ITAT rules unsold property income as business, not house property; follows Gujarat High Court precedent

The ITAT dismissed the Revenue's appeal and upheld the CIT(A)'s decision to delete the addition of income from house property for the Assessment Year 2016-17. The ITAT determined that the unsold units were considered stock in trade, and income derived from them should be taxed as business income, not income from house property. The decision emphasized that if a property is used as stock in trade, the income from it is classified as business income, following the precedent set by the Gujarat High Court.

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Issues:
Revenue's appeal against deletion of addition of income from house property by CIT(A) for Assessment Year 2016-17.

Analysis:
1. The Revenue challenged the deletion of an addition of Rs.2,57,78,644 on account of income from house property by the CIT(A). The Assessing Officer observed that the assessee, engaged in real estate development, did not declare house property income as per Sections 22/23 of the Income Tax Act, 1961, for a commercial complex developed during the year. The AO added the amount as income from house property.

2. The CIT(A) partly allowed the assessee's appeal, leading to the Revenue's appeal before the ITAT. The Revenue argued that the property should be taxed under 'income from house property' as the units were deemed let out, relying on a decision of the Delhi High Court. However, the assessee contended that the property was held as stock in trade, and any income derived from it should be taxable as business income, citing various precedents.

3. The ITAT noted that the assessee had shown closing stock and received building use permission for the commercial complex. As the assessee was engaged in construction and only recognized profit from unit sales as business income, the unsold units were considered stock in trade. The ITAT agreed with the CIT(A) that the income from such units should be taxed as business income, not income from house property. The concept of deemed rent was deemed inapplicable for business income calculation.

4. The ITAT distinguished the decision of the Delhi High Court cited by the Revenue, emphasizing that the unsold units were treated as stock in trade. Instead, the ITAT found the decision of the Gujarat High Court in a similar case more applicable. It held that if a property is used as stock in trade, income derived from it is considered business income, not income from property. Consequently, the ITAT upheld the CIT(A)'s decision to delete the addition, dismissing the Revenue's appeal.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of income from house property for the Assessment Year 2016-17.

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