ARIHANT DEVELOPERS,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE -1, KALYAN

IN THE INCOME-TAX APPELLATE TRIBUNAL”A” BENCH,
MUMBAI
BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER
&
SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER
ITA No.3396/MUM/2024

(A.Y. 2014-15)
ITA No. 3398/MUM/2024

(A.Y. 2017-18)

Arihant Developers
Arihant
Godown
Complex,
Kopar Bus Stop, Agra Road,
Village
Purna,
Bhiwandi
-
421302, Maharashtra v/s.
बनाम
Assistant Commissioner of Income Tax, Circle – I, 1st
Floor, Mohan Plaza, Wayale
Nagar,
Khadak
Pada,
Kalyan
(W)
–
421
301
Maharashtra
स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAFFA0035Q
Appellant/अपीलार्थी
..
Respondent/प्रतिवादी

Appellant by :
Shri K. Gopal & Akhilesh Deshmukh, ARs
Respondent by :
Shri Aditya Rai (Sr. DR)

Date of Hearing
25.07.2025
Date of Pronouncement
09.09.2025

आदेश / O R D E R

PER PRABHASH SHANKAR [A.M.] :-

The above captioned appeals have been filed by the assessee against the orders of even date as passed by the Learned Commissioner of Income- tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to the assessment orders passed u/s 143(3)

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ITA No. 3395, 3396, 3397, 3398/Mum/2024
A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai r.w.s.147 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Years [A.Y.] 2012-13, 2014-15, 2015-16 and 2017-18. Since the issues involved are common and also the fact that appeals were heard together, they are being taken up for adjudication vide this composite order for the sake of brevity. We take up appeal for AY 2012-13 as Lead case. Decision rendered herein would apply mutatis mutandis to rest of other appeals.
2. The grounds of the appeals are as under:

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ITA No. 3395, 3396, 3397, 3398/Mum/2024
A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai

Assessment was completed u/s 143(3) of the Act assessing income at Rs.
1,76,58,540/-. Thereafter, case was reopened and notice u/s 148 was issued to it on 29.01.2019 and the reassessment u/s 143(3) r.w.s 147 of the Act was finalized assessing income at Rs. 2,60,33,300/-.
3.2 During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee had credited an amount of Rs.
2,82,16,861/- as Rental income in its P&L A/c. It treated the rent charges as its income from House property and claimed standard deduction on the same. The AO stated that assessee had credited two types of income and debited several types of expenses in its P&L A/c.
The whole accounting was very business like.
Further, on perusal of Form 3CD, it was noticed by him that in item no. 10(a) regarding ‘Nature of Business or Profession’, the assessee had mentioned construction of godowns and galas, land development and Renting of Immovable property as business of the assessee.
3.3
In addition to above, the AO observed that rental income from warehouses constituted dominant part of credit side of P&L A/c and the assessee had even claimed certain expenses like Gram
Panchayat Tax and electricity bills related to these warehouses/
properties in P & L account which again was business like.

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ITA No. 3395, 3396, 3397, 3398/Mum/2024
A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai

ITA No. 3395, 3396, 3397, 3398/Mum/2024
A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai where the main object of the assessee company was to acquire properties and earn income by letting the same, said income was to be brought to tax as business income and not income from house property. Accordingly, AO taxed the net profit of Rs. 2,82,16,861/- derived from rental receipt as Business income and income from house property was treated as Nil.
4.3
On the other hand the appellant in its submission made during appeal proceedings has relied on the decision of Hon’ble Supreme Court in the case of Raj Dadarkar & Associates Vs CIT (394 ITR 592) (SC). In addition to that, the appellant has relied on some other judicial pronouncements also which are discussed later in this order.
4.4
I have gone through the order of Hon’ble Apex Court in the case of Raj
Dadarkar & Associates and have come to the conclusion that the facts of that case are different from the case of the appellant as in the said order, AO had referred to object clause in Partnership deed but in present case, nature of business is specified in Audit report form 3CD certified by the auditor of appellant itself. Hence the facts of this case are different. Further, in para 14
of the order, the Hon’ble Apex Court has stated that under certain circumstances, where the income may have been derived from letting out of premises, it can still be treated as business income if letting out of the premises itself is the main business of the assessee. For the sake ofconvenience, the said para is reproduced here as below:
“14. There may be instances where a particular income may appear to fall in more than one head. These kind of cases of overlapping have frequently arisen under the two heads with which we are concerned in the instant case as well, namely, income from the house property on the one hand and profits and gains from business on the other hand. On the facts of a particular case, income has to be either treated as income from the house property or as the business income. Tests which are to be applied for determining the real nature of income are laid down in judicial decisions, on the interpretation of the provisions of these two heads. Wherever there is an income from leasing

