2018 (9) TMI 1621 - AT - Income Tax

Correct head of income - notional rental income on the flats held as stock-in-trade - whether the notional annual rental value on unsold flats held as stock-in-trade by the assessee is to be assessed under the head Business Income or under the head Income from House Property ? - Held that - Mumbai Bench of the Tribunal in M/s. C.R. Developments Pvt. Ltd. Vs. JCIT 2015 (5) TMI 1161 - ITAT MUMBAI ) M/s. Runwal Constructions Vs. ACIT 2018 (2) TMI 1707 - ITAT MUMBAI and Shri Girdharilal K. Lulla Vs. DCIT 2017 (12) TMI 519 - ITAT MUMBAI under similar set of facts have taken a consistent view in holding notional annual rental value on unsold flats held as stock-in-trade by the assessee engaged in construction and development activities as Business Income . Thus in view of the facts of the case and the decision rendered in the case of Commissioner of Income Tax Vs. Neha Builders (P.) Ltd. 2006 (8) TMI 105 - GUJARAT HIGH COURT we find merit in the submissions of assessee and allow the appeal.

Issues Involved:
1. Addition of deemed rent from unsold units lying in closing stock under the head "Income from House Property."
2. Assessment of deemed income from unsold stock in trade under the correct head of income.
3. Eligibility of deduction under section 80IB(10) for income arising from unsold units of compliant housing project.
4. Quantum of addition made to the income of the appellant.
5. Allowance of depreciation on completed unsold stock if assessed under "Profits and Gains from Business or Profession."

Detailed Analysis:

1. Addition of Deemed Rent from Unsold Units:
The primary issue is whether the notional annual rental value on unsold flats held as stock-in-trade should be assessed under "Income from House Property" or "Business Income." The assessee, a builder and developer, held unsold units as stock-in-trade and argued that any notional rent should be assessed as "Business Income." The assessee relied on the Gujarat High Court's decision in Commissioner of Income Tax Vs. Neha Builders (P.) Ltd., which held that income derived from property held as stock-in-trade should be considered "income from business" and not "income from house property."

2. Correct Head of Income for Deemed Income:
The assessee contended that the dominant intention was to sell the flats, thus any income from these business assets should be assessed under "Business Income." The Department, however, argued that notional rent on unsold flats is assessable under "Income from House Property," citing cases like Commissioner of Income Tax Vs. Sane & Doshi Enterprises and Commissioner of Income Tax Vs. Ansal Housing Finance And Leasing Co. Ltd.

3. Deduction under Section 80IB(10):
The assessee argued that if the annual letting value is assessed as income, it should be eligible for deduction under section 80IB(10) of the Act, as the income arises from unsold units of a compliant housing project.

4. Quantum of Addition:
The assessee claimed that the addition made to the income was excessively high and should be substantially reduced.

5. Depreciation on Completed Unsold Stock:
The assessee argued that if notional rent is assessed under "Profits and Gains from Business or Profession," depreciation on the completed unsold stock should be allowed as a deduction under section 32 of the Act.

Judgment:
The Tribunal found merit in the assessee's submissions and allowed the appeal. It held that the notional annual rental value on unsold flats held as stock-in-trade should be assessed under "Business Income," following the Gujarat High Court's decision in Commissioner of Income Tax Vs. Neha Builders (P.) Ltd. The Tribunal distinguished the facts of the present case from those cited by the Department, noting that the assessee had not rented out the flats, unlike in Commissioner of Income Tax Vs. Sane & Doshi Enterprises. The Tribunal also noted that when divergent views exist from non-jurisdictional High Courts and no jurisdictional High Court decision is available, the view in favor of the assessee should be adopted, as per Commissioner of Income Tax Vs. Vegetable Products Ltd.

Conclusion:
The Tribunal set aside the impugned orders and allowed the appeals for both assessment years 2013-14 and 2014-15, holding that the notional rental income on unsold flats held as stock-in-trade should be assessed under "Business Income."

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