2018 (9) TMI 147 - AT - Income Tax

Income from house property - Assessing the property held as stock in trade by applying notional annual value as per the provisions of Section 23(1)(a) - Held that - There is no dispute that the commercial space in the project in question was held by the assessee as stock in trade. Further the project was completed in the month of February itself, which is not in dispute as the Assessing Officer has also accepted this fact and assessed the income from house property only for the month of March, 2013. As far as the issue of assessing the property held as stock in trade by applying notional annual value as per the provisions of Section 23(1)(a) of the Act is concerned, there are divergent views of different Hon ble High Courts. This is not a case of keeping the property vacant from year after year but the project itself was completed in the month of February, 2013 and therefore, as per provisions of Section 23(1)(a) of the Act, the annual letting value (ALV) of any property shall be deemed to be a sum for which the property might reasonably be expected to let from year to year. Thus, the annual letting value of the property is a sum for which the property might reasonably be expected to let out from year to year. We find that without allowing a reasonable period or time gap from the completion of construction of the property held as stock in trade to let out the same, the property cannot reasonably expect to let from year to year and fetch fair market rent just after completion of construction. Hence, in the facts and circumstances, we find that for the year under consideration, the provisions of Section 23(1)(a) of the Act cannot be applied in the property in question due to the peculiar reason that the completion certificate was obtained only in the month of February, 2013 and it is not expected to let out the property just after the completion of the project and therefore, the reasonable expected rent to be fetched by the property in question is not possible immediately after the completion without allowing a reasonable period, which is also recognized by the Legislature. Accordingly, we delete the addition - Decided in favour of assessee.

Summary

Issues:
Assessment of notional rental income for unsold commercial space held as stock in trade under the head 'Income from House Property.'

Analysis:
The appeal was against the order of the ld. CIT(A)-I, Jaipur for the A.Y. 2013-14, confirming the addition of ?223,621 as notional rental income for unsold commercial space. The Assessing Officer applied notional income for unsold stock based on the decision of the Hon’ble Delhi High Court. The appellant contended that income from developed property held as stock in trade should be assessed as business income, not under 'Income from House Property.' The appellant cited relevant case laws to support this argument. The ld DR supported the Assessing Officer's decision based on the High Court's ruling. The Tribunal noted that the property in question was held as stock in trade and completed in February 2013. The Tribunal discussed divergent views of different High Courts on assessing unsold stock under the head 'Income from House Property.' The Tribunal emphasized the distinction between property held as stock in trade and property let out for rental income. It highlighted the practical impossibility of immediately letting out a property upon completion and the legislative recognition of this issue. The Tribunal concluded that the notional annual letting value cannot be applied immediately after completion without allowing a reasonable period for letting out the property. Therefore, the addition made by the Assessing Officer was deleted based on these considerations.

In conclusion, the Tribunal allowed the appeal, emphasizing the unique circumstances of the case where the property held as stock in trade was completed in February 2013, making immediate letting out impractical. The Tribunal's decision was based on the distinction between property held as stock in trade and property let out for rental income, as well as the legislative recognition of the need for a reasonable period for letting out such properties.