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ITA No. 3395, 3396, 3397, 3398/Mum/2024
A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai out of premises and collecting rent, normally such an income is to be treated as income from house property, in case provisions of Section 22 of the Act are satisfied with primary ingredient that the assessee is the owner of the said building or lands appurtenant thereto. Section 22 of the Act makes ‘annual value’ of such a property as income chargeable to tax under this head. How annual value is to be determined is provided in Section 23 of the Act. ‘Owner of the house property’ is defined in Section 27 of the Act which includes certain situations where a person not actually the owner shall be treated as deemed owner of a building or part thereof. In the present case, the appellant is held to be “deemed owner” of the property in question by virtue of Section 27(iiib) of the Act. On the other hand, under certain circumstances, where the income may have been derived from letting out of the premises, it can still be treated as business income if letting out of the premises itself is the business of the assessee.”
In the present case, renting of warehouses is the main business of the appellant as certified by auditor in form 3CD & also in P&L A/c where appellant has shown income from renting ofwarehouses as Rs.
2,82,16,861/-
&
Income from sales of Rs.
96,36,300/-.
4.5
It is also pertinent to mention here that Hon’ble Apex Court in their decision in case of Raj Dadarkar & Associates has reiterated the view taken by the Court in Sultan Bros. (P) Ltd. Vs CIT [1964] 51 ITR 353 (SC) in which constitution bench of Hon’ble Supreme Court held as under:
“7. We think each case has to be looked at from a businessman’s point of view to find out whether the letting was the doing of a business or the exploitation of his property by an owner. We do not further think that a thing can by its very nature be a commercial asset. A commercial asset is only an asset used in a business and nothing else, and business may be carried on with practically all things. Therefore, it is not possible to say that a particular activity is businessbecause it is concerned with an asset with which trade is commonly carried on.
We find nothing in the cases referred, to support the proposition that certain assets are commercial assets in their very nature.”

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ITA No. 3395, 3396, 3397, 3398/Mum/2024
A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai

Hon’ble Apex Court in case of Sultan Bros. gave clear observation that each case is to be seen as per facts of the case. Ongoing through the facts of the present case of the appellant, it is clear that the facts of the present case are different.
4.6
Hon’ble Apex Court in the Raj Dadarkar Case has also stated that test has to be applied to determine whether the income would be chargeable under the head income from house property or it would be chargeable under the head “profits from business & profession”.
4.7
In the present case of the appellant letting out of premises is itself the main business of the appellant as mentioned in form 3CD and it is also clear from P&L A/c that rent received from letting out of premises are forming dominant part of income as mentioned above & there is Nil Income from sales.
Further, the appellant in its books of account/ Balance Sheet has shown the value of let out properties in its closing stock (which is part of business stock)
& not separately as investment, which again proves that the rent received from the properties in question is part of business income.
4.8
Further, in case of Raj Dadarkar, object clause in partnership deed firm was to take premises on rent and then to sublet those premises. Thus, business activity in that case was to take the premises on rent and then sublet them and accordingly, had the assessee Raj Dadarkar, had earned income from subletting after taking them on rent, as per its business object clause, then, that income would have nature of business income but since, in that case, the issue was in respect of properties /premises / shops constructed by the assessee and then were given on rent, the same were held by Hon’ble Apex
Court, as income from House property, as the nature of the activity was not as per business object clause.
However, in the present case, as per Audit report, the appellant’s business was to construct godown/ warehouses on the land & then gave it on rent. Thus, appellant gave warehouses on rent as per its main business activity. Thus, facts of Raj Dadarkar Case are different from appellate’s case. Rather, the facts of the present case are similar to the P a g e | 8

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A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai case of Chennai Properties & Investment [(2015] 56 taxmann 456
(SC)] & Rayala Corporation [(2016) taxman 149 (SC)] in which it was held by the Hon’ble Apex Court that where assessee is engaged in business of leasing out its owned properties to earn rent, which was the business of the assessee, income so earned as rent should be treated as “business income” and not as income from house property.
4.9
In the present case also, the facts are similar to Chennai
Properties &Investment [ (2015) 56 taxmann 456 (SC)] & Rayala
Corporation [(2016) taxman 149 (SC)][supra] as income earned from rent is forming dominant part as reflected from audited P&L A/c of the appellant. Further, renting of properties is the main business activity of the appellant as per form 3CD. Therefore, ratio laid down by Apex Court in case of Chennai Properties & Investment [ (2015] 56 taxmann 456 (SC)] &
Rayala Corporation [(2016) taxman 149 (SC)] are applicable in this case.
4.10 The appellant has also relied on the decision in case of Mangla Homes
(P) Ltd. Vs ITO (2010) 325 ITR 281(Bom) & New Delhi Hotels Ltd Vs
ACIT (2014) 360 ITR 0187 (Delhi). However, the facts of the case are different from the case of the appellant. In case of Mangla Homes, renting out property was only ancillary object. However, in the present case, renting properties is the main business of the appellant as per form 3CD & income from rent is forming dominant part of Income in P&L A/c. Further, the facts of case of New Delhi Hotels Ltd are also different as in that case, the assessee was forced to let out its unsold properties, which were constructed to sell. However, in present case, the appellant could not prove during assessment or in appeal that it was forced to let out unsold properties. Rather, letting out was its main business and the properties were constructed by it with the main motto of letting out and earning rental income.
4.11
The decision of CIT vs Chugandas& Co. [1965] 55 ITR 17 (SC) as relied by the appellant is also not relevant in the present case as in that case

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ITA No. 3395, 3396, 3397, 3398/Mum/2024
A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai rental income was the only source of income. However, in the present case, rental income is not the only source of income.
4.12 On the basis of above mentioned facts and judicial pronouncements, it is clear that rent received from letting out of properties should be taxed in the hands of the appellant as “Income from business & profession” not as income from house property”. The entire manoeuvre done by the appellant was basically to take advantage of standard deduction provided u/s 24(a) of the Act and reduce tax liability. Accordingly, I am of the view that AO has rightly taxed the rent received by letting of properties as Income from business &
Profession”. Ground No. 1 & 2 of the appeal are dismissed.”

