TMI Blog2023 (9) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment. We direct the AO to recompute the notional rent by ascertaining the Municipal rentable value. Appeal of the assessee is dismissed. - Shri Amit Shukla (Judicial Member) And Ms. Padmavathy S. (Accountant Member) For the Assessee : Shri Rahul Hakkani For the Department : Smt. Mahita Nair (Sr.AR) ORDER PER PADMAVATHY S (AM): This appeal is against the order of Commissioner of Income-tax (Appeals)-52, Mumbai, [hereinafter the Ld.CIT(A) ] dated 28/02/2020 for A.Y. 2016-17. The assessee raised the following grounds of appeal:- 1. On the facts and circumstances of the case, and in law, the learned CIT(AJ erred upholding the assessment of the Rs. 63, 58,756/- as notional income under section 22 of the Income-tax Act, 1961 on the unsold stock-in-trade of the Appellant 2. The learned CIT(A) ought to have appreciated that any income arising from the stock-in-trade of the Appellant ought to have been assessed under the head Profits and Gains of Business or Profession 3. The CIT(A) erred in upholding the computation of the Annual Letting Value of the unsold stock in trade arrived at considering the cost incurred by the Appellant on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). The CIT(A) upheld the decision of the Assessing Officer by relying on the order of the CIT(A) in assessee s own case for A.Y. 2017-18. Aggrieved, assessee is in further appeal before the Tribunal. 3. The Ld.AR submitted that it is not possible for real estate developer who wants to sell its unsold stock also to let it out since the let out property cannot be sold by the developer. Further, it is not possible for the builder to let out the property immediately after the project is complete or to sell the same as soon as the occupation certificate is obtained. The legislature has amended the provisions of section 23 where a period of 2 years is considered to be the reasonable period which is applicable from A.Y. 2018-19 whereby it is provided that the Annual Let out Value (ALV) of unsold stock should be taken as Nil for a period of 2 years from the end of the financial year in which OC is granted. The Ld.AR submitted that even the legislature has recognized the impossibility of letting out the property immediately on completion and, therefore, notified sub section (5) to section 23 and, therefore, the provisions of sections 23 and 24 should be interpreted keeping in mind the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck and expenses on maintenance were debited to the profit and loss account? The facts in that case was that the Assessee Company was engaged in the business of construction of property and one of the building property was included the closing stock in the balance sheet drawn for the business. The Assessee has filed the revised returned submitting that a part of its property was given on rent and the income derived on that basis should be computed under the head income from house property and not business income. The Hon ble High Court, had noted the following facts: Assessee Company is engaged in the business of construction of property, one of the building properties was included in the closing stock in the balance-sheet drawn for the business. The assessee filed a revised return submitting that a part of its property was given on rent and the income derived on that basis should be computed under the head Income from house property and not as business income. The Assessing Officer, during the course of the assessment proceedings, observed that the expenses on maintenance of the property were debited to the profit and loss account and so also the building was shown as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out by the assessee, all other portions of the property constructed have been sold out. If that be so, the property, right from the beginning was a stock in-trade . Agreeing with the submissions made by Mr. Naik, learned counsel for the Revenue, we hold that the Tribunal was not correct in granting the appeal of the assessee. For the reasons aforesaid, the reference deserves to be answered in favor of the Revenue. It is accordingly answered and stands disposed of No costs. 9. Thus, there was no occasion by the Hon ble High Court to deal and decide the case were the property shown in the closing stock was not rented and income was to be computed on the basis of some notional rent. Albeit there was actual rent received from the property which was included in the closing stock and the controversy was, whether the rental income derived from letting out the flat is assessable under the head income from house property or business income, which Hon ble High Court held that it should be assessed as business income. 10. On the contrary, on this point, Hon ble Jurisdictional High Court in the case of Mangla Homes Pvt. Ltd. Vs. ITO, reported in (2010) 325 ITR 281(Bombay) wherein, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income received from unsold portion of property constructed by it was assessable tax as income from house property. 13. Thus, in all these cases there was actual receipt rental income from the unsold stock of property and the controversy of whether income is to be assets under the head income from house property or business income. Hon ble Bombay High Court in all the aforesaid decisions has taken a contrary view to judgment of Hon ble Gujarat High Court in the case of Neha Builders and held that the rent received from property held as stock-in-trade and any rent received on such unsold closing stock, then income is assessable as income from house property and not as a business income . 14. The aforesaid ratio and principle, either of the Hon ble Gujarat High Court or the Hon ble Bombay High Court is not applicable on the facts of the present case, because, here in this case the Assessee had unsold units which were lying vacant and were in the possession of the Assessee Company. Assessing Officer held that these properties are liable to be taxed on notional rental income under the head income from house property on the basis of ALV. It is not a case that there is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) Sultan Bros's case (supra) and Karan Pura Development Co. Ltd.'s case (supra) the levy of income tax in the case of one holding house property is premised not on whether the assessee carries on business, as landlord, but on the ownership. The incidence of charge is because of the fact of ownership. Undoubtedly, the decision in Vikram Cotton Mills Ltd. case (supra) indicates that in every case, the Court has to discern the intention of the assessee; in this case the intention of the assessee 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 purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al value of such property or part of the property, for the period up to one year form 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. It is trite that the said amendment has to be given effect prospectively from 01.04.2018 as mentioned in the Explanatory Notes to the provisions of the Finance Act, 2017. It is a cardinal principle of the interpretation that the normal presumption which respect to an amendment is that is applicable prospectively unless and until specifically stated otherwise. The logic behind such as interpretation is that the law should govern current activities; i.e. to say lex prospicit non respicit , which means that The Law looks forward and not backward. 19. Now, that specific provision has been brought in the statute which provides that, if building or land held as stock in trade and the property has not been let out during the whole or any part of the previous year, then annual value of such property after the period of one year (which was increased 2 years), shall be computed as income from house property and up to period of one y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 244 (Mag.)/[2014] 368 ITR 330 duly supports this proposition. Thus assessing officer has made an ad hoc estimate of 8.5% of investment on the plea that assessee has not been able to provide the municipal ratable value. This is not sustainable on the touchstone of Hon'ble Bombay High Court decision in the case of Tip Top Typography (supra). In our considered opinion nothing stops the assessing officer from obtaining the municipal ratable value from Departmental or government machinery. Hence we direct the assessing officer to compute the valuation of deemed rent in accordance with our observation as above and take into account the Hon'ble Jurisdictional High Court decision as above. Since we have decided the issue by duly taking note of Hon'ble Jurisdictional High Court decision and have also applied Hon'ble High Court decision, the reference to other decision in this case is not considered relevant to adjudication in this case. 22. Thus, AO is directed to compute accordingly as per direction given above. Accordingly, ground No.1 of the revenue is partly allowed for statistical purposes. 6. The coordinate bench in the above case has examined the var ..... X X X X Extracts X X X X X X X X Extracts X X X X
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