ACIT - 14(1)(2), MUMBAI, MUMBAI vs. SABARMATI CAPITAL ONE LIMITED, MUMBAI

1. In its reply, the assessee stated that its main objection is to sell the\ncommercial units which is the only and the single activity which the\nassessee is carrying on. It was pointed out to the AO that the impugned\namendment in Section 23(5) of the Act has been brought into the statute\nfrom AY 2018-19 and prior to AY 2018-19, there is no provision\nprovided under the Act to tax the deemed rental income on unsold\nproperty lying as stock-in-trade under the head “income from house\nproperty\". It was further explained that the provision of Section 23(4) of\nthe Act which meant only for properties that are held as investments\nand not as stock-in-trade and the charging provisions of Section 22 of\nthe Act specifically gives exemption from determination of actual value\nof the property which is used for the purpose of any business or\nprofession carried on by the assessee. Reliance was placed on various\ndecisions discussed in the assessment order. But the claim of the\nassessee did not find any favour with the AO who concluded as under:-\n“2.

In order to bring to tax, the income under the head income from house property\nin respect of the unsold flats lying with the assessee, annual letting value (ALV) need\nto be determined. Taking into consideration interest rate on Bank FD of 8% during\nperiod under consideration, the ALV of the same works out to Rs.15,13,54,952/-\n(1891936905 x 8%). The said ALV is eligible for deduction @ 30% as per the\nprovisions of section 24(a) of the Act, which works out to Rs.4,54,06,485/-\n(151354952 × 30%). As such, the taxable income of the assessee out of the said unsold\ninventory works out to Rs.10,59,48,467/- (151354952 - 45406485).”\n7.

Before us, strong reliance was placed on the decision of the Co-\nordinate Bench in the case of Tata Housing Development Company Limited\nvs. The PCIT in & 3492/Mum/2019 and also on the decision\nof the Hon'ble Gujarat High Court in the case of Neha Builders (P.) Ltd.\n[2007] 164 TAXMAN 342 (Guj.).\n8. Per contra the ld. D/R strongly supported the findings of the AO\nand placed strong reliance on the decision of the Hon'ble High Court of\nDelhi in the case of CIT vs. Ansal Housing Finance & Leasing Co. Ltd.\n[2013] 29 taxmann.com 303 (Delhi) and CIT vs. Smt. Godavaridevi Saraf\n[1978] 113 ITR 589 (Bom.).\n9. We have given a thoughtful consideration to the orders of the\nauthorities below. It is true that provisions of Section 23(5) of the Act\nare effective from 01/04/2018 whereby notional annual value of\nproperty/part of the property held as stock-in-trade has been brought\nto tax subject to conditions specified in that Section. The amendment is\nsubstantive and prospective. However, on identical situation, the\nHon'ble High Court of Delhi in the case of Ansal Housing Finance &\nLeasing Co. Ltd. (supra) has held as under:-\n“13. In the present case, the assessee is engaged in building activities. It argues that\nflats are held as part of its inventory of stock-in-trade, and are not let out. The further\nargument is that unlike in the other instances, where such builders let out flats, here\nthere is no letting out and that deemed income - which is the basis for assessment\nunder the ALV method, should not be attributed. This Court is of the opinion that\nthe argument, though attractive cannot be accepted. As repeatedly held, in East\nIndia, Housing & Land Development Trust's case (supra) Sultan Bros's case (supra)\nand Karan Pura Development Co. Ltd.'s case (supra) the levy of income tax in the\ncase of one holding house property is premised not on whether the assessee carries on\nbusiness, as landlord, but on the ownership. The incidence of charge is because of the\nfact of ownership.\nUndoubtedly, the decision in Vikram Cotton Mills Ltd.' case (supra) indicates that\nin every case, the Court has to discern the intention of the assessee; in this case the\nintention of the assessee was to hold the properties till they were sold. The capacity\nof being an owner was not diminished one whit, because the assessee carried on\nbusiness of developing, building and selling flats in housing estates. The argument\nthat income tax is levied not on the actual receipt (which never arose in this case) but\non a notional basis, i.e. ALV and that it is therefore not sanctioned by law, in the\nopinion of the Court is meritless ALV: a method to arrive at a figure on the basis of\nwhich the impost is to be effectuated. The existence of an artificial method itself would\nnot mean that levy is impermissible. Parliament has resorted to several other\npresumptive methods, for the purpose of calculation of income and collection of tax.\nFurthermore, application of ALV to determine the tax is regardless of whether actual\nincome is received; it is premised on what constitutes a reasonable letting value, if\nthe property were to be leased out in the marketplace. If the assessee's contention\nwere to be accepted, the levy of income tax on unoccupied houses and flats would be\nimpermissible - which is clearly not the case.\n14. As far as the alternative argument that the assessee itself is occupier, because it\nholds the property till it is sold, is concerned, the Court does not find any merit in\nthis submission. While there can be no quarrel with the proposition that\n\"occupation\" can be synonymous with physical possession, in law, when Parliament\nintended a property occupied by one who is carrying on business, to be exempted\nfrom the levy of income tax was that such property should be used for the purpose of\nbusiness. The intention of the lawmakers, in other words, was that occupation of\none's own property, in the course of business, and for the purpose of business, i.e. an\nactive use of the property, (instead of mere passive possession) qualifies as \"own\"\noccupation for business purpose. This contention is, therefore, rejected. Thus, this\nquestion is answered in favour of the revenue, and against the assessee.”\n10. Finding parity of facts, respectfully following the decision of the\nHon'ble Delhi High Court (supra), we hold that the annual let-out value\n(ALV) has to be taxed in respect of unsold property.\n10.