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ITA No. 3395, 3396, 3397, 3398/Mum/2024
A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai construction and whether as stock in trade or not, the ld.AR submitted that that it is difficult to ascertain the specific date or on which date the construction of the godown was completed.However,details of all the godowns, the period for which they were leased out is provided were duly submitted.In respect of expenses incurred, it was stated that the assessee had incurred insurance expenses with respect to the building same was debited to the profit & Loss A/c as part of indirect expenses. It is further claimed that the assessee has not incurred any expenditure towards providing any services to the licensee including any expenditure towards security guard, cleaning, electricity etc.
6.1 It is submitted that the assessee is a partnership firm having business of construction of godowns and galas. In the course of its business, it has constructed several godowns and galas. The same were given on rent to several parties. However, the stock of the assessee was not sold out. Thus, all the godowns and galas in the stock-in-trade were given on rent and it earned substantial rental income. The assessee regularly offered the rental income to tax under the head “Income from House Property. It claimed the benefit of standard deduction provided under section 24(a) of the Act. The contention of the AO that the assessee is carrying out an organized activity of development and construction of godowns which are held as stock-in-trade and thus, the P a g e | 11

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A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai rental income generated in the course of the business has to be taxed as business income and not as income from house property, it is submitted that the apprehension of the Ld. AO is factually incorrect. It is submitted that the assessee has shown the actual rent received at Rs. 3,87,56,614/- after claiming deduction on account of Municipal Taxes, Interest on borrowed capital u/s 24(b),interest on Term Loan and interest paid on borrowed funds. Thereafter, it claimed deduction on account of standard deduction of Rs. 1,14,40,908/-.On same page under head “Profits and gains of Business or Profession” there is Net Profit Before Tax which is Rs. 3,83,70,588/- then the depreciation which is debited in profit and loss account is added by Rs. 2,63,427/-, the Appellant further added an amount to Rs. 13,28,677/- which consists of Gram panchayat Tax
6,20,254/- interest on term loan 1,06,163/- and Interest paid 6,02,260/- as the same were separately claimed as deduction. Then from the above profit against the rental income an amount of Rs. 4,14,85,210/- was reduced. The break-up of the same is rent received 3,87,56,614/-, interest received Rs. 13,80,000/- and Interest on FD 13,48,595.88/-.
Thus, the same resultant into a loss of Rs. 17,85,945/-. This represents indirect expenses pertaining to running a business establishment. They are not directly connected to the construction and development activity.
This loss has been set off against the income from other sources.Similar

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ITA No. 3395, 3396, 3397, 3398/Mum/2024
A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai explanation has been offered for other years emphasising that the assessee did not claim double deduction i.e. standard deduction as well as expenses.
6.2
It is contented that from the above explanation, it can be seen that the assessee has not created any business loss in ITR, it has just shifted the income from Profit & Loss A/c to their respective charging head in the ITR. So, the AO’s contention is incorrect.
6.3
It is further stated that the AO has drawn an adverse inference relying on the entry in column 10(a) of the Tax Audit Report.
In this column of the tax audit report the Tax Auditor has mentioned
“Nature of Business as Construction of godowns and galas & Land development & Renting of Immovable Property.” The assessee submitted that the A.O. is not justified in drawing an adverse conclusion asthe tax auditor had described the activity carried on by the assessee.
This will not have any bearing on the fact under which head the lease rentals received by it are to be taxed. It is submitted that in the partnership deed the object of the business is mentioned as Construction of godowns and galas and Land Development. Thus, the object of the assessee was never to carry on the leasing business. The unit in the stock-in-trade were leased out as it is commercially expedient measure

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A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai to generate revenue. It is also pleaded that the Constitutional Bench of the Hon’ble Supreme Court in case of Sultan Brothers (P.) Ltd. (1964) 51
ITR 353 (SC) has clarified that merely an entry in the objects clause showing a particular object would not be the determinative factor to arrive at a conclusion whether the income is to be treated as income from business and profession. Thus, the Ld. A.O. is not justified in drawing an adverse inference relying on the auditor’s remark.
6.4 The ld.AR further submitted that the legislative intent was also to tax the lease rentals under section 22 only. This can be inferred from the introduction of section 23(5) to the Act. Though the amendment was brought in the year 2018, but the law maker intention behind the amendment is, to not charge the notional rent from the builder or a person who is into the business of construction of property upto two years. It also can be stated otherwise as, after two years notional rent can be charged under head income from house property.
7. We have carefully considered all the relevant facts of the case, rival submissions as also the legal position emerging from the cited decision as above. As regards facts of the case, it is undisputed fact that as per the Audit report Form 3CD, item no. 10(a) regarding ‘Nature of Business or Profession’, the assessee has mentioned construction of P a g e | 14

