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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI R.S. SYAL
आदेश / ORDER PER R.S.SYAL, VP : This appeal by the assessee is directed against the order dated 27-12-2019 passed by the CIT(A)-8, Pune in relation to the assessment year 2013-14. 2. The additional ground taken by the assessee was not pressed by the ld. AR. The same is, therefore, dismissed as not pressed. The only issue raised in the appeal memo is against the confirmation of addition of Rs.14,52,000 as `Business income‟, being, notional rent on unsold flats held as „stock-in-trade‟.
Tersely stated, the facts of the case are that the assessee has been a builder and developer during the relevant period. During the course of assessment proceedings, the Assessing Officer (AO) observed that the assessee had certain units of flats lying unsold at the end of the year. It was opined that rental value of such unsold flat units was liable to be considered for taxation as „Income from house property‟. Adopting the fair market rent at Rs.11,000 per month per flat, the AO computed the gross annual value of such flats at Rs.14.52 lakhs. After allowing the deduction u/s 24(a) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟), he made an addition of Rs.10,16,400. The ld. CIT(A) did not change the fortune of the assessee except holding that the gross rental income computed by the AO was liable to be considered as `Business income‟. Aggrieved thereby, the assessee has preferred the appeal before the Tribunal.
I have heard both the sides and gone through the relevant material on record. It is an admitted position that the assessee is a builder and developer with 11 flats unsold at the end of the year. The only question is as to whether the annual value of such units can be assessed in the hands of assessee. Whereas the Assessing Officer opined that such income should be taxable under the head „Income from house property‟ at Rs.10,16,400, the ld. CIT(A) held gross income of Rs.14.52 lakhs taxable as „Business income‟. 5. At this juncture, it is relevant to mention that the Finance Act, 2017 has inserted sub-section (5) of section 23 w.e.f. 01.04.2018 reading as under:-
`Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.‟
A close scrutiny of the provision introduced by the Finance Act, 2017, transpires that where a property is held as stock-in-trade which is not let out during the year, its annual value for a period of one year, which was later enhanced by the Finance Act, 2019 to two years, from the end of the financial year in which the completion certificate is received, shall be taken as Nil. The amendment has been carried out w.e.f. 1.4.2018 and the Memorandum explaining the provisions of the Finance Bill, 2017 clearly provides that this amendment will take effect from 01.04.2018 and will, accordingly apply in relation to the assessment year 2018-19 and subsequent years. Obviously, it is a prospective amendment. The effect of this amendment is that stock-in-trade of buildings etc. shall be considered for computation of annual value under the head 'Income from house property' after one/two years from the end of the financial year in which the certificate of completion of construction of the property is obtained on and from the A.Y. 2018-19. Instantly, I am concerned with the assessment year 2013-14. As such, the amendment cannot apply to the year under consideration. In the absence of the applicability of such an amendment, no rental income can be said to have accrued to the assessee from unsold flats available as stock-in-trade under the head `Income from House property‟. In that view of the matter, the view point of the AO on this score is vacated.
Now, I turn to the decision taken by the ld. CIT(A) for taxing the amount as „Business income‟. In the hue of the fact that the Finance Act, 2017 has covered this aspect of the matter u/s 23(5) of the Act, obviously, it becomes manifest that the intention of the Legislature has been to treat such income as falling under the head „Income from house property‟ and not as the „Business income‟.
Be that as it may, arguendo, I go with the standpoint of ld. CIT(A) that income in question is chargeable to tax as „business income‟, there is no provision under the Chapter IV-D of the Act which can envelope the above amount within its fold. Admittedly, the assessee did not earn any actual rental income from the letting out of the 11 units. Ex conseqeunti, taxing hypothetical income of rent, which is otherwise not covered under any provision of Chapter IV-D of the Act, cannot be allowed. The ld. DR also failed to point out any specific provision under Chapter IV-D of the Act for taxing such hypothetical income. In view of the foregoing discussion, it is held that the ld. CIT(A) was not justified in taxing Rs.14.52 lakhs as „Business income‟. The impugned order is set aside and the addition is directed to be deleted.
In the result, the appeal is allowed.
Order pronounced in the Open Court on 9th March, 2022.