TaxTMI 
TaxTMI 
2023 (9) TMI 426
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the Appellant on the construction of the premises. The CIT(A) ought to have appreciated that the Municipal Rateable Value of the property ought to have been considered for the purpose of determining the ALV. 4. The learned CIT(A) erred in not considering the various decisions, including the binding decision of this Hon'ble Tribunal cited by the Appellant in support of its case." 2. The assessee filed the return of income for A.Y. 2016-17 on 30/09/2016 declaring income of Rs. 35,26,130/-. The return was processed under section 143(1) of the Income-tax Act (in short, "the Act") and subsequently, the case was selected for scrutiny under CASS. During the course of assessment proceedings, the assessee was asked to submit the details of unsold stock of flat / shop shown as "stock in trade" and their cost of construction. The Assessing Officer issued a show cause notice dated 10/09/2018 asking the assessee to explain as to why the deemed rent on unsold stock of completed units as shown in the balance-sheet should not be taxed under the head "Income from house property". The Assessing Officer in this regard relied on the decision of the Hon'ble Delhi High Court in the case of CIT vs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng in mind the subsequent introduction of section 23(5). The Ld.AR also submitted that sections 22 & 23 have to be interpreted reasonably and in a manner that it cause no hardship to the assessee. The Ld.AR therefore submitted that the annual value of the unsold units should be ignored or to be taken as Nil for two years from the end of the financial year in which the occupation certificate is received i.e. 30/12/2014. The Ld.AR relied on various judicial pronouncements in support of the submissions. 4. The Ld.DR, on the other hand, submitted that the issue is covered by the decision of the co-ordinate bench in the case of DCIT vs Inorbit Malls Pvt Ltd (ITA No.2220/Mum/2021 dated 11/10/2022) and that the same followed in the subsequent decision in the case of Moraj Building Concepts Pvt Ltd v DCIT in ITA Nos.420, 263 to 266/Mum/2022 dated 31/03/2023. The Ld.DR accordingly submitted that the lower authorities are correct in levying notional interest on the unsold flats after obtaining the occupation certificate by the assessee. 5. We heard the parties and perused the material on record. We notice that the co-ordinate bench in the case of Inorbit Malls Pvt Ltd (supra) has consider ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... stock-in-trade, therefore, the prop would partake the character of the stock and any income derived from the stock cannot be taken to be income from the property. The Tribunal allowed the appeal observing inter alia, that any dividend received on the shares or any interest received from the bank would be taken to be income from other sources, therefore, any income derived under the head of "rent" would also become income from the property, it accordingly allowed the appeal and directed reconsideration of the matter." 8.1 The Hon'ble High Court, then observed and held as under; "9. From the order passed by the learned Commissioner of Income-tax 7 (Appeals), it would clearly appear that the case of the assessee was that the company was incorporated with the main object of purchase, take on lease, or acquire by sale, or let-out the buildings constructed by the assessee. The development of land or property would also be one of the businesses for which the company was incorporated". 10. True it is, that income derived from the property would always be termed as "income from the property", but if the property is used as "stock-in-trade", then they said property would become or par....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ay High Court on the facts where the Assessee Company was incorporated with the object of dealing in properties and the main object of the company as contained in the memorandum of association was to carry on business of dealing and investment in properties, flats, warehouses, shops, commercial and residential houses. The ancillary object was to carry on business of leasing, hire purchase, renting, selling, re-selling or otherwise dispose of all forms of movable or immovable properties and assets including buildings, godowns, warehouses and real estate of any kind. The Assessee claimed by the assessee that the flat could not be sold because of recession in the market and hence it let out the flats on license basis for temporary period and earned monthly rental income as license fees. The assessee treated the said rental income as income from the business. The authorities below have concurrently found in favor of the revenue that the rental income cannot be treated as income from business and treated it as "income from house property" under section 22 of the Income-tax Act. The question thus raised was whether the Tribunal is right in so concluding that the rental income is an incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s was the case before the Hon'ble Gujarat High Court and Hon'ble Bombay High Court. Had it been a case were Assessee have fetched rental income from the unsold stock, then following the principle laid down by the Hon'ble Bombay High Court same would have been assessed under the head income from house property. 15. Now, coming to the decision of Hon'ble Delhi High Court in the case of CIT Vs. Ansal Housing Finance & Leasing Company Ltd (Supra), one of the question of law referred before the Hon'ble High Court was as under; "Whether the assessee was liable to pay income tax on the annual letting value of unsold flats owned by it under the head "income from house property"? 15.1 There the facts relevant to the issue raised relate to the addition on account of annual letting value (ALV) of flats, added on notional basis are that the assessee-company engages itself in the business of development of mini-townships, construction of house property, commercial and shop complexes etc. In the assessment completed for the year under consideration, the AO assessed the ALV of flats which the assessee had constructed, but were lying unsold under the head "Income from house property". The asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of tax. Furthermore, application of ALV to determine the tax is regardless of whether actual income is received; it is premised on what constitutes a reasonable letting value, if the property were to be leased out in the marketplace. If the Assessee's contention were to be accepted, the levy of income tax on unoccupied houses and flats would be impermissible which clearly not the case is". 17. Though, the judgment which has been referred by the Hon'ble Delhi High Court in the case in "East India Housing & Land Development Trust (Supra)", "Sultan Bros" and "Karan Pura Development Company Ltd". (Supra) wherein, in all the cases the issue whether the rental income received from the property is to be assessed as business income or income of house property. No where, the Hon'ble Supreme Court in any of the cases which has been referred by the Hon'ble Delhi High Court dealt with issue of notional rental income when the property held as stock-in-trade or closing stock which has not been actually let out, is liable to be taxed as income from house property. However, be that as maybe, there is no contrary decision of any other High Court and therefore, this decision Hon'ble Delhi H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hus, when specific provision has been brought with the effect from 01.04.2018 which cannot be applied retrospectively, then in our humble opinion it cannot be imputed that ALV of the flats held as stock in trade should be taxed on notional basis prior to AY 2018-19. Without any legislative intent or specific provision under the Act, such notional or deeming income should not be taxed as cardinal principle, because assessee is not aware that any hypothetical income is to be shown when he has not received any real or actual income. In our view of Hon'ble Delhi High Court is too harsh an interpretation. 20. Since, even prior to the amendment, there is one High Court judgment of Hon'ble Delhi High Court which is directly on this issue and against the Assessee, therefore same needs to be followed. Accordingly, we hold that Assessing Officer is correct in computing ALV on notional rent on unsold stock, but with following riders and directions to the AO as discussed herein after. 21. Firstly, the flats or units on which assessee has received any advance in this year or in the earlier years but has not delivered or given final possession of the said flat/unit to the buyer, then no noti....