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Arihant Developers, Mumbai godowns and galas, land development and renting of godown etc. as its business. Moreover, the assessee itself has admitted that even the Partnership deed described the object of the business is mentioned as Construction of godowns and galas and Land Development. As rightly observed by the lower authorities, rental income from warehouses constituted dominant part of credit side of P&L A/c against which even claimed certain expenses related to these warehouses/ properties in P &
L account. Apparently, the assessee was not constructing properties with intention to sell them but only for purpose of letting them out, which is the business of assessee. Further, the assessee in its books of account/
Balance Sheet had shown the value of let out properties in its closing stock which is part of business stock and not separately as investment.
7.1 As stated above, the assessee did not provide any satisfactory reply to the Bench in respect of the period of construction and the treatment to such income in the preceding years right from the date of construction. It could not demonstrate that certain parts of the stock was actually sold during h entire period of holding. Evidently, the assessee is engaged in the business activity of construction of galas/godowns for the sole purposes of earning business income therefrom as it is the only activity. Moreover, it is not a case where some

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A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai of the unsold units lying vacant were leased out for the intervening period.
7.2 We find that the ld.CIT(A) has exhaustively dealt with all relevant judicial decisions in this regard and applied the ratio laid down to the facts of the case as also distinguishing the cases relied upon by the assessee on facts of the case. We notice that in case of Chennai
Properties & Investments (supra), the hon’ble Apex Court held that in case of bare letting of property by construing the object clause of the company (and not the circumstance of bare letting) as relevant factor to determine the head of taxation. In this case, the main object of the memorandum made specific reference, by name, to two different properties from which rental income was earned. There was also no dispute that the entire income of the taxpayer was from letting of properties. Due to this, it was held the rental income from property was assessable assessment Business Income. The ruling of Chennai
Properties and Investments (supra) was followed in the case of Rayala Corporation Pvt. Ltd. (supra). In this case the business of the assessee was to deal into real estate and also to earn rental income by letting out the properties. It was noted that taxpayer had stopped its other business activity and letting out of the properties was P a g e | 16

ITA No. 3395, 3396, 3397, 3398/Mum/2024
A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai the sole business of the taxpayer. The taxpayer earned only rental income during the year. It was observed that the facts being similar as in the case of Chennai Properties (supra), it was held that the rental was to be taxed as Business income. Thus, both the above decisions support taxation as business income if the taxpayer in involved only in business of bare letting supported by object clause and actual conduct of the taxpayer.
7.3 From the facts stated in the preceding paras, it is quite evident that seen in the light of above cited both the decisions of hon’ble Apex court, the assessee being engaged in the construction of godowns for subsequent letting them out in an organized manner has all the ingredients of business income.
All these facts are found in existence in the instant case.
7.4 It may be stated here that in ITA NO. 685 of 2007 National
Leasing Limited, 21 October 2024 the hon’ble Bombay High
Court allowed the appeal and set aside the orders of the Tribunal on identical issue. The Court ruled that the income derived from leasing/renting properties is to be assessed as “Income from Profits and Gains of Business” and not as “Income from P a g e | 17

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Arihant Developers, Mumbai

House Property,” overturning the Tribunal’s decision. Relevant parts of the order are extracted below:
“17. We have heard learned counsel for the parties. We have also perused the record. At the outset, we may observe that the premise on which the Tribunal has proceeded to hold that the income derived by the assessee from leasing / renting out house properties, is by applying the decision of the Supreme Court in East India Housing (supra), the relevant observations in that regard are required to be noted which reads thus:
“2. Two Issues have arisen in these appeals namely - (i) whether rental income received by the assessee from the properties leased out should be assessed as “Business Income” or as “Income From House Property” and (ii) what should be the Annual Letting Value (ALV) for the purpose of Section 23 of the Income Tax Act, 1961 (Act) if income is assessable as “ Income From House Property”.
3. As far as the first issue is concerned, It is squarely covered by the Judgment of the Hon'ble Supreme Court in the case of East India Housing and Land Development Trust V/s CIT, 42 ITR 49, wherein it has been held that rental income from immovable properties is to be assessed under the specific head l.e., “Income From House Property” if such asset Is owned by the assessee even though the assessee may be in the business of real estate.
The Learned Counsel for the Assessee could not make any other submissions
In view of the above Judgment of the Supreme Court. Therefore, we hold that the rental income from Immovable property owned by the assessee is assessable under the head From House Property”.
18. In the aforesaid circumstances, the primary question before the Court is whether the approach of the Tribunal was correct in categorising that the assessee's case would be squarely hit by the law as laid down by the Supreme Court in East India Housing (supra).
19. We may observe that it is a settled principle of law that the Assessing Officer, in assessing the income of assessee, is required to be conscious about the nature of the assessee's business and apply his

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A.Y. 2012-13, 2014-15, 2015-16, 2017-18

