Section 22 r.w.s. 23 –Under section 22 annual value is chargeable to tax in the hands of the owner – The assessee, SPV, promoted by the State Housing Board, was merely a developer and not the owner. Accordingly, notional annual value of unsold flats, held as stock-in-trade by the assessee, could not be assessed u/s 23

25.  [2019] 106
taxmann.com 346 (Kol.)

Bengal DCL Housing Development Co. Ltd. vs. DCIT

ITA Nos.: 210/Kol/2017 & 429/Kol/2018

A.Y.s: 2011-12 & 2012-13

Date of order: 24^th May, 2019

Section 22 r.w.s. 23 –Under section 22 annual value is
chargeable to tax in the hands of the owner – The assessee, SPV, promoted by
the State Housing Board, was merely a developer and not the owner. Accordingly,
notional annual value of unsold flats, held as stock-in-trade by the assessee,
could not be assessed u/s 23

FACTS

The assessee was a
joint-sector company promoted by the State Housing Board with DCPL for
undertaking large-scale construction of housing complexes within the state to
solve basic housing problems subject to the supervision and overall control by
the State Government. Pursuant to a development agreement, the assessee
undertook construction of a housing complex known as ‘U’. The assessee treated
unsold constructed flats as its stock-in-trade.

These flats, in respect of which annual value was sought to
be computed by the AO, were allotted by the assessee to various persons. The AO
noted that the expression ‘allotment’ in the terms and conditions of allotment
was defined to mean ‘provisional allotment’; the definition also stated that
allotment will remain provisional till a formal deed of transfer is executed
and registered in favour of the allottee for his apartment. In respect of the
flats for which no formal deeds were executed and registered, the AO held the
assessee to be the owner. The AO computed and charged to tax the notional
annual value of unsold finished apartments held by the assessee.

Aggrieved, the assessee preferred an appeal before the
Commissioner of Income-tax (Appeals) [CIT(A)] who confirmed the action of the
AO. Still aggrieved, the assessee preferred an appeal to the Tribunal.

HELD

The Tribunal observed that in order to attract charge of tax
under the head ‘house property’, the AO must prove that the assessee is the
owner of the same. The term ‘owner’ for the purposes of Chapter IVC is defined
in section 27. The Tribunal observed that though the value of finished
apartments was included under the head ‘Inventory’ disclosed in the balance
sheet, yet, for the purposes of section 22 the assessee could not be considered
to be the owner of the apartments. The Tribunal noted that the apartments were
allotted prior to the balance sheet date and in respect of such allotments a
substantial part of the consideration was received and reflected by way of
liability in the books of the assessee. Consequent to allotment and receipt of
consideration, the right of specific performance and right to obtain conveyance
accrued in favour of the purchaser. The assessee was debarred from claiming ownership
rights in the apartments already allotted to the flat purchasers.

The Tribunal also observed that the apartments did not have
occupancy certificate. And in the absence of a valid occupancy certificate, the
property could not be said to be in a position to be let or occupied. Thus, the
notional annual value of unsold apartments could not be assessed in the hands
of the assessee u/s 23 of the Act.

The Tribunal decided the appeal in favour of the assessee.