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TMI BlogHOUSE PROPERTY HELD AS STOCK-IN-TRADE IS OCCUPIED BY OWNER FOR BUSINESS PURPSOES ANNUAL VALUE SHOULD NOT BE TAXABLE- A point of viewX X X X Extracts X X X X X X X X Extracts X X X X ..... HOUSE PROPERTY HELD AS STOCK-IN-TRADE IS OCCUPIED BY OWNER FOR BUSINESS PURPSOES ANNUAL VALUE SHOULD NOT BE TAXABLE- A point of view - By: - CA DEV KUMAR KOTHARI - Income Tax - Dated:- 8-3-2017 - - Related provisions: Section 22 , 28 , of Income-tax Act, 1961 . Income from house property. 22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head Income from house property. An analysis of S. 22 is given below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From section with highlights added for analysis Further observation and analysis The annual value of property consisting of any buildings or lands appurtenant thereto Only land is not covered. of which the assessee is the owner , Ownership is precondition, however, concept of ownership has been widened by fiction in the Act. other than such portions of such property: as he may occupy The expression is different from used for business or profession. for the purposes of any business or profession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head Income from house property. Exception for property occupied for business or profession: A reading and analysis of section 22 , as made above shows that annual value of any property consisting of any buildings or lands appurtenant thereto which is owned by assessee which he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax is not taxable under the head income from house property. This is because property has been occupied for business or profession and earnings made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the same form part of chargeable income under the head income from business or profession. Therefore, if annual value is taxed separately then there will be double taxation once as income from business or profession and once as income from house property. This also lead to a complex and un-necessary issue that if a building is occupied for a business or profession income from which is not chargeable, then whether annual value of such property will be taxable under head income from house property? For example, if a house property is used for the purpose of business, income of which exempt e.g. agricultural activity in nature of business, undertaking or business premises enjoying exemption under various sections like S.10 , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10A , 10AA , 10B , 10BA ,.. etc. In such businesses also buildings are occupied for purpose of business like for use as factory, godown, office, hospitals, residential premises for employees, guest and transit houses, rest and recreation rooms for employees etc. Some surplus properties may also be held for meeting seasonal requirements and contingencies. All such properties can be said to be occupied for purpose of business. As per understanding and information of author, in such cases even a property consisting of building and land is part of business assets, used for business purposes, therefore, exemption enjoyed by business is also applicable to such building and land. Therefore, annual value of such property should not be taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under section 22 . Stock-in-trade of property : Income from trading in properties is taxable as income from business. Stock-in-trade of any article or thing and even property is held, possessed, managed, carried from time to time and controlled for the purpose of business. When a property is held as stock-in-trade, any income from trading will be taxable in the previous year in which it is sold. TCS - Tax at source shall also be collected in case specified circumstance are applicable. Stock-in-trade cannot be let out for long duration: any property which is held as stock-in-trade is kept apart from lettable properties. Such properties are used from time to time to show to prospective buyers and their brokers and agents. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such a property is let out it will be difficult to treat it as stock-in-trade and it will also be difficult to sell. Because for selling a property one has to show it to prospective buyers and their brokers or other agents. For selling the property held as stock-in-trade or even as investment, idle condition is that the property must be vacant, owner must have control over it for entry and exit and to handover vacant possession. It must be easy to show it to prospective buyers or their agents. In case it is let out, the T C with tenant and convenience of tenant will make it difficult to sell because a tenant may not allow entry of any strange people or anyone to see the place as it invades his privacy and can expose him to some risk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Stock-in-trade can also be used for financial leverage by extending such stock-in-trade, as security, for borrowing capital. Therefore a property held as stock-in-trade is occupied by owner for the purpose of business of trading in properties. Occupy for business: The expression occupy for business is wider and it is not even necessary that property should be used for business. In this regard requirement of occupying for business shall be satisfied if the property is in possession and control of the owner who want to sell it or deal in it as stock-in-trade, in any manner which may be found suitable for time being. Accordingly annual value of such properties should not be taxable under section 22 . Most appropriate hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of income must be applied: When an income can fall under more than one heads of income, then one need to choose most appropriate head of income and compute income accordingly. In case any stock-in-trade of such property is let out for short or medium duration, with option to get it vacated on a short notice (say 3 months), then rent earned should be considered as income from business of dealing in properties. However, if a property is let out for long duration and without option to get it vacant at short notice, then such property should be considered as investment and rental income should be taxable under the head income from house property. In such circumstances, for owner it will be proper to classify such property as invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and not stock-in-trade. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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