2021 (5) TMI 636 - AT - Income Tax

Tribunal rules notional rent on unsold flats not taxable as income from house property

The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer regarding the notional ... Taxability of notional rent / annual lettable value of unsold flats held as stock-in-trade - distinction between income from house property and business income in respect of property held as stock-in-trade - precedential rule where conflicting non-jurisdictional High Court decisions exist - follow jurisdictional Tribunal/High Court - prospective application of Sec. 23(5) concerning annual value of property held as stock-in-tradeTaxability of notional rent / annual lettable value of unsold flats held as stock-in-trade - distinction between income from house property and business income in respect of property held as stock-in-trade - Whether the annual lettable value (notional rent) of unsold flats held as stock-in-trade of a developer is assessable as income from house property. - HELD THAT: - The Tribunal examined competing precedents including the Delhi High Court decision in Ansal and the Gujarat High Court decision in Neha Builders, and considered coordinate-bench Tribunal decisions (including C.R. Developments, Runwal Constructions and Shri Rajendra Godshalwar). On the facts - unsold flats held as stock-in-trade, not let out and yielding no rental receipts - the Tribunal followed the view that such unsold flats form part of trading stock and any notional annual lettable value is not amenable to assessment under the head 'Income from House Property'. The Tribunal relied on the principle that where non-jurisdictional High Courts are in conflict the view favourable to the assessee (as per the jurisdictional precedents and Tribunal decisions) should be followed, and that coordinate-bench decisions dealing with identical facts require following. Applying these precedents to the year under consideration, the Tribunal concluded that estimating ALV of unsold flats held as stock-in-trade and bringing it to tax as house property was not justified. [Paras 3, 4]The addition on account of notional rent/ALV of unsold flats held as stock-in-trade is deleted; the appeal of the Revenue is dismissed.Prospective application of Sec. 23(5) concerning annual value of property held as stock-in-trade - Whether the statutory provision inserted by the Finance Act, 2017 (Sec. 23(5)) affects the assessability of notional annual value for the year under consideration. - HELD THAT: - The Tribunal noted that Sec. 23(5), as inserted by the Finance Act, 2017, operates prospectively (w.e.f. A.Y. 2018-19) and therefore has no bearing on the assessment year under dispute. Even where the provision was discussed in earlier Tribunal reasoning, its prospective applicability means it cannot be invoked to sustain additions in the earlier year. [Paras 10]Sec. 23(5) is prospective and inapplicable to the assessment year; it does not justify any addition for the year before the Tribunal.Final Conclusion: Following earlier Tribunal decisions and favouring the view applicable to the jurisdiction, the Tribunal upheld the deletion of the addition made by the Assessing Officer on account of notional annual lettable value of unsold flats held as stock-in-trade; the Revenue's appeal for A.Y.2014-15 is dismissed. Issues Involved:1. Deletion of addition on account of notional rent under Section 23 of the Income Tax Act, 1961.2. Jurisdictional conflict between decisions of different High Courts regarding the taxability of annual lettable value (ALV) of unsold flats held as stock-in-trade.3. Applicability of judicial precedents and CBDT instructions on the issue.Detailed Analysis:Issue 1: Deletion of Addition on Account of Notional Rent Under Section 23The primary issue in this case was whether the addition of Rs. 2,98,51,737/- made by the Assessing Officer (AO) on account of notional rent under Section 23 of the Income Tax Act, 1961, should be deleted. The AO had determined the annual lettable value (ALV) of the unsold flats held by the assessee as stock-in-trade and brought it to tax under the head 'Income from House Property.' The CIT(A) deleted this addition, relying on the decisions of the ITAT in similar cases.Issue 2: Jurisdictional Conflict Between High CourtsThe CIT(A) observed that there were conflicting decisions from different High Courts on whether the ALV of unsold flats held as stock-in-trade should be taxed. The Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd. held that the ALV of such properties should be taxed. However, the Gujarat High Court in CIT vs. Neha Builders (P) Ltd. held that rental income derived from property held as stock-in-trade should be assessed as business income, not under 'Income from House Property.'Issue 3: Applicability of Judicial Precedents and CBDT InstructionsThe CIT(A) followed the principle of judicial propriety, choosing to follow the decision of the jurisdictional Tribunal, which had considered the conflicting decisions of non-jurisdictional High Courts. The Tribunal had previously ruled in favor of the assessee in similar cases, such as C.R. Developments Pvt. Ltd. and Runwal Constructions, where the ALV of unsold flats held as stock-in-trade was not brought to tax under 'Income from House Property.'Tribunal's Decision:The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decision to delete the addition made by the AO. The Tribunal noted that the facts and issues in the present case were identical to those in the previous assessment year (A.Y. 2013-14), where a similar decision was rendered.The Tribunal emphasized that the property in question was held by the assessee as stock-in-trade of its business of construction and development of real estate properties. It referred to its own previous decisions and those of other coordinate benches, which had consistently held that the ALV of unsold flats held as stock-in-trade could not be assessed under 'Income from House Property.'The Tribunal also acknowledged the insertion of Section 23(5) by the Finance Act, 2017, effective from A.Y. 2018-19, which provided that the ALV of property held as stock-in-trade would be taken as nil for a certain period. However, this provision was not applicable to the assessment year under consideration (A.Y. 2014-15).Conclusion:The Tribunal concluded that the AO was in error in assessing the notional lettable value of the flats held by the assessee as stock-in-trade of its business. Consequently, the appeal filed by the Revenue was dismissed, and the CIT(A)'s order to delete the addition was upheld.