M/s. Shree Balaji Ventures, Pune V. Income-tax Officer, Ward - 7(5), Pune

ITA 1914/PUN/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3357 (ITAT-PUNE)
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 18-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Deemed to accrue or arise in india; Capital Gains; CHAPTER IV

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT . / ITA NO.1914/PUN/2018 / ASSESSMENT YEAR : 2015-16 M/S. SHREE BALAJI VENTURES, 5, SAN MAHU COMPLEX, OPP. POONA CLUB, CAMP, PUNE PAN : AADAS8344K VS. ITO, WARD-7(5), PUNE (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE EMANATES FROM THE ORDER PASSED BY THE CIT(A)-5, PUNE ON 22-08-2018 IN RELATION TO THE ASSESSMENT YEAR 2015-16. 2. THE ONLY EFFECTIVE GROUND RAISED IN THIS APPEAL IS AGAINS T THE CONFIRMATION OF ADDITION OF RS.34,35,432/- MADE BY THE ASSESSING OFFICER (AO) BY DETERMINING THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY, BEING, THE ANNUAL LETTIN G VALUE (ALV) OF THE UNSOLD UNITS OF PROPERTIES LYING AS STOC K IN TRADE. APPELLANT BY SHRI KRISHNA V. GUJRATHI RESPONDENT BY SHRI ACHAL SHARMA DATE OF HEARING 18-02-2019 DATE OF PRONOUNCEMENT 19-02-2019 ITA NO.1914/PUN/2018 M/S. SHREE BALAJI VENTURES 2 3. SUCCINCTLY, THE FACTUAL MATRIX OF THE CASE IS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS AS A BUILDER AND DEVELOPER. THE ASSESSING OFFICER (AO) OBSERVED THAT THE ASSESSEE WAS HOLDING CLOSING STOCK OF ONE OFFICE BUILDING A ND ONE SHOWROOM. INVOKING PROVISIONS OF SECTION 23(4) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT), THE AO OPINED THAT THE ANNUAL LETTING VALUE OF THE PROPERTY WAS REQUIRED TO BE DETERMINED AND ADDED TO THE ASSESSEES TOTA L INCOME. THE ASSESSEES CONTENTION THAT TWO UNITS IN RESPECT O F WHICH INCOME FROM HOUSE PROPERTY WAS PROPOSED TO BE COMPUTED, WERE ITS STOCK IN TRADE AND HENCE, NO INCOME C OULD BE DETERMINED THEREON UNDER THIS HEAD, DID NOT FIND FAVOUR. THE AO COMPUTED DEEMED RENTAL INCOME U/S.23 OF THE ACT AT RS.34,35,432/- AND ADDED IT TO THE ASSESSEES TOTAL INCOME. THE LD. CIT(A) COUNTENANCED THE ACTION OF THE AO, AGAINST WHICH THE ASSESSSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE, A BUILDER AND DEVELOPER, WAS HOLDING TWO PROPE RTIES AS ITS STOCK IN TRADE, FROM WHICH THE DEEMED RENTAL INCOME HA S BEEN COMPUTED U/S 23 OF THE ACT AND ADDED TO ITS TOTAL INCOME . THE AO HAS MADE OUT A CASE THAT LEVY OF INCOME TAX IN RESP ECT ITA NO.1914/PUN/2018 M/S. SHREE BALAJI VENTURES 3 OF PROPERTIES HELD BY THE ASSESSEE AS AN OWNER, CANNOT BE MARRED EVEN IF THE SAME HAVE BEEN HELD AS STOCK IN TRADE. THE BEDROCK OF THE ACTION OF THE AUTHORITIES BELOW IS CERTAIN DECISIONS WHICH, IN TURN, ARE BASED ON THE JUDGMENTS OF HONBLE SUPREME COURT IN EAST INDIA HOUSING & LAND DEVELOPMENT TRUST VS. CIT (1961) 42 ITR 49 (SC) AND S.G. MERCANTILE CORPORATION PVT. LTD. VS. CIT (1972) 83 ITR 700 (SC). IT HAS BEEN HELD IN THE LATTER DECISION THAT WHERE A BUILDER, BEING, OWNER LETS OUT PROPERTY FOR SOME TIME PEND ING SALE, THE INCOME SO DERIVED IS TO BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCO ME. SO THE RATIO IS THAT EVEN IF A BUILDER LETS OUT HIS PROPERTY, HELD AS STOCK IN TRADE, INCOME THERE FROM WILL BE CHARGEABLE UND ER THE HEAD `INCOME FROM HOUSE PROPERTY AND NOT AS `BUSIN ESS INCOME. IT IS PERTINENT TO NOTE THAT SUCH A LEGAL POSITION HAS UNDERGONE SOME TRANSFORMATION. IN CHENNAI PROPERTIES AND INVESTMENTS LTD. VS. CIT (2015) 373 ITR 673 (SC) , THE ASSESSEE WHOSE BUSINESS WAS TO ACQUIRE PROPERTIES, LET OU T CERTAIN PROPERTIES AND THE RENTAL INCOME AS RECEIVED THEREFRO M WAS DECLARED AS BUSINESS INCOME. THE AO HELD SUCH INCOME TO BE CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE HONBLE SUPREME COURT HELD THAT THE DECIDIN G ITA NO.1914/PUN/2018 M/S. SHREE BALAJI VENTURES 4 FACTOR FOR DETERMINING AS TO WHETHER THE INCOME IS TO BE CHARGED UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS NOT THE OWNERSHIP OF PROPERTY BUT THE NATURE OF OPERATIONS IN RELATION TO THEM. CONSIDERING THE OBJECTS OF THE COMPANY, THE HONBLE SUPREME COURT HELD THAT SUCH INCOME WAS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. MORE RECENTLY, THE HONBLE SUPREME COURT IN RAYALA CORPORATION PVT. LTD. VS. ACIT (2016) 386 ITR 500 (SC) CONSIDERED A SITUATION IN WHICH THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF RENTING ITS PROPERTIES. THE ASSESSEE CLAI MED SUCH RENTAL INCOME AS FALLING UNDER THE HEAD PROFITS AND GAIN S OF BUSINESS OR PROFESSION. THE AO DENIED SUCH A TREAT MENT. WHEN THE MATTER FINALLY CAME UP BEFORE THE HONBLE SUPREME COURT, IT CONSIDERED BOTH THE JUDGMENTS, NAMELY, S.G. MERCANTILE CORPORATION (SUPRA) AND CHENNAI PROPERTIES AND INVESTMENTS LTD (SUPRA) AND THEREAFTER HELD THAT : ` THE LAW LAID DOWN BY THIS COURT IN THE CASE OF CHENNAI PROPERTIES (SUPRA ) SHOWS THE CORRECT POSITION OF LAW. THAT IS HOW, THEIR LORDSHIPS HELD THAT THE INCOME WAS TO BE CHARGED TO TAX UND ER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ITA NO.1914/PUN/2018 M/S. SHREE BALAJI VENTURES 5 5. IN VIEW OF THE FOREGOING DISCUSSION, IT IS APPARENT TH AT THE VIEW POINT BOLSTERED BY THE AUTHORITIES THAT ANNUAL LETTING VALUE IN RESPECT OF UNSOLD PROPERTIES LYING WITH THE ASSESSEE AS A STOCK IN TRADE, SHOULD BE DETERMINED U/S. 23 OF THE ACT, CANNOT BE COUNTENANCED IN THE HUE OF THE LATER JUDGMENTS OF THE HONBLE SUMMIT COURT. ONCE IT IS HELD THAT THE INCOME OF A BUILDER IN RESPECT OF LETTING OUT OF THE PROPERTIES IS CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION, THE PROVISIONS ENSHRINED IN CHAPTER IV-D GET MAGNETIZED AND NOT THOSE UNDER THE HEAD CAPITAL GAINS. IT IS NO DOUBT TRUE THAT SECTION 23 OF THE ACT DEEMS THE DETERMINATION OF INCOME FROM HOUSE PROPERTY, WHICH IS NOT LE T OUT, BUT IT IS EQUALLY TRITE THAT A DEEMING PROVISION CANNOT BE EXTENDED BEYOND ITS AMBIT, SO AS TO COVER THE HEADS OF I NCOME OR THE SECTIONS, TO WHICH IT DOES NOT OPERATE. MY ATTENTION HAS NOT BEEN DRAWN BY THE LD. DR TOWARDS ANY SPECIFIC PROVISION UNDER CHAPTER IV-D OF THE ACT WHICH DEEMS RENTAL INCOME ON THE PROPERTIES HELD AS STOCK IN TRADE, WAITING FOR SALE AND N OT ACTUALLY LET OUT, AS CHARGEABLE TO TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION. AS THE ASSESSEE ADMITTEDLY DID NOT EARN ANY RENTAL INCOME FROM LETTING OUT OF THESE TWO UNITS, WHICH POSITION HAS ALSO NOT BEEN DISPUTED BY ITA NO.1914/PUN/2018 M/S. SHREE BALAJI VENTURES 6 THE AO, IN MY CONSIDERED OPINION, TAXING ANY HYPOTHETICAL INCOME, WHICH IS OTHERWISE NOT SANCTIONED BY ANY PROVISION UNDER CHAPTER IV-D, CANNOT BE PERMITTED. 6. EVEN OTHERWISE, SECTION 5 OF THE ACT CLEARLY STIPULATES THAT A PERSON WHO IS A RESIDENT CAN BE SUBJECTED TO TAX IN RES PECT OF INCOME FROM WHATEVER SOURCE WHICH IS RECEIVED OR IS DEEM ED TO BE RECEIVED IN INDIA OR ACCRUES OR ARISES OR DEEMED T O ACCRUE OR ARISE TO HIM IN OR OUTSIDE INDIA DURING SUCH YEAR. AS THE INSTANT IMAGINARY INCOME CHARGED TO TAX BY THE AO IS NEITHER A DEEMED INCOME UNDER THE HEAD `BUSINESS INCOME NOR IS RECEIVED OR DEEMED TO BE RECEIVED OR ACCRUING OR ARISING OR DEEMED TO ACCRUE OR ARISE, NOT FALLING IN ANY OF THE CATE GORIES GIVEN IN CLAUSES (A) TO (C) OF SECTION 5(1), I HOLD THAT THER E IS NO RATIONALE IN CHARGING IT TO TAX. I, THEREFORE, OVERTURN THE IMPUGNED ORDER AND DIRECT TO DELETE THE ADDITION OF RS.34.35 LAKH. 7. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2019 SD/- (R.S.SYAL) / VICE PRESIDENT PUNE; DATED : 19 TH FEBRUARY, 2019 ITA NO.1914/PUN/2018 M/S. SHREE BALAJI VENTURES 7 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-5, PUNE 4. PR.CIT-4, PUNE 5. , , SMC / DR SMC, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 18-02-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 19-02-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *