M/S.EMGEE HOMES PRIVATE LIMITED,MUMBAI vs. ACIT 6(3)(1), MUMBAI

Assessee has raised the following grounds in its appeal: - “I.) The Learned CIT(A) erred in law and facts of the case in directing AO to recompute the notional ALV by considering Municipal Rate-able Value, of unsold shops and penthouse, which are held as a stock in trade as on 31/03/2013, as income under the head income from House property.

At the outset, Ld. Counsel for the assessee submitted that the issue in appeal i.e., whether notional ALV on the unsold flats which are stock in trade can be assed under income from house property or not is squarely covered by the following decisions of the Tribunal:- (i) ITO v. M/s. Arihant Estates Pvt. Ltd., in ITA.No. 6037/Mum/2016 dated 27.06.2018. (ii) M/s Runwal Constructions v. ACIT in ITA.No. 5408/Mum/2016 dated 22.02.2018 (iii) CIT v. Neha Builders (P.) Ltd [296 ITR 661 (GUJ)] (iv) M/s. Saranga Estates Pvt. Ltd., v. DCIT in ITA.No. 4420/Mum/2017 dated 13.03.2019

Ld.DR vehemently supported the orders of the authorities below.

We have heard the rival submissions, perused the orders of the authorities below and the decisions relied on. On a perusal of the above orders of the Coordinate Benches we find that the issue as to whether the notional Annual Letting Value on unsold properties of the assessee which were held as stock in trade can be assessed under the head income from House Property has been considered by various decisions of the (A.Y: 2013-14) M/s. Emgee Homes Pvt. Ltd., Coordinate Benches of the Tribunal and in the case of the M/s. Saranga Estates Pvt. Ltd., v. DCIT (supra) the Coordinate Bench held as under: - “7. We have heard the rival submissions. The Ld. AR at the outset placed reliance on the decision of Hon’ble Gujarat High Court in the case of CIT vs. Neha Builders Pvt. Ltd., reported in 296 ITR 661 (Guj) which had held that where the property was held as stock in trade of the assessee, then the said property would partake character of stock and any income derived from stock would be income from business and not income from house property. In the instant case, admittedly, the assessee had treated the unsold flats at Jolly Bhavan and Aurovilla as its stock in trade. It is not in dispute before us that the assessee had not let out its unsold flats at Jolly Bhavan and Aurovilla to any person and had rather actually occupied the same for the purpose of its business. Hence, there cannot be any assessment of notional rental income or deemed rental income under the head ‘income from business’ in the absence of specific provisions contained in the statute. At this juncture, it would be pertinent to note that the amendment brought in by the Finance Act 2017 w.e.f. 01/04/2018 wherein a new sub-section (5) has been inserted in Section 23 of the Act wherein the properties held as stock in trade which are not let out during the previous year, the annual value of the said property, for a period up to one year from the end of the financial year in which the certificate of completion of construction and property is obtained from the competent authority, shall be taken to be nil. This amendment brought in Section 23 sub- section(5) of the Act is effective only from A.Y.2018-19 onwards and cannot be applied retrospectively. Hence, there cannot be any addition that could be made based on notional rental income or deemed rental income in the hands of the assessee in respect of unsold flats held as stock in trade by the assessee during the year under consideration under the head ‘income from business’ also. We have already held that the rental income, if any, derived from properties held as stock in trade cannot be assessed as income from house property by placing reliance on the decision of Hon’ble Gujarat High Court referred to supra. We find that the Delhi High Court in the case of Ansal Housing Finance referred to supra had held the decision in favour of the revenue which are on the very same set of facts. We find when there are divergent views given by two non- Jusidrictional High Courts by interpreting the provisions of the Act, then the construction that is favourable to the assessee should have to be construed. Reliance in this regard is placed on the decision of (A.Y: 2013-14) M/s. Emgee Homes Pvt. Ltd., Hon’ble Supreme Court in the case of CIT vs. Vegetable Products reported in 88 ITR 192 (SC). 7.1. In any case, this issue had been duly adjudicated by the Co- ordinate Bench of this Tribunal in the case of Chamber Construction Pvt. Ltd., vs. DCIT in for A.Y.2012-13 dated 30/11/2018 wherein it has been held as under: - “7. We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence has been sought by the assessee by preferring the present appeal, for adjudicating as to whether the CIT(A) is right in law and facts of the case in concluding that the deemed notional lettable value of the completed unsold flats held by the assessee company as stock-in-trade was liable to be determined and brought to tax under the head „Income from house property‟. We find from a perusal of Sec. 22 of the Act that the „annual value‟ of any property consisting of any building or land appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income tax, shall be chargeable to income tax under the head „Income from house property‟. Further, the determination of the „annual value‟ of the property is envisaged in Sec. 23 of the Act. Sec. 23(1)(a) contemplates that the sum for which the property might reasonably be expected to let from year to year is to be deemed as the „annual value‟ of the property which though might not have been let out by the assessee.

