TMI Blog2019 (9) TMI 1403X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act, calculating the notional income in respect of the properties which were not rented out and rental income was never earned actually, the Assessing Officer s policy to tax such income is unsustainable in law in view of the various decisions cited in the preceding paragraphs of this order. Accordingly, the grounds raised by the assessee are allowed. - ITA No.623/PUN/2018 - - - Dated:- 5-9-2019 - Shri D. Karunakara Rao, Am And Shri Vikas Awasthy, JM Assessee by: Shri Vipin Gujrathi Revenue by: Shri N. Ashok Babu ORDER D. Karunakara Rao, This appeal is filed by the assessee against the order of CIT(A)-5, Pune dated 12.12.2017 for the Assessment Year 2014-15. 2. The grounds raised by the assessee are as under :- 1) On the facts and in the circumstances of the case and in law the honorable CIT (Appeals) - 5, Pune erred in confirming the addition of ₹ 11,59,200/- 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 developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntents of para 6 to 10 of the order of the Tribunal in the case of M/s. Cosmopolis Construction (supra) are extracted hereunder :- 6. We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. The solitary issue in the appeal by assessee is against the addition of ₹ 75,50,995/- under the head Income from House Property‟ in respect of notional rental income on the flats held as stock-in-trade. In so far as the facts narrated by the ld. AR of the assessee, there is no dispute. 7. The issue before us for adjudication is whether the notional annual rental value on unsold flats held as stock-in-trade by the assessee is to be assessed under the head Business Income‟ or under the head Income from House Property‟. The Hon‟ble Gujarat High Court in the case of Commissioner of Income Tax Vs. Neha Builders (P.) Ltd. (supra) has held that where the property is held as stock-in-trade any income derived rom stock would be income from business‟ and not income from house property‟. The relevant extract of the findings of Hon‟ble High Court are as under : 7. From the order pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from the Jurisdictional High Court, the view in favour of the assessee has to be adopted [Commissioner of Income Tax Vs. Vegetable Products Ltd.(supra)]. 9. In so far as the decision of Hon‟ble Bombay High Court in the case of Commissioner of Income Tax Vs. Sane Doshi Enterprises (supra) is concerned we find that the facts in the said case are at variance. In the said case the assessee was engaged in construction business. The assessee rented out unsold flats and suo-motu offered rental income from the flats under the head Income from House Property‟. On the contrary the Revenue wanted to tax rental income under the head Business Income‟. The matter travelled to the Tribunal. The Tribunal held that the income earned by the assessee from renting of flats is to be assessed under the head Income from House Property‟. The Department carried the matter in appeal before the Hon‟ble High Court. The Hon‟ble High Court confirmed the findings of Tribunal and held that rental income received from unsold portion of property constructed by the assessee, is assessable as income from house property. The core difference between the case of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35 lakh. 7. Further, we perused the decision of the Tribunal in the case of Kumar Becharay Rathi (supra), where the undersigned is authored of the said order, and find para 9 to 12 of the said order of the Tribunal are relevant and the same are extracted hereunder :- 9. On hearing both the sides and perused the order of the Tribunal in the case of M/s. Cosmopolis Construction (supra), I proceed to extract the relevant paras of the said order of the Tribunal (supra) as under :- 5. The ld. AR controverting the submissions of the DR submitted that the case laws relied upon by the Department is distinguishable. The ld. AR pointed that in the instant case the addition has been made by determining notional annual rental value on unsold units. Whereas, in the case of Commissioner of Income Tax Vs. Sane Doshi Enterprises (supra) the assessee had actually rented out the flats and had offered the rental income under the head Income from House Property‟. The Department intended to tax the amount under the head business income. The Tribunal ruled in favour of the assessee. The Department carried the matter in appeal before the Hon‟ble High Court, the Hon‟ble Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 would be the 'business and the business stocks, which may include movable and immovable, would be taken to be 'stock-intrade , 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. 9. From the statement of the assessee, it would clearly appear that it was treating the property as 'stock-in-trade . Not only this, it will also be clear from the records that, except for the ground floor, which has been let out by the assessee, all other portion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. Vs. JCIT (supra), M/s. Runwal Constructions Vs. ACIT (supra) and Shri Girdharilal K. Lulla Vs. DCIT (supra) under similar set of facts have taken a consistent view in holding notional annual rental value on unsold flats held as stock-intrade by the assessee engaged in construction and development activities as Business Income . 11. Thus, in view of the facts of the case and the decision rendered in the case of Commissioner of Income Tax Vs. Neha Builders (P.) Ltd. (supra) we find merit in the submissions of assessee and allow the appeal. 12. In the result, the impugned order is set aside and the appeal of assessee is allowed. 10. From the above extracts, it is evident that the taxation of rental income earned out of stock-in-trade i.e. unsold flats of the construction company, depends on various facts such as if the flats are rented out actually or not. As held by various decisions, the rental income can be actual rent received by the assessee out of renting of the unsold flats or deemed rental/notional rental income calculated by the Assessing Officer attributable to such unsold flats which were not actually rented out. From the judgements in the case of CIT vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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