2012 (11) TMI 323 - HC - Income Tax

Annual Letting Value Valid for Taxing Unsold Flats; Business Exemption Needs Active Use; Section 32AB Deduction Allowed

COMMISSIONER OF INCOME TAX Versus M/s ANSAL HOUSING FINANCE AND LEASING CO LTD & OTHERS

The HC upheld the application of Annual Letting Value (ALV) for taxing unsold flats under Income from House Property, affirming that ALV is a valid ... Annual letting value of unsold flats - flats lying under the head 'Income from house property' - inventory of stock in trade v/s let out - Held that:- ALV is a method to arrive at a figure on the basis of which the impost is to be effectuated. The existence of an artificial method itself would not mean that levy is impermissible. Parliament has resorted to several other presumptive methods, for the purpose of calculation of income 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 - 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 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 purpose. Thus, this question is answered in favour of the revenue. Deduction u/s 32 AB on interest income - Held that:- As decided in Apollo Tyres Ltd v CIT [2002 (5) TMI 5 - SUPREME COURT], if a business qualifies for the benefit granted under Section 32AB, if an assessee carries on business covered by that provision, and has utilized any amount during the previous year for the purchase of new plant or machinery then it is entitled to a set off of a sum equal to 20 per cent of the profit of such eligible business accordance with sub-section (5) of Section 32AB. As the eligibility or entitlement of the assessee to claim the benefit, was never questioned in the proceedings before the lower authorities the question is answered in favour of the assessee. Admissibility of 100% depreciation for plant - Held that:- In view of the settled position decided in JCIT Vs. Anatronics General Co. (P) Ltd. [2000 (8) TMI 38 - DELHI HIGH COURT] that each bottle constituted plant and was eligible for 100% depreciation the value of the shuttering in the present case would have been written off within a couple of years, this Court is of the view that the impugned order and finding of the ITAT do not call for any interference - in favour of the assessee Issues Involved:1. Disallowance of expenses incurred on maintenance of accommodation in Iraq.2. Allowability of depreciation on motor cars purchased and used in Iraq.3. Allowability of expenses claimed under provisions for completed expenses and expenses incurred on completed projects.4. Taxability of annual letting value (ALV) of unsold flats as 'income from house property.'5. Deduction under Section 32AB on interest income.6. Claim of 100% depreciation on shuttering and scaffolding.Issue-wise Detailed Analysis:1. Disallowance of Expenses on Maintenance of Accommodation in Iraq:The Court noted that the first three questions had been previously answered in favor of the assessee in a judgment dated 25th September 2012. Therefore, the expenses incurred on the maintenance of accommodation provided to employees and executives in Iraq were not disallowable.2. Allowability of Depreciation on Motor Cars Purchased and Used in Iraq:Similarly, as per the previous judgment, the depreciation claimed on motor cars purchased and used in Iraq was allowable to the assessee.3. Allowability of Expenses Claimed Under Provisions for Completed Expenses and Completed Projects:The Court again referred to the previous judgment, holding that the expenses claimed by the assessee under the heads provisions for completed expenses and expenses incurred on completed projects were allowable, despite the Department not accepting the system of accounting followed by the assessee.4. Taxability of ALV of Unsold Flats:The Court examined whether the assessee could be assessed on the basis of the ALV of unsold flats. The assessee contended that the flats were its stock-in-trade and should not be taxed under 'Income from house property.' However, the AO added the notional value of unsold flats to the total income, which was set aside by the CIT(A) and upheld by the Tribunal. The Court held that the levy of income tax is based on ownership, not on whether the flats were let out. The ALV method is a rational and scientific approach to determine the tax. The Court rejected the argument that the flats should not be taxed on a notional basis and concluded that the taxability of the ALV of the unsold flats was justified, answering this question in favor of the revenue.5. Deduction Under Section 32AB on Interest Income:The Court considered whether the deduction under Section 32AB on interest income was justified. The assessee claimed the benefit under Section 32AB(1)(b) for purchasing new machinery or plant. The Supreme Court's decision in Apollo Tyres Ltd v CIT was referenced, which held that if a business qualifies for the benefit under Section 32AB, the assessee is entitled to a set-off of 20% of the profit of such eligible business. The Court noted that the eligibility of the assessee to claim the benefit was never questioned and answered this question in favor of the assessee.6. Claim of 100% Depreciation on Shuttering and Scaffolding:The Court examined the admissibility of 100% depreciation for plant. The AO allowed only 33% depreciation, but the CIT(A) and ITAT reversed this view, allowing 100% depreciation. The Court referred to previous decisions, including CIT Vs. Ansal Properties and Indus. Oversees Projects, which held that parts of scaffolding and shuttering are admissible for 100% depreciation. The Court upheld the ITAT's finding and answered this question in favor of the assessee.Conclusion:The revenue's appeal succeeded in part regarding the taxability of the assessee on the basis of the ALV of the unsold flats. All other questions in the appeals were answered in favor of the assessee. The appeals were disposed of without any order on costs.