CHAMBER CONSTRUCTION PRIVATE LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-3(3), MUMBAI

The learned Commissioner of Income Tax (Appeals) erred in holding that deemed income from House Property is to be computed u/s 22 even when these are unsold flats lying as stock- in-trade of completed projects.

Briefly stated facts are that the assessee is a builder, property developer and trader in TDR. The AO during the course of assessment proceedings in AY 2013-14 noted that unsold area of 52385 sq. ft. is lying in closing stock, which are completed flats. Accordingly, he estimated the ALV by observing as under: - “Accordingly, on the total area of unsold area of 52385 sq. ft @ Rs.50 per square feet per month comes to ₹ comes to ₹ 2619250/- per month and accordingly, the total annual rent determined at ₹ 3,14,31,000/- (₹ 2619250 X 12). After allowing the statutory deduction @ 30%, which comes to ₹ 9429300/- and the net taxable income of ₹ 2,20,01,700/- is brought to tax under the head income from house property."

We have heard rival contentions and gone through the facts and circumstances of the case. At the outset, the learned Counsel for the assessee stated that this issue is squarely covered by various decisions of co-ordinate bench, wherein view is taken that there are two different views of High Courts namely Hon’ble High Court of Gujarat in the case of CIT vs. Neha Builders P. Ltd. (2008) 296 ITR 661 (Guj) has held that the property hold as stock in trade becomes or partake character of the stock and no income derived therefrom, whatever, income from business cannot be held as income from house property. Similarly, the opposite view is taken by Hon’ble Delhi High Court in the case of CIT v. Ansal Housing and Construction Ltd (2013)354 ITR 180 (Del). The learned Counsel for the assessee stated that the Tribunal particularly in the case of Chamber Construction Pvt. Ltd. vs. DCIT in ITAs No. 6901 & 6902/Mum/2017 vide order dated 30.11.2018 (in assessee’s own case for AY 2012-13) has considered this issue vide Para 7 to 10 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 ITAs No. 6901 & 6902/Mum/2017 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 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 ITAs No. 6901 & 6902/Mum/2017 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 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 ITAs No. 6901 & 6902/Mum/2017 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 non-jurisdictional 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 ITAs No. 6901 & 6902/Mum/2017 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-in-trade 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 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 ITAs No. 6901 & 6902/Mum/2017 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.