Income Tax Appellate Tribunal - Pune
M/S. Thackar Builders And Developers,, ... vs Income-Tax Officer, Ward - 2,, Satara on 6 February, 2019
आयकर अपील य अ धकरण "एक-सद य" यायपीठ पण
ु े म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH, PUNE
BEFORE SHRI D. KARUNAKARA RAO, AM AND
SHRI PARTHA SARATHI CHAUDHURY, JM
आयकर अपील सं. / ITA No. 1654/PUN/2018
नधा रण वष / Assessment Year : 2015-16
M/s. Thackar Builders and Developers,
Thackar Chambers, Shaniwar Peth,
Satara-415 002.
PAN : AAGFT0146A
.......अपीलाथ / Appellant
बनाम / V/s.
The Income Tax Officer,
Ward-2, Satara.
...... यथ / Respondent
Assessee by : Shri C.H. Naniwadekar
Revenue by : Shri Rajesh Gawali
सन
ु वाई क तार ख / Date of Hearing : 05.02.2019
घोषणा क तार ख / Date of Pronouncement : 06.02.2019
आदे श / ORDER
PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the assessee emanates from the order of Ld. CIT(Appeals)-4, Pune dated 13.08.2018 for the assessment year 2015-16 as per grounds of appeal on record.
2. The grievance of the assessee is with regard to the Ld. CIT(Appeals) upholding the decision of the Assessing Officer in making additions of 2 ITA No. 1654/PUN/2018 A.Y.2015-16 Rs.15,87,600/- on account of deemed rent for stock-in-trade of 33 flats held by the assessee.
3. At the time of hearing, the Ld. AR of the assessee submitted that this issue is covered in favour of the assessee by the decision of the Pune Bench of the Tribunal in the case of M/s. Cosmopolis Construction Vs. Income Tax Officer, in ITA Nos. 230 & 231/PUN/2018 for the assessment year 2013-14 & 2014-15 wherein the Tribunal has held as under:
"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 passed by the learned CIT(A), it would clearly appear that the case of the assessee was that the company was incorporated with the main object of purchase, take on lease, or acquire by sale, or let out the buildings constructed by the assessee. Development of land or property would also be one of the businesses for which the company was incorporated.
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 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 portions of 3 ITA No. 1654/PUN/2018 A.Y.2015-16 the property constructed have been sold out. If that be so, the property, right from the beginning was a 'stock-in-trade'."
8. In the case of Commissioner of Income Tax Vs. Ansal Housing Finance And Leasing Co. Ltd. (supra) the Hon‟ble Delhi High Court taking a contrary view has held that annual rental value on unsold flats built by assessee engaged in construction business is assessable as income from house property. It is a well settled law that when two divergent views of non-jurisdictional High Courts are available and there is no decision on the issue 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 and in the case of Commissioner of Income Tax Vs. Sane & Doshi Enterprises (supra) is that in the case of assessee, it is notional annual rental income on flats held as stock which is sought to be taxed, whereas in the case of Commissioner of Income Tax Vs. Sane & Doshi Enterprises (supra) it was the case of actual rental income earned by the assessee from renting of flats constructed by it. Hence, the decision rendered in the case of Commissioner of Income Tax Vs. Sane & Doshi Enterprises (supra) would not apply in the facts of the present case.
10. We further find that Mumbai Bench of the Tribunal in M/s. C.R. Developments Pvt. 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-in-trade 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."
4. The Ld. AR of the assessee further submitted that even the Mumbai Bench of the Tribunal in the case of Chamber Construction Pvt. Ltd. Vs. Dy.
Commissioner of Income Tax, in ITA No.4418/Mum/2017 for the assessment year 2012-13 on the same issue has relied on the judgment of the Hon'ble 4 ITA No. 1654/PUN/2018 A.Y.2015-16 High Court of Gujarat in the case of CIT Vs. Neha Builders (P.) Ltd. (2008) 296 ITR 661 (Guj.) and decided the issue in favour of the assessee. The relevant portion of the decision of the Tribunal is as under:
"8. We have deliberated at length on the issue under consideration in the backdrop of the aforesaid statutory provisions, and are of the considered view that though the „annual value‟ of a property simpliciter owned by an assessee would be liable to be assessed under the head „Income from house property‟, however a similar treatment cannot be accorded to a property which is held by the assessee as stock-in-trade of his business. In our considered view a property which is held by an assessee as stock-in-trade of his business as that of a developer would loose its color and character as that of a property simpliciter owned by him. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Gujarat in the case of CIT Vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj). The Hon'ble' High Court while disposing off the appeal filed by the revenue in the case of an assessee company which was engaged in the business of construction of property, had observed that where a property is held as stock-in-trade, then the same would become or partake the character of the stock, and any income derived therefrom would be income from business and cannot be held as income from property. The Hon'ble High Court while concluding as hereinabove had observed as under:
"7. From the order passed by the learned CIT(A), it would clearly appear that the case of the assessee was that the company was incorporated with the main object of purchase, take on lease, or acquire by sale, or let out the buildings constructed by the assessee. Development of land or property would also be one of the businesses for which the company was incorporated.