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 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-in-trade”, 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.”

Admittedly, the lower authorities had relied on the judgement of the Hon’ble High Court of Delhi in the case of (A.Y: 2013-14) M/s. Emgee Homes Pvt. Ltd., CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 180 (Delhi) and had therein concluded that the notional lettable value of the unsold flats held by the assessee was liable to be determined and brought to tax under the head „Income from house property‟. We find that the issue under consideration before us i.e whether the notional lettable value of the property held by an assessee as stock-in-trade in its business as that of a developer is liable to be assessed under the head „income from house property‟, has been differently answered by the Hon’ble High Court of Gujarat in CIT Vs. Neha Builders Pvt. Ltd. (2008) 296 ITR 661 (Guj) and the Hon’ble High Court of Delhi in CIT Vs. Ansal Housing Finance and Leasing Ltd. (2013) 354 ITR 186 (Del). We are of the considered view that in the backdrop of the aforesaid conflicting views of the aforesaid nonjurisdictional High Courts, the view in favour of the assessee as had been arrived at by the Hon’ble High Court of Gujarat is to be preferred. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products (1973) 88 ITR 192 (SC), wherein the Hon’ble Apex Court had observed that if two reasonable constructions of a taxing provision is possible, then that construction which favours the tax payer must be adopted. Further, we find that ITAT, Mumbai in the case of ACIT-15(2)(1) Vs. M/s Haware Construction Pvt. Ltd. [ITA no. 3321 & 3172/Mum/2016; dated 31.08.2018] had after deliberating on the aforesaid judgments of the Hon’ble High Court of Gujarat in Neha Builders (P) Ltd.(supra) and that of the Hon’ble High Court of Delhi in Ansal Housing Finance & Leasing Company Ltd.(supra), had by taking support of the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC), had followed the decision of the Hon’ble High Court of Gujarat in Neha Builders (P) Ltd. (supra), and had concluded that the notional lettable value of the unsold flats held by the assessee cannot be determined and brought to tax under the head „Income from house property‟. Still further, a similar view had also been taken by the Tribunal in the case of M/s C.R Development Pvt. Ltd. Vs. JCIT-8(1)(OSD), Mumbai [ITA No. 4277/ Mum/2012; dated 13.05.2015]. It was observed by the Tribunal that estimating of the rental income of the flats held by the assesses as stock-intrade was not justified, as the said flats were neither given on rent nor the assessee had any intention to earn rent by letting out the (A.Y: 2013-14) M/s. Emgee Homes Pvt. Ltd., same. We further find that another coordinate bench of the Tribunal i.e. ITAT, Mumbai Bench “G”, Mumbai in ITO-2(1)(1), Mumbai Vs. M/s Arihant Estates Pvt. Ltd. [ITA No. 6037/Mum/2016; dated 27.06.2018] had relied on an earlier view taken by the Tribunal in the case of M/s Runwal Constructions Vs. ACIT in [ITA No. 5408 & 5409/Mum/2016; dated 22.02.2018], and after deliberating on the judgment of the Hon’ble High Court of Gujarat in CIT Vs. Neha Builders Pvt. Ltd. (2008) 296 ITR 661 (Guj) and that of the Hon’ble High Court of Delhi in Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 186 (Del), has held that the assessing officer was not correct in bringing to tax the notional annual lettable value of the unsold flats which were held by the assessee as stock-in-trade. On a similar footing a similar view had also been taken by the ITAT, Mumbai Bench “G”, Mumbai in the case of Progressive Homes, Mumbai Vs. ACIT-Circle 4(4), Mumbai [ITA No. 5082/Mum/2016; dated 16.05.2018) and ITAT “H” Bench, Mumbai in Haware Engineers & Builders Pvt. Ltd. Vs. DCIT, Central Circle-4(2), Mumbai [ITA No. 7155/Mum/2016; dated 10.10.2018].

In the backdrop of our aforesaid observations, respectfully following the judgment of the Hon’ble High Court of Gujarat in the case of CIT Vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj) and the aforesaid orders of the coordinate benches of the Tribunal, we are of the considered view that the lower authorities had erred in determining the notional lettable value of the unsold flats held by the assessee company as stock-in- trade of its business of builders and property developers, and bringing the same to tax in the hands of the assessee under the head “Income from house property”. We thus in terms of our aforesaid observations set aside the order of the CIT(A).

The appeal of the assessee is allowed. 7.2. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we direct the Ld. AO to delete the addition made towards annual letting value of Rs.23,71,200/- in respect of two unsold flats. Accordingly, grounds raised by the assessee are allowed.”

In the result, appeal of the assessee is allowed.