TaxTMI 
TaxTMI 
2021 (6) TMI 132
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....d Commissioner of Income Tax(A) 52 has failed to appreciate that amendment to Income Tax Act to Section 23(5) to tax Notional Deemed House Property Income on unsold units held as Inventory is prospective and therefore conversely there are no provisions to tax the same in AY 2015-16. 5. The Learned Commissioner of Income Tax(A) 52 has erred in not considering various case laws cited by the appellant. 6. The Learned Commissioner of Income Tax(A) 52 has erred in not considering that no income under the head House Property is to be computed taking the ALV at 8.5% of the cost ignoring the various case laws holding the municipal ratable value be taken as ALV. 7. The appellant prays that the addition of Rs. 22,25,565/- be deleted." 3. Brief facts of the case are that the assessee is engaged in the business of builders/construction and Real Estate Development. It filed its original return of income n 29.09.2015 declaring a total income of Rs. 35,12,040/-. Consequently, notices u/s. 143(2) and 142(1) were duly issued and served on the assessee. During the course of assessment proceedings, on examining he balance sheet of the assessee, the AO observed that unsold finished stock of un....
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.... further observed as under :- 5.4. It is important to note here that while deciding the issue raised in the case of Chennai Properties & Investments Ltd., the Hon'ble Supreme Court has also discussed about the judgment of the same Court in the case of East India Housing and Land Development Trust Ltd., as under :- "With this background, we first refer to the judgment of this Court in East India Housing & Land Development Trust Ltd- 's case (supra) which has been relied upon by the High Court. That was a case where the company was incorporated with the object of buying and developing landed properties and promoting and developing markets. Thus, the main objective of the company was to develop the landed properties into markets. It so happened that some shops and stalls, which were developed by it, had been rented out and income was derived from the renting of the said shops and stalls. In those facts, the question arose for consideration was whether the rental income that is received was to be treated as income from the house property or the income from the business. This court while holding that the income shall be treated as income from the house property, rested i....
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....of the company must also be kept in view to interpret the activities. In support of the aforesaid proposition, number of judgments of other jurisdictions, i.e. Privy Counsel, House of Lords in England and US Courts were taken note of The position in law, ultimately, is summed up in the following words: - "As has been already pointed out in connection with the other two cases where there is a letting out of premises and collection of rents the assessment on property basis may be correct but not so, where the letting or sub-letting is part of a trading operation. The diving line is difficult to find; but in the case of a company with its professed objects and the manner of its activities and the nature of its dealings with its property, it is possible to say on which side the operations fall and to what head the income is to be assigned." 5.6 After applying the aforesaid principle to the facts, which were there before the Court, it came to the conclusion that income had to be treated as income from business and not as income from house property. We are of the opinion that the aforesaid judgment in Karanpura Development Co. Ltd.'s case (supra) squarely applies to the facts of th....
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....veloping them as coal fields and then sub-leasing them to collieries and other companies. Therefore, the Hon'ble Court held that the income received from letting out of mining leases should be treated as income from business. Further, in the case of Chennai Properties & Investments Ltd. also, it was held that rental income received from letting out of properties should be treated as business income, observing that letting out of the properties was the business of the assessee. Thus, it is clear from the judgements of the Hon'ble Supreme Court discussed above that income earned from letting out of property will be assessed as income from business, only if the assessee is engaged in the business of letting out of properties. In the present case, the appellant has never taken a stand that it is engaged in the business of letting out of properties. A stated above, it is clear from the statement of facts filed along with Form no.35 and written submissions filed by the appellant during assessment proceedings and appellate proceedings that it is engaged in the business of construction of properties and sale thereof. In fact, in the submissions, the appellant has also admitted th....
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.... though the said property was included in the closing stock and expenses on maintenance were debited to the P&L a/c?" 11. The honourable High Court had adjudicated the issue as under :- "8. 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 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....
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.... of the fact of ownership. Undoubtedly, the decision in Vikram Cotton indicates that in every case, the Court has to discern the intention of the assessee; in this case the intention of the assesse was to hold the properties till they were sold. The capacity of being an owner was not diminished one whit, because the assessee carried on business of developing, building and selling flats in housing estates. The argument that income tax is levied not on the actual receipt (which never arose in this case) but on a notional basis, i.e. ALV and that it is therefore not sanctioned by law, in the opinion of the Court is meritless. ALV is a method to arrive at a figure on the basis of which the impost is to be effectuated. The existence of an artificial method itself would not mean that levy is impermissible. Parliament has resorted to several other presumptive methods, for the purpose of calculation of income and collection of tax. Furthermore, application of ALV to determine the tax is regardless of whether actual income is received; it is premised on what constitutes a reasonable letting value, if the property were to be leased out in the marketplace. If the assessee's contention wer....
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.... during the whole or any part of the previous year, the annual value of such property or part of the property, for the period upto 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 assessment year 2018-19 and subsequent years." 17. From the above it is amply clear that the said section was inserted to provide relief to the builders and developers from the ambit of deemed rent on unsold stock already present in the sanguine provisions of section 23, for a period of one year with effect from 1.4.2018. Hence the assessee is mistaken in its plea that deemed rent has been levied under the provisions of section 23(5) which as per the claim of the assessee is prospective. As we have noted that it is nobody's case that deemed rent is to be levied under the provisions of section 23(5). Hence this plea of the assessee that deemed rent was not leviable as section 23(5) was not in existence in the statute books for the impugned assessment year is totally unsustaina....