Redevelopment rent treated as business income; development-agreement taxability remanded for verification of accrual facts.

Rent received from a tenanted property held as part of a redevelopment venture was treated as business-linked receipt rather than income from house property because the property formed part of the developer's business activity and the tenancy expenses were already part of work-in-progress. Consideration under the Choudhary Plot development agreement could not be finally taxed in the year of agreement because accrual depended on unverified facts such as approval of the project plan and commencement of construction; the matter was therefore remitted for factual verification and fresh determination.

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Issues: (i) Whether rent received from the tenanted property held for development was taxable as income from house property or had to be treated as business income and credited to work-in-progress. (ii) Whether consideration arising from the development agreement for Choudhary Plot was taxable in the year of the agreement or the matter required verification as to accrual of income.

Issue (i): Whether rent received from the tenanted property held for development was taxable as income from house property or had to be treated as business income and credited to work-in-progress.

Analysis: The assessee was engaged in the business of development and construction, had acquired the property as part of its development activity, and had incurred substantial expenditure to vacate tenants, which was accepted as work-in-progress. The rent receipts from the same property arose during the pendency of redevelopment and were closely connected with the business process of developing the property. In these circumstances, the receipt could not be severed from the business operation merely because it came from tenants occupying the property.

Conclusion: The rent receipt was held to be business-linked and was directed to be treated in favour of the assessee, not as income from house property.

Issue (ii): Whether consideration arising from the development agreement for Choudhary Plot was taxable in the year of the agreement or the matter required verification as to accrual of income.

Analysis: The dispute turned on whether the development agreement had resulted in accrual of income in the relevant year. The assessee contended that no construction had commenced and the project plan had not been approved, while the Revenue relied on the agreement and the alleged transfer of rights. The Tribunal accepted that the cited authorities supported the proposition that, if the project plan was not approved and no construction had started, income may not accrue in that year. However, the Tribunal found that the factual position required verification by the Assessing Officer before a final taxability determination could be made.

Conclusion: The issue was remitted to the Assessing Officer for verification and fresh decision.

Final Conclusion: The assessee succeeded on the rent-income issue, while the development-rights issue was sent back for factual examination, resulting in only partial relief.

Ratio Decidendi: Receipts integrally connected with a property development business and arising during redevelopment may be treated as business receipts, and where taxability depends on unverified facts relating to accrual, the matter may be remanded for factual determination.

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