Arihant Developers, Mumbai mind to the source of income, for the income being taxed as the law mandates.
20. In the present case, it appears to be not in dispute that the only source of income for the assessee was the income derived from rent or amounts as received by the assessee from letting out its properties. The record indicates that the Assessing Officer in the present case has not disputed the nature of the business of the assessee and more importantly, the income offered to tax in respect of all the relevant assessment years,( subject matter of different appeals) is derived from letting out various properties, and which is the business activity of the assessee, to earn such income, through its business, as seen from the main objectives, outlined in the memorandum of association.
21. It is hence, not the case that the business of the assessee is of a nature that the income from house property is required to be treated as an incidental income not derived from its main business, when it is derived from its main business of letting out its properties. In our opinion, there is certainly a difference between the two situations, firstly where the main object of the assessee is to earn income from letting out properties, and secondly, where the assessee incidentally earns income apart from its main business i.e.
from letting out its house properties, both these situations are totally distinct.
22. In so far as the decision of the Supreme Court in East India
Housing (supra) is concerned, in the said case, the Supreme Court was concerned with the appellant / assessee whose main business was “to buy and develop landed properties and to promote and develop markets”, for which it had purchased some land in the town of Calcutta and set up the market on such land, on which shops and stalls were P a g e | 19

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Arihant Developers, Mumbai constructed and incidental to such business, it had received some income from tenants. In such case, the case of the assessee was to the effect that because it was a company formed with the object of promoting and developing markets, its income derived from shops and stalls was liable to be taxed under Section 10 of the Income Tax Act as “profit or gains of business” and that the income was not liable to be taxed as “income from property” under Section 9 of the Act. The Supreme Court examined the nature of the assessee's business and in doing so observed that the assessee was required to obtain license from the Corporation of Calcutta and to perform other acts in conformity with the provisions of the Act, and for that purpose the assessee had to maintain staff and to incur expenditure. It was observed that for such reason, the income derived from letting out property belonging to the appellant did not become “profit or gains from business”, within the meaning of Sections 6 & 10 of the Income Tax Act. The Supreme Court observed that if the income from a source falls within a specific head as set out in Section 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. The Supreme Court observed that the income derived by the company from shops and stalls was income received from property falling under the specific head described in Section 9. It was held that the character of the income was not altered because it was received by a company formed with the object of developing and setting up markets. The relevant observations of the Supreme Court are required to be noted which reads thus:
“2. The appellant contends that because it is a company formed with the object of promoting and developing markets, its income derived from the shops and stalls is liable to be taxed under Section 10 of the Income Tax Act as “profits or gains of business” and that the income is not liable to be taxed as “income from property” under Section 9 of the Act. The appellant is undoubtedly under the provisions of the Calcutta Municipal Act, 1951, required to obtain a licence from the Corporation of Calcutta and to P a g e | 20

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Arihant Developers, Mumbai maintain sanitary and other services in conformity with the provisions of that Act and for that purpose has to maintain a staff and to incur expenditure. But on that account, the income derived from letting out property belonging to the appellant does not become “profits or gains” from business within the meaning of Sections 6 and 10 of the Income Tax Act.
By Section 6 of the Income Tax Act, the following six different heads of income are made chargeable, ( 1) salaries, (2) interest on securities, ( 3) income from property, (4) profits and gains of business, profession or vocation, ( 5) income from other sources and (6) capital gains. This classification under distinct heads of income, profit and gain is made having regard to the sources from which income is derived. Income Tax is undoubtedly levied on the total taxable income of the tax payer and the tax levied is a single tax on the aggregate taxable receipts from all the sources :
it is not a collection of taxes separately levied on distinct heads of income.
But the distinct heads specified in Section 6 indicating the sources are mutually exclusive and income derived from different sources falling under specific heads has to be computed for the purpose of taxation in the manner provided by the appropriate section. If the income from a source falls within a specific head set out in Section 6, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head.
3. The income derived by the company from shops and stalls is income received from property and falls under the specific head described in Section 9. The character of that income is not altered because it is received by a company formed with the object of developing and setting up markets. In the United Commercial Bank Ltd., Calcutta v. CIT [(1958) SCR 79] this Court explained after an exhaustive review of the authorities that under the scheme of the Income Tax Act, 1922, the heads of income, profits and gains enumerated in the different clauses of Section 6 are mutually exclusive, each specific head covering items of income arising from a particular source.
4. In Fry v. Salisbury House Estate Ltd. [LR (1930) AC 432] a company formed to acquire, manage and deal with a block of buildings having let out the rooms as unfurnished offices to tenants was held chargeable to tax under Schedule A to the Income Tax Act, 1918 and not Schedule D. The company provided a staff to operate the lifts and to act as porters and watch and protect the building and also provided certain services, such as heating and cleaning to the tenants at an additional charge.
The taxing authorities sought to charge the income from letting out of the rooms as receipts of trade chargeable under Schedule D, but that claim was negatived by the House of Lords holding that the rents were profits arising from the ownership of land assessable under Schedule A and that the same could not be included in the assessment under Schedule D as trade receipts.

