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TMI Blog2021 (6) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... GH 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 decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently, notices u/s. 143(2) and 142(1) were duly issued and served on the assessee. During the course of assessment proceedings, on examining he balance sheet of the assessee, the AO observed that unsold finished stock of units has been shown to be of ₹ 14,96,17,771/- 4. Upon assessing officer s enquiry as to why the deemed rent on finished premises should not be added, the assessee explained the facts as under:- The assessee firm engaged in the business of construction, development, builder and dealing in real estate. In pursuance of this activity the assesee has carried out construction activity of commercial building namely K Raheja Prime bearing CTS No.754 at Marol Andheri East. The said commercial project consists of nine units. Out of nine units, two units have been sold during the previous year and remaining seven units are shown as stock in trade (inventory). The unsold stock is shown as stock in trade of our business. The occupation certificate in respect of said project K Raheja Prime was obtained on 24th September, 2014, subject to the certificate u/s 270-A of MMC Act shall be obtained from H.E within 3 months. The certificate u/s 270A of MMC Act ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration was whether the rental income that is received was to be treated as income from the house property or the income from the business. This court while holding that the income shall be treated as income from the house property, rested its decision in the context of the main objective of the company and took note of the fact that letting out of the property was not the object of the company at all. The court was therefore, of the opinion that the character of that income which was from the house property had not altered because it was received by the company formed with the object of developing and setting up properties. 5.5. In the judgment in the case of Chennai Properties Investments Ltd., the Hon'ble Supreme Court has also discussed the law laid down by it in the case of Karanpura Development Co. Ltd. vs. CIT, West Bengal. The relevant portion of the judgment is reproduced as under :- Before we refer to the Constitution Bench judgment in the case of Sultan Brothers (P.) Ltd. (supra), we would be well advised to discuss the law laid down authoritatively and succinctly by this Court in 'Karanpura Development Co. Ltd. v. CIT[1962] 44 ITR 362 (SC). That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to the conclusion that income had to be treated as income from business and not as income from house property. We are of the opinion that the aforesaid judgment in Karanpura Development Co. Ltd.'s case (supra) squarely applies to the facts of the present case. 5.7. It is also relevant to refer to the concluding part of the judgement of the Hon'ble Supreme Court in the case of Chennai Properties Investments Ltd. the relevant portion of the judgement is reproduced as under :- No doubt in Sultan Brothers (P.) Ltd. 's case (supra), Constitution Bench judgment of this Court has clarified that merely an entry in the object clause showing a particular object would not be the determinative factor to arrive at an conclusion whether the income is to be treated as income from business and such a question would depend upon the circumstances of each case, viz., whether a particular business is letting or not. This is so stated in the following words:- We think each case has to be looked at from a businessman's point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m no.35 and written submissions filed by the appellant during assessment proceedings and appellate proceedings that it is engaged in the business of construction of properties and sale thereof. In fact, in the submissions, the appellant has also admitted that it was never its intention to earn income by letting out the premises Therefore, the ratio of the decision of Hon'ble Supreme Court in the case of East India Housing and Land Development Trust ltd. is squarely applicable to the facts of the present case. Further, the facts in the present case are identical to the facts in the case of Ansal Housing Finance Leasing Co. Ltd. decided by the Hon'ble Delhi High Court, and therefore, the said decision is also squarely applicable to the present case. 5.9 In view of the discussion in the foregoing paragraphs. 1 hold that the AO has rightly assessed deemed income from the unsold units in the hands of the appellant as per the provisions of Sec.22 and 23 of the Act. The AO has also rightly computed the ALV @ 8.5% of the investment which is as per the ratio of the decision in the cases of M/s. Om Prakash Co. (87 TTJ 183) (ITAT, Mumbai) and M/s. Chem Mech P. Ltd. (83 ITD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rwise, it is to be seen that there was distinction between the 'income from business' and 'income from property' on one side, and 'any income from other sources'. The Tribunal, in our considered opinion, was absolutely unjustified in comparing the rental income with the dividend income on the shares or interest income on the deposits. Even otherwise, this question was not raised before the subordinate Tribunals and, all of sudden, the Tribunal started applying the analogy. 9. From the statement of the assessee, it would clearly appear that it was treating the property as 'stock-in-trade'. Not only this, it will also be clear from the records that, except for the ground floor, which has been let out by the assessee, all other portions of the property constructed have been sold out. If that be so, the property, right from the beginning was a 'stock-intrade'. 12. Thus honourable High Court had never expounded on the issue before us nor it was seized with the issue of deemed rent on unsold stock of flats. Moreover we also note that honourable jurisdictional High Court in the case of CIT versus Gundecha builders by the order dated 31 Jul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and collection of tax. Furthermore, application of ALV to determine the tax is regardless of whether actual income is received; it is premised on what constitutes a reasonable letting value, if the property were to be leased out in the marketplace. If the assessee's contention were to be accepted, the levy of income tax on unoccupied houses and flats would be impermissible - which is clearly not the case. 14. As far as the alternative argument that the assessee itself is occupier, because it holds the property till it is sold, is concerned, the Court does not find any merit in this submission. While there can be no quarrel with the proposition that occupation can be synonymous with physical possession, in law, when Parliament intended a property occupied by one who is carrying on business, to be exempted from the levy of income tax was that such property should be used for the purpose of business. The intention of the lawmakers, in other words, was that occupation of one's own property, in the course of business, and for the purpose of business, i.e. an active use of the property, (instead of mere passive possession) qualifies as own occupation for business purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve. 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 18. Thus from the decision and precedence from Hon'ble Delhi High Court in the case of Ansal Housing Finance Leasing Co. Ltd.(supra) read alongwith Hon'ble Jurisdictional High Court decision in CIT Vs. Gundecha Builders (supra), 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. 19. Now the question is of the 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. The Assessing Officer cannot make any adhoc computation of deemed rent. Hounourable Bombay High Court decision in the case of CIT Vs. Tip Top Typography (368 ITR 330) duly s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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