And the Hon'ble Court held as under:-\n“4. The questions suggested by the Revenue arise out of these proceedings. With\nrespect to the first question, the Tribunal held that the Commissioner's revisional\norder required the Assessing Officer to examine certain aspects arising out of the\nreturn. He could not have travelled beyond such assessment and therefore, his action\nof making addition of Rs.2.02 crore towards the entrance fee receipts was beyond the\nscope of revisional\n5. Having heard the learned counsel for the parties and having perused the\ndocuments on record, we are in agreement with the view of the Tribunal. The\nrevisional order passed by the Commissioner has to be read as a whole. It is for this\npurpose that we have reproduced relevant portion thereof. This order would suggest\nthat the Commissioner found fault with the Assessing Officer on clear four specific\naspects arising out of the order of the assessment and require that the Assessing\nOfficer passes fresh order after making proper inquiries. The question of the\ntreatment to the entrance fees was by then nowhere in picture. The Assessing Officer\non his own examined said issue. The Commissioner, undoubtedly, has powers under\nSection 263 of the Act to annul the entire assessment and required passing of fresh\nassessment order. However, when the Commissioner, as in the present case, requires\nthe Assessing Officer to carry out inquiries with respect to specified issues, the\njurisdiction of the Assessing Officer to pass fresh order must be confined to such\nissues, failing which we would be giving the power to the Assessing Officer to make\nreassessment.\n6. Gujarat High Court in similar background in the case of CIT v. D.N. Dosani\n[2006] 153 Taxman 13/280 ITR 275 has observed as under:-\n"12. The scheme of the Act has provided different powers to different authorities and\nthese are required to be exercised after satisfying the pre-requisite conditions and\njurisdictional facts. The assessing officer can disturb/re-open a finalized assessment\nby invoking his powers either under Section 154 or under Section 147 of the Act,\nprovided he can show that the necessary requirements are fulfilled. If, what the\nRevenue contends today is accepted, these and other such provisions which empower\ndifferent authorities to exercise jurisdiction at different point of time in distinct\nsettings would be rendered otiose and that can never be the legislative intent. It is\nalmost akin to providing separate keys for separate locked doors and the person\nwanting to open a particular door is required to apply the correct key which matches\nthe concerned lock. Therefore, in proceedings, to give effect to order under Section\n263 of the Act, the assessing officer cannot be permitted to undertake an exercise not\nwarranted by the legislative\n7. We may record that along the same line, the Assessing Officer had made\ndisallowance to annual subscription fee which was also not part of the revisional\norder of the Commissioner. For the reasons recorded above, the said action of the\nAssessing Officer was not correct.\n13. We find that the ld. CIT(A) has followed the aforementioned\nbinding decision of the Hon'ble Jurisdictional High Court. Therefore,\nno interference is called for. Accordingly, effective grounds raised by\nthe revenue are dismissed.\n14. In the result, appeal of the assessee is partly allowed and that of\nthe revenue is dismissed.\nOrder pronounced in the Court on 25th February, 2025 at Mumbai.\nSd/-\n(SAKTIJIT DEY)\nVICE-PRESIDENT\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\nMumbai, Dated 25/02/2025\n*SC SPPS\nआदेश की प्रतिलिपि अग्रेषित/