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 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. Admittedly, the lower authorities had relied on the judgement of the Hon'ble High Court of Delhi in the case of CIT Vs. Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 180 (Delhi) and had therein concluded that the notional lettable value of the unsold flats held by the assessee was liable to be determined and brought to tax under the head „Income from house property‟. We find that the issue under 5 ITA No. 1654/PUN/2018 A.Y.2015-16 consideration before us i.e whether the notional lettable value of the property held by an assessee as stock-in-trade in its business as that of a developer is liable to be assessed under the head „income from house property‟, has been differently answered by the Hon'ble High Court of Gujarat in CIT Vs. Neha Builders Pvt. Ltd. (2008) 296 ITR 661 (Guj) and the Hon'ble High Court of Delhi in CIT Vs. Ansal Housing Finance and Leasing Ltd. (2013) 354 ITR 186 (Del). We are of the considered view that in the backdrop of the aforesaid conflicting views of the aforesaid non- jurisdictional High Courts, the view in favour of the assessee as had been arrived at by the Hon'ble High Court of Gujarat is to be preferred. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products (1973) 88 ITR 192 (SC), wherein the Hon'ble Apex Court had observed that if two reasonable constructions of a taxing provision is possible, then that construction which favours the tax payer must be adopted. Further, we find that ITAT, Mumbai in the case of ACIT-15(2)(1) Vs. M/s Haware Construction Pvt. Ltd. [ITA no. 3321 & 3172/Mum/2016; dated 31.08.2018] had after deliberating on the aforesaid judgments of the Hon'ble High Court of Gujarat in Neha Builders (P) Ltd.(supra) and that of the Hon'ble High Court of Delhi in Ansal Housing Finance & Leasing Company Ltd.(supra), had by taking support of the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC), had followed the decision of the Hon'ble High Court of Gujarat in Neha Builders (P) Ltd. (supra) and had concluded that the notional lettable value of the unsold flats held by the assessee cannot be determined and brought to tax under the head „Income from house property‟. Still further, a similar view had also been taken by the Tribunal in the case of M/s C.R Development Pvt. Ltd. Vs. JCIT-8(1)(OSD), Mumbai [ITA No. 4277/Mum/2012; dated 13.05.2015]. It was observed by the Tribunal that estimating of the rental income of the flats held by the assesses as stock-in-trade was not justified, as the said flats were neither given on rent nor the assessee had any intention to earn rent by letting out the same. We further find that another coordinate bench of the Tribunal i.e. ITAT, Mumbai Bench "G", Mumbai in ITO-2(1)(1), Mumbai Vs. M/s Arihant Estates Pvt. Ltd. [ITA No. 6037/Mum/2016; dated 27.06.2018] had relied on an earlier view taken by the Tribunal in the case of M/s Runwal Constructions Vs. ACIT in [ITA No. 5408 & 5409/Mum/2016; dated 22.02.2018], and after deliberating on the judgment of the Hon'ble High Court of Gujarat in CIT Vs. Neha Builders Pvt. Ltd. (2008) 296 ITR 661 (Guj) and that of the Hon‟ble High Court of Delhi in Ansal Housing Finance & Leasing Company Ltd. (2013) 354 ITR 186 (Del), has held that the assessing officer was not correct in bringing to tax the notional annual lettable value of the unsold flats which were held by the assessee as stock-in-trade. On a similar footing a similar view had also been taken by the ITAT,Mumbai Bench "G", Mumbai in the case of Progressive Homes, Mumbai Vs. ACIT-Circle 4(4), Mumbai [ITA No. 5082/Mum/2016; dated 16.05.2018) and ITAT "H" Bench, Mumbai in Haware Engineers & Builders Pvt. Ltd. Vs. DCIT, Central Circle-4(2), Mumbai [ITA No. 7155/Mum/2016; dated 10.10.2018].
10. In the backdrop of our aforesaid observations, respectfully following the judgment of the Hon'ble High Court of Gujarat in the case of CIT Vs. Neha Builders (P) Ltd. (2008) 296 ITR 661 (Guj) and the aforesaid orders of the coordinate benches of the Tribunal, we are of the considered view that the lower authorities had erred in determining the notional lettable value of the unsold flats held by the assessee company as stock-in-trade of its business of builders and property developers, and bringing the same to tax in the hands of the assessee under the head „Income from house property‟. We thus in terms of our aforesaid observations set aside the order of the CIT(A).
6 ITA No. 1654/PUN/2018A.Y.2015-16
11. The appeal of the assessee is allowed."
5. We have perused the case records and given thoughtful consideration to the judicial pronouncements placed before us. That on the issue in hand, there are decisions in favour of the assessee rendered by the Pune and also by the Mumbai Bench of the Tribunal.
Respectfully following the aforesaid Tribunal's decisions, we set aside the order of the Ld. CIT(Appeals) and allow the appeal of the assessee.
6. In the result, appeal of the assessee is allowed.
Order pronounced on 06th day of February, 2019.
Sd/- Sd/- D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER
पुणे / Pune; दनांक / Dated : 06th February, 2019. SB आदे श क# $ त&ल'प अ(े'षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeals)-4, Pune.
4. The Pr. CIT-3, Pune.
5. "वभागीय %त%न&ध, आयकर अपील य अ&धकरण, "एक-सद य" ब*च, पण ु े / DR, ITAT, "SMC" Bench, Pune.
6. गाड- फ़ाइल / Guard File.
// True Copy // आदे शानुसार / BY ORDER, %नजी स&चव / Private Secretary आयकर अपील य अ&धकरण, पण ु े / ITAT, Pune.
7 ITA No. 1654/PUN/2018A.Y.2015-16 Date 1 Draft dictated on 05.02.2019 Sr.PS/PS 2 Draft placed before author 05.02.2019 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order