Unsold stock-in-trade flats cannot be taxed on notional rent where property forms part of business inventory.

Unsold flats held as stock-in-trade in the course of a construction business could not be subjected to notional rent under the head income from house property. The Tribunal applied the settled principle that where property is treated as trading stock, any income arising from it falls within the business sphere rather than house property taxation. Following coordinate bench decisions on identical facts, it held that annual letting value under section 23 could not be estimated for such unsold stock-in-trade flats, and the deemed rent addition was deleted.

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Issues: Whether unsold flats held as stock-in-trade could be subjected to notional rent and assessed under the head income from house property.

Analysis: The flats were held by the assessee as closing stock in the course of its construction business. The Tribunal followed the settled view that where property is treated as stock-in-trade, any income arising from it is to be considered in the sphere of business and not as house property income. On identical facts, earlier coordinate bench decisions had held that unsold stock-in-trade flats cannot be brought to tax by estimating annual letting value under section 23.

Conclusion: The addition made by computing deemed rent on the unsold flats was not sustainable and was directed to be deleted in favour of the assessee.

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