Tribunal grants deductions, taxes gains, assesses rental income

The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeals. The assessee was entitled to a prorata deduction under section 80IB(10). Gains from the conversion of capital assets into stock-in-trade were to be taxed under section 45(2) as long-term capital gains. Rental income from unsold properties was to be assessed as income from house property.

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Issues Involved:
1. Deduction under section 80IB(10) of the Income-tax Act, 1961.
2. Taxability of income from the conversion of capital assets into stock-in-trade under section 45(2) of the Act.
3. Classification of rental income from unsold properties as business income or income from house property.

Issue-wise Detailed Analysis:

1. Deduction under section 80IB(10) of the Income-tax Act, 1961:
The assessee, engaged in the construction and development of real estate projects, claimed deductions under section 80IB(10) for the Parmar Garden project. The Assessing Officer disallowed this deduction for the years 2003-04 and 2004-05, and consequently for 2005-06. The CIT(A) upheld the disallowance based on earlier orders. However, the Tribunal, following its earlier decision in the assessee's favor for the years 2003-04 and 2004-05, allowed a proportionate deduction under section 80IB(10) for units meeting the specified conditions. Thus, the assessee was entitled to prorata deduction under section 80IB(10).

2. Taxability of Income from Conversion of Capital Assets into Stock-in-Trade under Section 45(2) of the Act:
The assessee had acquired development rights for land reserved for a park and DP road, which was later converted into stock-in-trade. The Assessing Officer treated the gains from this conversion as business income, arguing that the land was a commercial asset from the beginning. The CIT(A) upheld this view but rejected the allocation of profits over three years. The Tribunal found that the land was held as a capital asset until its conversion in 2002-03, and the gains should be taxed under section 45(2) proportionately in the years the asset was sold. The Tribunal reversed the CIT(A)'s decision, holding that the gains should be assessed as long-term capital gains under section 45(2), not as business income.

3. Classification of Rental Income from Unsold Properties:
The assessee declared rental income from unsold shops in the KPCT project as income from house property. The Assessing Officer reclassified it as business income, arguing it was incidental to the business. The CIT(A), relying on various judicial precedents, held that the rental income should be assessed as income from house property. The Tribunal upheld this view, citing the Hon'ble Supreme Court and High Court decisions that rental income from property, even if held as stock-in-trade, should be assessed as income from house property if the primary intention was to let out the property. The Tribunal dismissed the Revenue's appeal on this issue.

Conclusion:
The Tribunal allowed the assessee's appeals and dismissed the Revenue's appeals, holding that:
- The assessee is entitled to prorata deduction under section 80IB(10).
- Gains from the conversion of capital assets into stock-in-trade should be taxed under section 45(2) as long-term capital gains.
- Rental income from unsold properties should be assessed as income from house property.

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