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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-5, Pune dated 23-11-2017 for the assessment year 2014-15.
The assessee has raised following grounds in the appeal : “1. On the facts and in the circumstances of the case and in law, the honourable CIT(A) - 5, Pune erred in confirming the addition made by
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the learned AO of Rs.17,75,620/- to the income of the appellant under the head "Income from House Property" being the Annual Letting Value of the unsold units lying as stock in trade of the appellant without appreciating the fact that the appellant is engaged in the business of real estate development and the unsold flats are held as stock in trade and not as investment The appellant hereby prays that the said addition may please be deleted. 2. Without prejudice to Grounds of Appeal 1, on the facts and in the circumstances of the case and in law, the honourable CIT(A) - 5, Pune erred in upholding the notional annual rental value of the unsold units for the purpose of calculating the Annual Letting Value u/s 23(4) of the Income tax Act, 196 instead of the municipal value of the said properties. The appellant hereby prays that the municipal value of the unsold units may please be considered for the purpose of calculating Annual Letting Value of the unsold units instead of the notional rental value. 3. The appellant hereby reserves the right to add, amend, alter or raise any additional ground or grounds of appeal or delete or withdraw any of the ground of appeal/s.”
Shri Vipin Gujrathi appearing on behalf of the assessee submitted that the issue raised in the appeal by the assessee has already been decided by the Tribunal in assessee’s own case in ITA No. 1914/PUN/2018 for the assessment year 2015-16 vide order dated 19-02-2019.
Shri N. Ashok Babu representing the Department fairly admitted that the Tribunal has considered this issue in assessee’s own case. However, the ld. DR vehemently defended the impugned order.
Both sides heard. Orders of the authorities below perused. The assessee in appeal has assailed the addition in respect of deemed rental value of unsold flats held by the assessee as stock-in-trade. We find that identical issue was considered by the Tribunal in assessee’s own case in ITA No. 1914/PUN/2018 (supra). After considering the facts and various decisions the Tribunal held as under : “4. I have heard the rival submissions and perused the relevant material on record. It is an undisputed fact that the assessee, a Builder and Developer, was holding two properties as its stock in trade, from which the deemed rental income has been computed u/s 23 of the Act and added to its total
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income. The AO has made out a case that levy of income tax in respect of properties held by the assessee as an owner, cannot be marred even if the same have been held as stock in trade. The bedrock of the action of the authorities below is certain decisions which, in turn, are based on the judgments of Hon’ble Supreme Court in East India Housing & Land Development Trust VS. CIT (1961) 42 ITR 49 (SC) and S.G. Mercantile Corporation Pvt. Ltd. Vs. CIT (1972) 83 ITR 700 (SC). It has been held in the latter decision that where a builder, being, owner lets out property for some time pending sale, the income so derived is to be taxed under the head “Income from house property” and not as “Business income”. So the ratio is that even if a builder lets out his property, held as stock in trade, income there from will be chargeable under the head `Income from house property’ and not as `Business income’. It is pertinent to note that such a legal position has undergone some transformation. In Chennai Properties and Investments Ltd. Vs. CIT (2015) 373 ITR 673 (SC), the assessee whose business was to acquire properties, let out certain properties and the rental income as received therefrom was declared as business income. The AO held such income to be chargeable to tax under the head “Income from house property”. The Hon’ble Supreme Court held that the deciding factor for determining as to whether the income is to be charged under the head “Income from house property” is not the ownership of property but the nature of operations in relation to them. Considering the objects of the company, the Hon’ble Supreme Court held that such income was chargeable to tax under the head “Profits and gains from business or profession”. More recently, the Hon’ble Supreme Court in Rayala Corporation Pvt. Ltd. Vs. ACIT (2016) 386 ITR 500 (SC) considered a situation in which the assessee was engaged in the business of renting its properties. The assessee claimed such rental income as falling under the head “Profits and gains of business or profession”. The AO denied such a treatment. When the matter finally came up before the Hon’ble Supreme Court, it considered both the judgments, namely, S.G. Mercantile Corporation (supra) and Chennai Properties and Investments Ltd (supra) and thereafter held that : `the law laid down by this Court in the case of Chennai Properties (supra) shows the correct position of law’. That is how, their Lordships held that the income was to be charged to tax under the head “Profits and gains of business or profession”. 5. In view of the foregoing discussion, it is apparent that the view point bolstered by the authorities that Annual Letting Value in respect of unsold properties lying with the assessee as a stock in trade, should be determined u/s. 23 of the Act, cannot be countenanced in the hue of the later judgments of the Hon’ble Summit Court. Once it is held that the income of a Builder in respect of letting out of the properties is chargeable under the head “Profit and gains of business or profession”, the provisions enshrined in Chapter IV- D get magnetized and not those under the head “Capital gains”. It is no doubt true that section 23 of the Act deems the determination of income from house property, which is not let out, but it is equally trite that a deeming provision cannot be extended beyond its ambit, so as to cover the heads of income or the sections, to which it does not operate. My attention has not been drawn by the ld. DR towards any specific provision under Chapter IV-D of the Act which deems rental income on the properties held as stock in trade, waiting for sale and not actually let out, as chargeable to tax under the head “Profit and gains of business or profession”. As the assessee admittedly did not earn any rental income from letting out of these two units, which position has also not been disputed by the AO, in my considered opinion, taxing any hypothetical income, which is otherwise not sanctioned by any provision under Chapter IV-D, cannot be permitted. 6. Even otherwise, section 5 of the Act clearly stipulates that a person who is a resident can be subjected to tax in respect of income from whatever source which is received or is deemed to be received in India or accrues or arises or deemed to accrue or arise to him in or outside India during such year. As the instant imaginary income charged to tax by the AO is neither a deemed
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income under the head `Business income’ nor is received or deemed to be received or accruing or arising or deemed to accrue or arise, not falling in any of the categories given in clauses (a) to (c) of section 5(1), I hold that there is no rationale in charging it to tax. I, therefore, overturn the impugned order and direct to delete the addition of Rs.34.35 lakh.”
The Revenue has not brought before us any material to controvert the findings of Tribunal or to distinguish the facts. Hence, for the parity of reasons, the impugned order is set aside and the appeal of assessee is allowed.
In the result, the appeal of assessee is allowed.
Order pronounced on Tuesday, the 06th day of August, 2019.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 06th August, 2019 RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-5, Pune 3. 4. The Pr. Commissioner of Income Tax-4, Pune ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune