Tribunal classifies rental income from unsold flats as "Income from House Property" over "Business Income."

The tribunal determined that the rental income earned by the assessee from unsold flats should be classified as "Income from House Property," rejecting the revenue's argument for treating it as "Business Income." Citing previous decisions and the nature of the assessee's business, the tribunal concluded in favor of the assessee. The revenue's appeals were dismissed, and the assessee's appeal for the relevant assessment year was allowed. The tribunal upheld the CIT(A)'s order regarding the classification of rental income.

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Issues Involved:
1. Classification of rental income: Whether rental income should be treated as "Income from House Property" or "Business Income."

Issue-wise Detailed Analysis:

Issue 1: Classification of Rental Income

The primary issue in these appeals is the classification of rental income earned by the assessee from unsold flats shown as stock-in-trade. The revenue contends that the rental income should be treated as "Business Income," while the assessee claims it as "Income from House Property."

Revenue's Argument:
- The revenue argues that the rental income of Rs. 34,13,95,611/- was received from the business asset of unsold flats shown as stock-in-trade.
- It is contended that the rental income was included in the gross sales and profit calculations, indicating it should be treated as "Business Income."
- The revenue relies on the Supreme Court's decision in Chennai Properties and Investments Ltd. Vs. CIT, where rental income from properties held as business assets was treated as "Business Income."

Assessee's Argument:
- The assessee argues that the rental income should be classified as "Income from House Property" and claimed a 30% deduction under Section 23.
- The assessee cites previous ITAT decisions in its own case and other cases where rental income from properties held as stock-in-trade was treated as "Income from House Property."
- It is argued that the long-term leasing of properties indicates an intention to earn rental income rather than exploit the property commercially.

Tribunal's Analysis:
- The tribunal refers to the ITAT's decision in the assessee's own case for AY 2010-11, where similar rental income was treated as "Income from House Property."
- The tribunal distinguishes the present case from the Chennai Properties case, noting that the assessee is primarily in the business of development and not exclusively in the business of letting properties.
- The tribunal also cites the Bombay High Court's decision in Gundecha Builders, which supports treating rental income from properties held as stock-in-trade as "Income from House Property."

Conclusion:
- The tribunal concludes that the rental income earned by the assessee should be treated as "Income from House Property."
- The appeals filed by the revenue are dismissed, and the appeal filed by the assessee for AY 2011-12 is allowed, following the same reasoning.

Final Order:
- The tribunal upholds the CIT(A)'s order treating the rental income as "Income from House Property."
- The appeal filed by the revenue is dismissed, and the appeal filed by the assessee is allowed with no order as to cost.

Order Pronounced:
- The order was pronounced in the open court on 1st March 2019.

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