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Arihant Developers, Mumbai should be treated as such and taxed accordingly. Aggrieved by such order passed by the CIT(A), the department filed an appeal before the Tribunal, which declined to interfere with the order of the CIT (A) and dismissed the appeal. The department thereafter approached the High
Court assailing the concurrent orders passed by the CIT(A) and the Tribunal. The department's appeal was, however, allowed by the High
Court, when it held that the income derived by letting out of the properties would not be income from business, but could be assessed only as “income from house property”. The High Court's decision primarily rested on the premise of the decision of the Supreme Court in East India Housing (supra). It is in such circumstances, the question which fell before the Supreme Court was as to whether the income derived by the company from letting out the property, is to be treated as income from business or it should be treated as rental income from house property. The Supreme Court, in answering such question, noted the Memorandum of Association of the appellant which mentioned the main objects as well as incidental or ancillary objects of the assessee.
The main object being to acquire and hold the properties known as “Chennai House” and “Firhavin Estate” both in Chennai and to let out those properties, as well as make advances upon the security of lands and buildings or other properties or any interest therein. The Court observed that holding such properties and earning income by letting out those properties was the main objective of the company and accordingly, the entire income which was accrued and assessed in the return was from letting out those properties, when there was no other income of the assessee except the income from letting out of these two properties. It is in this context, referring to the decision in East India
Housing (supra), the Supreme Court observed that East India Housing was a case where the assessee-company was incorporated with the object of buying and developing landed properties and promoting and P a g e | 23

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Arihant Developers, Mumbai developing markets. It was thus observed that the main objective of the said company was to develop the landed properties into markets and it had so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from the renting of the said shops and stalls. It is on such backdrop, the question which fell for consideration of the Court was whether the rental income that was received by the assessee was to be treated as “income from house property” or “income from business”. In such context, the Court held that in East India Housing the income was treated as “income from house property”, as the Court tested the same in the context of the main whether the income is to be treated as 'income from business', and such question would depend upon the circumstances of each case viz.
whether a particular business is letting or not. The Supreme Court in Chennai Properties and Investment Ltd. (supra) referring to such settled position in law, in the facts and circumstances of the case, held that letting of properties was in fact the P a g e | 24

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Arihant Developers, Mumbai business of the assessee, and the assessee therefore rightly disclosed the income under the head 'income from business'.
The Supreme Court held that such income of the assessee cannot be treated as 'income from the house property'. Accordingly, the judgment of the High Court was set aside. The relevant observations of the Supreme Court are required to be noted, which read thus:
“6. The memorandum of association of the appellant Company which is placed on record mentions the main objects as well as the For such reasons, apparently there was an error on the part of the tribunal in holding that the assessee's income is required to be treated as income from house property and not the income from business.
7. It transpires that the return of a total income of Rs 2,44,030 was filed for the assessment year in question that is Assessment Year 1983-1984 and the entire income was through letting out of the aforesaid two properties, namely, “Chennai House” and “Firhavin Estate”. Thus, there is no other income of the assessee except the income from letting out of these two properties. We have to decide the issue keeping in mind the aforesaid aspects.
8. With this background, we first refer to the judgment of this Court in East
India Housing and Land Development Trust Ltd. Case [East India
Housing and Land Development Trust Ltd. v. CIT, (1961) 42 ITR 49
(SC)] which has been relied upon by the High Court. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets.
Thus, the main objective of the company was to develop the landed properties into markets. It so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from the renting of the said shops and stalls. In those facts, the question which arose for consideration was: whether the rental income that is received was to be treated as income from the house property or the income from the business? This Court while holding that the income shall be treated as income from the house property, rested its decision in the context of the main objective of the company and took note of the fact that letting out of the property was not the object of the company at all. The Court was therefore, of the opinion that the character of that income which was from the house property had not altered because it was received by the company formed with the object of developing and setting up properties.

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Arihant Developers, Mumbai be regarded as “income from house property”. In the present case, the income of the assessee is derived from letting out of the properties, which in fact, is the principal business of the assessee as seen from its main objectives of the assessee as contained in its memorandum of association, therefore, the assessee was correct in accounting such income under the head 'income from profits and gains of business', and not as 'income from house property'. For such reasons, there was an apparent error of law in the Tribunal holding that the assessee's income is required to be treated as “income from house property” and not the “income from profits and gains of business”.
7.5 The hon’ble Court emphasized that the nature of the assessee’s business must be considered, and since the leasing/renting of properties was the main business, the income should be categorized as business income. The Court analyzed the relevant provisions of the Act and reviewed the decisions of the Supreme Court in East India
Housing and Chennai Properties & Investments Ltd. The Court found that East India Housing was distinguishable as the nature of the assessee’s business in that case was different. In contrast, in Chennai
Properties, the Supreme Court held that when the main object of the company is letting out properties, the income should be considered business income. The Court referred to the Chennai Properties case, which was more applicable as it involved a company whose primary business was renting out properties.

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Arihant Developers, Mumbai

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Arihant Developers, Mumbai

Ltd. [ITA No.3321/Mum/2018 & 3172/Mum/2016, dated 31.08.2018]
had duly considered the judgment of the Hon‟ble High Court of Delhi in CIT
Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354
ITR 180 (Del).”

