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2021 (6) TMI 132 - AT - Income TaxIncome from house property - Levy of deemed rent on the unsold real estate property of the assessee who is a real estate developer - HELD THAT - Provisions of section 23(5) was inserted to provide relief to the builders and developers from the ambit of deemed rent on unsold stock already present in the sanguine provisions of section 23, for a period of one year with effect from 1.4.2018. Hence the assessee is mistaken in its plea that deemed rent has been levied under the provisions of section 23(5) which as per the claim of the assessee is prospective. As we have noted that it is nobody's case that deemed rent is to be levied under the provisions of section 23(5). Hence this plea of the assessee that deemed rent was not leviable as section 23(5) was not in existence in the statute books for the impugned assessment year is totally unsustainable Thus from the decision and precedence from Hon'ble Delhi High Court in the case of Ansal Housing Finance Leasing Co. Ltd 2012 (11) TMI 323 - DELHI HIGH COURT read alongwith in CIT Vs. Gundecha Builders 2019 (1) TMI 112 - BOMBAY HIGH COURT , it is amply clear that deemed rent from the unsold stock is duly leviable on the assessee on the facts of present case. Hence principally we do not find any infirmity in the proposition that deemed rent is leviable upon the assessee. Rental value - The assessing officer has not levied the deemed rent on municipal ratable value or any nearly similar instance. The reliability of municipal ratable value has been duly upheld in several decisions. AO cannot make any adhoc computation of deemed rent. Hounourable Bombay High Court decision in the case of CIT Vs. Tip Top Typography 2014 (8) TMI 356 - BOMBAY HIGH COURT duly supports this proposition. Thus assessing officer has made an ad hoc estimate of 8.5% of investment on the plea that assessee has not been able to provide the municipal retable value. In considered opinion nothing stops the assessing officer from obtaining the municipal ratable value from Departmental or government machinery. Hence we direct the assessing officer to compute the valuation of deemed rent in accordance with our observation as above and take into account the Hon'ble Jurisdictional High Court decision as above. Since we have decided the issue by duly taking note of Hon'ble Jurisdictional High Court decision and have also applied Hon'ble Delhi High Court decision, the reference to other decision in this case is not considered relevant to adjudication in this case. Appeal by the assessee stands partly allowed for statistical purposes.
Issues Involved:
1. Legality of the CIT(A)'s order. 2. Addition of ?22,25,565 as notional deemed income from house property for unsold units held as stock-in-trade. 3. Application of the Delhi High Court decision in Ansal Housing Finance and Leasing Company Ltd. 4. Prospective application of Section 23(5) of the Income Tax Act. 5. Consideration of case laws cited by the appellant. 6. Computation of Annual Lettable Value (ALV) for unsold units. Detailed Analysis: 1. Legality of the CIT(A)'s Order: The appellant contended that the CIT(A)'s order was "bad in law." However, the tribunal did not find any substantive argument or evidence to support this claim. The tribunal focused on the specific issues raised in the grounds of appeal. 2. Addition of ?22,25,565 as Notional Deemed Income: The assessee, engaged in real estate development, argued against the addition of ?22,25,565 as notional income from unsold units held as stock-in-trade. The assessing officer (AO) had added this amount based on the deemed rental value of the unsold units. The AO estimated the annual value at 8.5% of the cost of construction, following precedents from the Mumbai Tribunal in cases like M/s. Om Prakash & Co. and M/s. ChemMech(P) Ltd. 3. Application of Delhi High Court Decision: The CIT(A) and AO relied on the Delhi High Court decision in Ansal Housing Finance and Leasing Company Ltd., which upheld the addition of deemed rental income on unsold units. The tribunal noted that this decision was the only High Court order available on this issue and found it applicable to the present case. The tribunal also referenced the jurisdictional High Court decision in CIT vs. Gundecha Builders, which supported the assessment of lease rent from unsold flats under the head "income from house property." 4. Prospective Application of Section 23(5): The assessee argued that the amendment to Section 23(5) of the Income Tax Act, which taxes notional deemed house property income on unsold units held as inventory, is prospective and not applicable for the assessment year 2015-16. The tribunal clarified that the deemed rent was not levied under Section 23(5), but under the existing provisions of Section 23. The tribunal found the assessee's plea unsustainable, as the amendment was meant to provide relief from deemed rent for a specific period starting from April 1, 2018. 5. Consideration of Case Laws: The tribunal reviewed various case laws cited by the appellant, including decisions from the Supreme Court in East India Housing and Land Development Trust Ltd., Karanpura Development Co. Ltd., and Chennai Properties & Investments Ltd. The tribunal concluded that these cases supported the assessment of rental income as "income from house property" when the property was not used for business purposes. The tribunal found that the appellant's business did not include letting out properties, making the Delhi High Court's decision in Ansal Housing Finance and Leasing Company Ltd. applicable. 6. Computation of ALV: The AO computed the ALV at 8.5% of the investment due to the assessee's failure to provide the municipal ratable value. The tribunal found this ad hoc estimate unsustainable, referencing the Bombay High Court decision in CIT vs. Tip Top Typography, which upheld the reliability of municipal ratable value for such computations. The tribunal directed the AO to obtain the municipal ratable value from departmental or government sources and recompute the valuation of deemed rent accordingly. Conclusion: The tribunal upheld the principle that deemed rent on unsold stock is exigible to tax under the head "income from house property," aligning with the Delhi High Court decision in Ansal Housing Finance and Leasing Company Ltd. and the jurisdictional High Court decision in CIT vs. Gundecha Builders. However, the tribunal directed the AO to recompute the deemed rent based on the municipal ratable value, thereby allowing the appeal partly for statistical purposes.
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