Held that - It is incumbent upon the revenue to ascertain the standard rent as per the relevant rent control legislation and to take the fair rent or the standard rent, whichever is lower, as the ALV of the building. In the case in hand, such and exercise does not seem to have been undertaken by the AO and also the grievance of the assessee is that the source of taking non relevant to the fair rent or the report of the inspector are revealed so that the assessee could have had an opportunity to ask the authorities for determination of the correct ALV. Thus while affirming the action of the authorities below in bringing the ALV of the premises at 9, Tolstoy Marg, Connaught Place, New Delhi to tax, we deem it just and proper to set aside the issue relating to the determination of the correct and proper ALV in the light of the decision of the Hon ble jurisdictional High Court in the case of Moni Kr. Subba (2011 (3) TMI 497 - DELHI HIGH COURT ).

Issues:
1. Whether the notional rental income from a property held as stock-in-trade should be taxed under "Income from house property" or "Income from business"?
2. Whether the determination of the rental income at a specific amount is justified?
3. Whether the authorities were correct in bringing the notional income to tax under "Income from house property" instead of "Income from business"?
4. Whether the correct annual letting value (ALV) of the property was determined as per relevant rent control legislation?

Issue 1:
The main issue in this case was whether the notional rental income from a property held as stock-in-trade should be taxed under "Income from house property" or "Income from business." The appellant argued that since the property was intended for resale and not rental income, the income should be classified as "Income from business" rather than "Income from house property." The appellant relied on relevant case laws to support this argument.

Analysis:
The contention revolved around the nature of the property and the intention behind its acquisition. The appellant's position was that as the property was part of the inventory and intended for resale, any income derived should be considered as business income. The authorities, however, viewed it as income from house property. The judgment referred to precedents to determine the taxability based on ownership rather than the actual rental income.

Issue 2:
Another issue raised was the justification of the specific amount determined as the rental income. The appellant contested the method used to arrive at the rental value, citing lack of specific sources and evidence to substantiate the value. The appellant referred to a relevant High Court decision to support this argument.

Analysis:
The appellant challenged the method used to determine the rental income, questioning the lack of specific sources and evidence. The judgment noted the importance of substantiating such determinations and referred to a High Court decision to emphasize the need for proper evidence in such cases.

Issue 3:
The question arose whether the authorities were correct in bringing the notional income to tax under "Income from house property" instead of treating it as "Income from business." The judgment analyzed the facts and contentions presented by both parties to determine the appropriate tax treatment.

Analysis:
The judgment carefully considered the arguments presented by both sides regarding the tax treatment of the notional income. It referenced a relevant High Court decision to support the authorities' position that the tax liability is based on ownership rather than the actual use of the property.

Issue 4:
The final issue involved the determination of the correct annual letting value (ALV) of the property as per relevant rent control legislation. The appellant raised concerns about the lack of clarity regarding the source of information used to determine the ALV. The judgment highlighted the importance of following guidelines set by previous court decisions in determining the ALV.

Analysis:
The judgment emphasized the need for the revenue to ascertain the standard rent as per rent control legislation and to consider the fair rent or standard rent, whichever is lower, as the ALV. It noted the absence of a proper determination process in this case and directed the authorities to follow established guidelines in determining the correct ALV.

In conclusion, the judgment addressed various issues related to the tax treatment of notional rental income from a property held as stock-in-trade, the justification of the specific rental income amount, the classification of income under different heads, and the proper determination of the annual letting value. The decision provided detailed analysis and references to relevant legal precedents to support the conclusions reached.

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