Tax Management India. Com
                        Law and Practice: A Digital eBook ...
TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Articles News
Highlights
D. Forum
What's New
Sub-Menu

Share:      

        Home        
 
Article Section
Home Articles Income Tax CA DEV KUMAR KOTHARI Experts This
← Previous Next →

Budget 2017 – Clause 12 -Property held as stock-in-trade - anomalies in proposed amendment with some suggestions.

Submit New Article
Budget 2017 – Clause 12 -Property held as stock-in-trade - anomalies in proposed amendment with some suggestions.
By: CA DEV KUMAR KOTHARI
February 3, 2017
All Articles by: CA DEV KUMAR KOTHARI       View Profile
  • Contents

Section 22- 26 relates to  income from house property

As per Section 22 of the Income-tax Act, 1961 annual value of any house property is taxable as income (subject to some exceptions).

Section 23 of the Income-tax Act provide about determination of annual value  of property.

Budget proposal:

Clause 12 of the Bill seeks to amend section 23 of the Income-tax Act relating to annual value how determined, to prescribe for how annual value shall be determined in case it is held as stock-in-trade.

Analysis of proposed amendment vide Clause 12:

The clause is reproduced below in a manner for easy analysis

12. In section 23 of the Income-tax Act, after sub-section (4), the following sub-section shall be inserted with effect from the 1st day of April, 2018, namely:___

“(5) 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.”

The notes on clause is also almost reproduction of the proposed clause and does not help in understanding or clarifying the proposal.

Anomalies in proposal:

The amendment is to give a benefit of traders, and developers of property. This is for the reason that these people hold property as stock-in-trade and intend to sell as soon as possible.

Stock –in-trade of property is difficult let out:

A property which is held for the purpose of selling is difficult to let out because it is difficult to sell a tenanted property. Once a property is let out, its price may come down and the buyers will also be lesser. Because a property with tenant occupying it will be purchase only by a person who want to earn rent and not for immediate use. Difficulties in increasing rent and getting properties vacated are also main causes which force properties to be kept as unused and kept under lock and key.

Therefore, proposition that a property which is stock-in-trade can be let out is very difficult in view of ground realities.

Stock-in-trade of properties:

A property can be held as stock-in-trade in different manner and situations, for example:

  • A dealer in property who just purchase and sell completed properties and is not engaged in developer or builder.
  • A dealer in property who purchase and sell completed properties and is also engaged in developer or builder or also purchase buildings under construction.
  • A dealer in property who is engaged in business of developer or builder and hold property as stock-in-trade during construction period and after construction is completed till it is sold or treated as investment.

Though the proposed amendment is in relation to sock-in-trade of properties, however, it seems that it will not benefit to completed properties purchased and held as stock-in-trade. Whereas it may be applicable to a property purchased even a day before completion certificate is granted. 

Anomalies for let out:

Use of expressions ‘the property or any part of the property ‘ and ‘ is not let during the whole or any part of the previous year’ ,

can lead to interpretation that even if a pat of property is not let out for any part of the year then annual value will be taken to be nil.

Period of exception:

Use of expression  “for the period up to one year from the end of the financial year in which the certificate of completion of construction ….’

Is also anomalous because this can lead to a log period up to two years of exception. For example:

Date of completion certificate

End of the year in which certificate is granted

Period of exception

Months of exception

01.04.2017

31.03.2018

01.04.2007 to 31.03.2019

24

01.12.2017

31.03.2018

01.12.2017 to 31.03.2019

16

31.03.2018

31.03.2018

01.04.2018 to

31.03.2019

12

It is not likely to be intention behind amendment. Therefore the language of proposed amendment need to be revised. If an exception for only twelve months is intended, then expression twelve months from the end of month in which completion certificate is granted can be used.

Business income:

After this amendment a new controversy is likely to arise as to ‘whether any rent earned during any part of year can be assessed as business income’ ?

After this amendment it will be apparent that a property which is held as stock-in-trade is subject to taxation under head ‘house property’. Therefore, when such a property is not let out for a part of year and is let out for a part of year, the rent earned only for a part of the year will not be taxable u/s 22 due to exception provided.  Rent earned for part of year will also not be taxable as income from business.

Better course under I.T.Act:

Better course is to treat rent or other revenue earned by allowing use of such property which is held as stock-in-trade as business income. The owner may be allowed an option to claim or not to claim depreciation on cost of construction of building. For this purpose suitable clause in section 28 can be inserted and an exception in section 22 can be provided.

Better course for owner:

In many situations it would be better option for a buyer of property or even a trader or trade or developer to hold (originally or on conversion or treatment as such) to hold land and building as investment (capital asset). Now with holding period of 24 months to treat such property as long term capital asset, in most of situations holding as investment can be more advantageous.

Amendment of section 23.

12. In section 23 of the Income-tax Act, after sub-section (4), the following sub-section shall be inserted with effect from the 1st day of April, 2018, namely:___

“(5) 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.”.

Notes on Clauses:

Clause 12 of the Bill seeks to amend section 23 of the Income-tax Act relating to annual value how determined.

It is proposed to insert a new sub-section (5) in the said section so as to provide that where the property consisting of any building and 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.

This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-2019 and subsequent years.

 

By: CA DEV KUMAR KOTHARI - February 3, 2017

 

 

 
← Previous Next →

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Site Map - Recent || Site Map || ||