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Arihant Developers, Mumbai main issue before the court was that whether the income so received should be taxed under the head “Income from House Property” or “Profit and gains of business or profession”. The reason for which the aforestated issue has arisen is that though the assessee is having the house property and is receiving income by way of rent, the case of the assessee is that the assessee company is in business of renting its properties and is receiving rent as its business income, the said income should be taxed under the Head “Profits and gains of business or profession” whereas the case of the Revenue is that as the income is arising from House Property, the said income must be taxed under the head “Income from House Property”. As per its Memorandum of Association its business is to deal into real estate and also to earn income by way of rent by leasing or renting the properties belonging to the assessee company. The Supreme Court followed the Chennai
Property case, and it was considered that the income earned will be income from business.

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Arihant Developers, Mumbai not House property income. I.T.A. No 346/Mum/2019 in Arihant
Estate Pvt. Ltd.6 January, 2021,
“2. The brief facts of the case are, assessee is engaged in the business of construction activity and filed its return of income on 29/09/2014 for assessment year 2014-15 declaring total income of Rs. 4,65,800/-.
Subsequently, the case was selected for scrutiny under compulsory basis.
Accordingly, notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee. In response, AR of the assessee filed the relevant information as called for. AR of the assessee submitted that since the assessee is into the business of construction and development of properties, the income from trading assets will not be chargeable to tax u/s.22 and thus, Section 23 would not have any application. Further, relying on the decision of the Hon'ble Apex
Court in the case of M/s. Chennai Properties & Investments Ltd. vs.
CIT, he submitted that since the assessee has constructed a mall/shopping complex with the intention to exploit it by way of complex commercial activities, such activity falls within the realm of the head 'profits and gains of business or profession' and accordingly, section 23 will not apply.
3. After considering the submission of the assessee, AO observed that the contention of the assessee is not found tenable on the following reasons:- a. As per the agreement of sale submitted by the assessee, it is seen that the developers have the sole and exclusive right to sell or lease shops, stalls, offices, storage spaces, other units and premises in the said Commercial Building being constructed by the developers on the said property and to enter into agreements and to receive the sale price in respect thereof.
b. The developer received the possession of the land which is constructed the impugned building. The date, on which the assessee received the possession of the land, there is a transfer of the land within the meaning of Section 2(47)(v) and the assessee becomes the owner of the land and building thereon constructed by it.
c. Since the assessee is owner of the building as discussed above, the assessee shall be liable for all the provisions of the Act in respect of the building. The property constructed and remained unsold during the year, shall be liable for tax under the head income from house property.
d. Moreover, this being a debatable issue and on the same ground, the Department is in appeal before the Hon'ble ITAT in the assessee's own case for Assessment Year
2012-13. In view of the same, keeping the law of consistency in mind and with due respect to the CIT's decision, the computation of total income submitted by the assessee is not acceptable.

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Arihant Developers, Mumbai

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Arihant Developers, Mumbai treated as stock in trade in the books of account. Flats sold by the assessees were assessed under the head “income from business‟. There were certain unsold flats in stock in trade which the AO treated as property assessable under the head “income from house property‟and computed notional annual letting value on such unsold flats placing reliance on the decision in the case of Ansal Housing Finance & Leasing Co.
Ltd. (supra). The action of the AO was upheld by the learned CIT(A).
8. The Hon'ble Gujarat High Court in the case of Neha Builders Pvt.
Ltd. (supra) considered the question whether the rental income received from any property in the construction business can be claimed under head “income from property‟ even though the said property was included in the closing stock. The Hon'ble Gujarat High Court held that if the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the business and the business stocks, which may include movable and immovable, would be taken to be stock in trade and any income derived from such stocks cannot be termed as income from house property.
While holding so the Hon'ble High Court observed as under: -
“8. 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 the said property would become or partake the character of the stock, and any income derived from the stock, would be 'income' from the business, and not income from the property. If the business of the assessee is to construct the property and sell it or to construct and let out the same, then that would be the 'business' and the business stocks, which may include movable and immovable, would be taken to be 'stock- intrade', and any income derived from such stocks cannot be termed as 'income from property'. Even otherwise, it is to be seen that there was distinction between the 'income from business' and 'income from property' on one side, and 'any income from other sources'. The Tribunal, in our considered opinion, was absolutely unjustified in comparing the rental income with the dividend income on the shares or interest income on the deposits. Even otherwise, this question was not raised before the subordinate Tribunals and, all of sudden, the Tribunal started applying the analogy.
9. From the statement of the assessee, it would clearly appear that it was treating the property as 'stock-in-trade'. Not only this, it will also be clear from the records that, except for the ground floor, which has been let out by the assessee, all other portions of the property constructed have been sold out. If that be so, the property, right from the beginning was a 'stock-in-trade'.”
9. Similarly the Coordinate Bench has considered similar issue as to whether the unsold property which is held as stock in trade by the assessee can be assessed under the head „income from house property‟ by notionally computing the annual letting value from such property and the Coordinate
Bench considering the decision of the Hon'ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd. (supra) which the AO relied upon and the decision of the Hon'ble Supreme Court in the case of Chennai
Properties & Investments Ltd. vs. CIT reported in 373 ITR 673, held that unsold flats which are in stock in trade should be assessed under the head

