Section 22 – Assessee is builder / developer – Rental income derived is taxable as Business Income and section 22 is not applicable – In respect of unsold flats held as stock-in-trade, Annual Lettable Value cannot be determined u/s 22 since rental income, if any, is taxable as Business Income

8. Osho Developers vs. ACIT (Mumbai) Shamim Yahya (A.M.) and Ravish Sood
(J.M.) ITA Nos. 2372 & 1860/Mum/2019 A.Ys.: 2014-15 & 2015-16 Date of order: 3^rd November,
2020 Counsel for Assessee / Revenue: Dr. K.
Shivram and Neelam Jadhav / Uodal Raj Singh

Section
22 – Assessee is builder / developer – Rental income derived is taxable as
Business Income and section 22 is not applicable – In respect of unsold flats
held as stock-in-trade, Annual Lettable Value cannot be determined u/s 22 since
rental income, if any, is taxable as Business Income

FACTS

The
assessee firm was a builder / developer. It had filed its return of income
declaring Nil income. During the course of the assessment proceedings, the A.O.
noticed that the assessee had shown unsold flats in its closing stock.
Following the judgment of the Delhi High Court in the case of CIT vs.
Ansal Housing Finance and Leasing Company Ltd. (2013) 354 ITR 180, the
A.O. assessed to tax the Annual Lettable Value (ALV) of the aforesaid flats u/s
22 as Income from House Property. The assessee tried to distinguish the facts
involved in the case of Ansal. It also contended that the income on the sale of
the unsold flats was liable to be assessed as its Business Income and not as
Income from House Property, therefore, the ALV of the said flats was not
exigible to tax.

Being
aggrieved, the assessee appealed before the CIT(A). Relying on the judgment of
the Bombay High Court in the case of CIT vs. Gundecha Builders (2019) 102
taxman.com 27, where the Court had held that the rental income derived
from the property held as stock-in-trade was taxable as Income from House
Property, the CIT(A) found no infirmity in the A.O.’s action of assessing the
ALV of the unsold flats as Income from House Property.

HELD

The
Tribunal noted that in the case before the Bombay High Court, the assessee had,
in fact, let out the flats. And the issue was as to under which head of rental
income was it to be taxed, as ‘business income’ or as ‘income from house
property’. But in the present appeal filed by the assessee the flats were not
let out and there was no rental income earned by the assessee. Therefore,
according to the Tribunal the decision in the case of Gundecha Builders
would not assist the Revenue.

Referring
to the decision of the Delhi High Court in the case of CIT vs. Ansal
Housing Finance and Leasing Company Ltd. relied on by the Revenue, the
Tribunal noted that the Delhi High Court was of the view that the levy of
income tax in the case of an assessee holding house property was premised not
on whether the assessee carries on business as landlord, but on the ownership.
And on that basis, the ALV of the flats held as stock-in-trade by the assessee
was brought to tax under the head ‘house property’ by the Delhi High Court.
However, the Tribunal noted the contrary decision of the Gujarat High Court in
the case of CIT vs. Neha Builders (2008) 296 ITR 661 where it was
held that rental income derived by an assessee from the property which was held
as stock-in-trade is assessable as Business Income and cannot be assessed under
the head ‘Income from House Property’. According to the Gujarat High Court, any
income derived from the stock would be income from the business and not income
from the property.

In view of the
conflicting decisions of the non-jurisdictional High Courts, the Tribunal
relied on the decision of the Bombay High Court in the case of K.
Subramanian and Anr. vs. Siemens India Ltd. and Anr. (1985) 156 ITR 11
where it was held that where there are conflicting decisions of the
non-jurisdictional High Courts, the view which is in favour of the assessee
should be followed. Accordingly, the Tribunal followed the view taken by the
Gujarat High Court in the case of Neha Builders and allowed the
appeal of the assessee. The Tribunal also noted that a similar view was taken
by the SMC bench of the Mumbai Tribunal in the case of Rajendra
Godshalwar vs. ITO-21(3)(1), Mumbai [ITA No. 7470/Mum/2017, dated 31^st
January, 2019]. Accordingly, the Tribunal held that the ALV of the
flats held by the assessee as part of the stock-in-trade of its business as
that of a builder and developer could not have been determined and thus brought
to tax under the head ‘Income from House Property’.