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„business income‟ and there is no justification in estimating rental income from those flats and notionally computing annual letting value under Section 23 of the Act. While holding so the Coordinate Bench observed as under: -
“3. The ld. AR placed the order of Bombay Tribunal in the case of M/s Perfect Scale
Company Pvt. Ltd., ITA Nos.3228 to 3234/Mum/2013, order dated 6-9- 2013, wherein it was held that in respect of assets held as business, income from the same is not assessable u/s.23(1) of the IT Act.
4. On the other hand, ld. DR relied on the order of Hon‟ble Delhi High Court in the case of Ansal Housing Finance & Leasing Co. Ltd., 354 ITR 180 (Delhi) in support of the proposition that even in respect of unsold flats by the developer is liable to be taxed as income from house property.
5. We have considered rival contentions and perused the record. The issue under consideration has been restored by the CIT(A) to the file of AO to compute the annual value. Recently the Hon‟ble Supreme Court in the case of M/s Chennai Properties &
Investments Ltd. Vs. CIT, reported in (2015) 42 SCD 651, vide judgment dated 9-4-
2015 has held that where assessee company engaged in the activity of letting out properties and the rental income received was shown as business income, the action of AO treating the rental income as income from house property in place of income from business shown by the assessee was held to be not justified. The Honble Supreme
Court held that since the assessee company‟s main object, is to acquire and held properties and to let out these properties, the income earned by letting out these properties is main objective of the company, therefore, rent received from the letting out of the properties is assessable as income from business. On the very same analogy in the instant case, assessee is engaged in business of construction and development, which is main object of the assessee company. The three flats which could not be sold at the end of the year was shown as stock-in-trade. Estimating rental income by the AO for these three flats as income from house property was not justified insofar as these flats were neither given on rent nor the assessee has intention to earn rent by letting out the flats. The flats not sold was its stock-in-trade and income arising on its sale is liable to be taxed as business income. Accordingly, we do not find any justification in the order of AO for estimating rental income from these vacant flats u/s.23 which is assessee‟s stock in trade as at the end of the year. Accordingly, the AO is directed to delete the addition made by estimating letting value of the flats u/s.23 of the I.T.Act.”
10. In the case on hand before us it is an undisputed fact that both assessees have treated the unsold flats as stock in trade in the books of account and the flats sold by them were assessed under the head „income from business‟. Thus, respectfully following the above said decisions we hold that the unsold flats which are stock in trade when they were sold they are assessable under the head „income from business‟ when they are sold and therefore the AO is not correct in bringing to tax notional annual letting value in respect of those unsold flats under the head „income from house property‟. Thus, we direct the AO to delete the addition made under Section 23 of the Act as income from house property.”

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Court decisions. The High Court upheld the Tribunal’s decision, stating that the principles of consistency should apply. It noted that in previous years, the Revenue had accepted this income as “income from house property” without any material change in circumstances.
9. In view of the detailed discussion in preceding paras, we hold that there is no infirmity in the conclusion drawn by the AO which has been correctly upheld by the ld.CIT(A) after due consideration of the decisions of various courts of law including juri ictional High Court and hon’ble Supreme Court. Therefore, the grounds of appeal preferred by the assessee are dismissed.
10. In the result, the above appeal of the assessee is dismissed.
11. ITA 3396/MUM/2024(A.Y. 2014-15)

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Arihant Developers, Mumbai v Ansal Housing Finance & Leasing Co. Ltd (2016) 72 Taxman.com 254].
Thus, the AO is not justified in treating the rental receipts of Rs.
3,70,00,453/- as business receipts and deny the Appellant standard deduction amounting to Rs. 1,10,35,995/- allowable under section 24(a) of the Act.

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Arihant Developers, Mumbai under the head ‘Income from house property’. [CIT v Ansal Housing
Finance & Leasing Co. Ltd (2016) 72 Taxman.com 254]. Thus, the AO is not justified in treating the rental receipts of Rs. 3,87,56,614/- as business receipts and deny the Appellant standard deduction amounting to Rs.
1,14,40,908/- allowable under section 24(a) of the Act.
14. Since appeals of the assessee filed for AYs 2014-15, 2015-16
and 2017-18 are identical, the decision rendered by us in para 9/10
above apply mutatis mutandis to these appeals aswell which also stand dismissed.
15. In the result, all the above appeals of the assessee are dismissed.
Order pronounced in the open court on 09/09/2025. SANDEEP GOSAIN
PRABHASH SHANKAR
(न्याययक सदस्य /JUDICIAL MEMBER)
(लेखाकार सदस्य/ACCOUNTANT MEMBER)

Place: म ुंबई/Mumbai
ददनाुंक /Date 09.09.2025
Lubhna Shaikh / Steno

आदेश की प्रयियलयि अग्रेयिि/Copy of the Order forwarded to :

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सत्यावपि प्रवि ////
आदेशानुसार/ BY ORDER,

उि/सहायक िंजीकार (Dy./Asstt.