M/s. G G Associates, Pune V. Deputy Commissioner of Income-tax, Circle - 7, Pune

ITA 1946/PUN/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8424 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 16-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MARUTI W MADDEWAD
• Keywords: Business income; Deemed to accrue or arise in india; Capital Gains; CHAPTER IV

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R. S. SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY, JM . / ITA NO.1946/PUN/2017 / ASSESSMENT YEAR : 2013-14 M/S. G. G. ASSOCIATES, SAN MAHU COMPLEX 5, BUND GARDEN ROAD, OPP. POONA CLUB, PUNE-411001. PAN: AAFFG5234G .. /APPLICANT / V/S. DCIT, CIRCLE-7, PUNE. .. / RESPONDENT ASSESSEE BY : SHRI KRISHANA GUJARATHI REVENUE BY : SHRI MARUTI W. MADDEWAD / DATE OF HEARING : 03.07.2020 / DATE OF PRONOUNCEMENT : 07.07.2020 / ORDER PER PARTHA SARATHI CHAUDHURY, JM: THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(APPEAL), PUNE-5 DATED 15.06.2017 FOR THE ASSESSMENT YEAR 2013-14 AS PER THE FOLLOWING GROUNDS OF APPEAL ON RECORD: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT (APPEAL) - 5, PUNE ERRED IN CONFIRMING THE ADDITION MADE BY THE LEARNED AO OF RS. 1,26,000/- TO THE INCOME OF THE APPELLANT UNDER THE HEAD INCOME FROM HOUSE PROPERTY BEING THE ANNUAL LETTING VALUE OF THE UNSOLD UNITS LYING AS STOCK IN TRADE OF THE APPELLANT WITHOUT APPRECIATING THE FACT THAT THE APPELLANT IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT AND THE UNSOLD FLATS ARE HELD AS STOCK IN TRADE AND NOT AS INVESTMENT. THE APPELLANT HEREBY PRAYS THAT THE SAID ADDITION OF RS.1,26,000/- MAY PLEASE BE DELETED. 2 ITA NO.1946/PUN/2017 2) WITHOUT PREJUDICE TO GROUNDS OF APPEAL 1, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT (APPEAL) 5 ERRED IN UPHOLDING THE NOTIONAL ANNUAL RENTAL VALUE OF THE UNSOLD UNITS FOR THE PURPOSE OF CALCULATING THE ANNUAL LETTING VALUE UNDER SEC. 23(4) OF THE INCOME TAX ACT, 1961 INSTEAD OF THE MUNICIPAL VALUE OF THE SAID PROPERTIES. THE APPELLANT HEREBY PRAYS THAT THE MUNICIPAL VALUE OF THE UNSOLD UNITS MAY PLEASE BE CONSIDERED FOR THE PURPOSE OF CALCULATING ANNUAL LETTING VALUE OF THE UNSOLD UNITS INSTEAD OF THE NOTIONAL RENTAL VALUE. 3) THE APPELLANT HEREBY RESERVES THE RIGHT TO ADD, AMEND, ALTER OR RAISE ANY ADDITIONAL GROUND OR GROUNDS OF APPEAL OR DELETE OR WITHDRAW ANY OF THE GROUND OF APPEAL/S. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT I.E. CONSTRUCTION OF BUILDINGS AND BUILDERS AND PROMOTERS IN GENERAL. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1,16,06,508/-. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND THE REQUIRED NOTICES DULY SERVED ON THE ASSESSEE. THE ASSESSEE WAS INVOLVED IN CONSTRUCTION OF ITS PROJECTS NAMELY GANGA MELROSE AND GANGA QUEENSGATE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER MADE AN ADDITION ON ACCOUNT OF DEEMED INCOME FROM HOUSE PROPERTY U/S 23(4) OF THE ACT ON ACCOUNT OF A VACANT FLAT. 3. DURING FIRST APPELLATE PROCEEDINGS, THE LD. CIT(APPEAL) CONFIRMED THE ADDITION AS MADE BY THE ASSESSING OFFICER U/S 23(4) OF THE ACT AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE THROUGH VIDEO CONFERENCE SUBMITTED THAT THIS ISSUE IS COVERED BY THE DECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL, PUNE FOR THE ASSESSMENT YEAR 2015-16 IN THE CASE OF M/S. SHREE BALAJI VENTURES VS. ITO IN ITA NO.1914/PUN/2018 DATED 19.02.2019. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO PARAS 4 ONWARDS OF THE SAID ORDER OF THE TRIBUNAL (SUPRA) WHICH WAS NOT IN EXISTENCE 3 ITA NO.1946/PUN/2017 BEFORE THE LD. CIT(APPEALS) AT THE TIME OF PASSING APPELLATE ORDER DATED 15.06.2017. 5. ON THE OTHER HAND, THE LD. DR HAS PLACED STRONG RELIANCE ON THE ORDER OF THE LD. CIT(APPEAL). 6. WE HAVE PERUSED THE CASE RECORDS AND HEARD THE RIVAL CONTENTIONS, ANALYZED THE FACTS AND CIRCUMSTANCES OF THIS CASE AND CONSIDERED THE JUDICIAL PRONOUNCEMENTS PLACED ON RECORD BEFORE US. ON PERUSAL OF THE CASE RECORDS, THE ISSUE TO BE ADDRESSED IN THIS APPEAL IS DEEMED INCOME FROM HOUSE PROPERTY. AT THE VERY OUTSET, LD. AR FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED BY OUR OWN DECISION WHICH IS THEREAT PAGE 32 TO 38 OF THE PAPER BOOK. PARA 4 ONWARDS OF THE TRIBUNALS ORDER (SUPRA) ARE RELEVANT IN THIS REGARD. THIS ISSUE HAS BEEN CONSIDERED BY THE SMC, PUNE BENCH OF THE TRIBUNAL IN ITA NO.1914/PUN/2018 DATED 19.02.2019 . THE RELEVANT PARA 4 ONWARDS ARE EXTRACTED HEREUNDER :- 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 PROPERTIES AS ITS STOCK IN TRADE, FROM WHICH THE DEEMED RENTAL INCOME HAS 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 RESPECT 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 PENDING SALE, THE INCOME SO DERIVED IS TO BE TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT AS BUSINESS INCOME. SO THE RATIO IS THAT EVEN IF A BUILDER LETS OUT HIS PROPERTY, HELD AS STOCK IN TRADE, INCOME THERE FROM WILL BE CHARGEABLE UNDER THE HEAD `INCOME FROM HOUSE PROPERTY AND NOT AS `BUSINESS 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 OUT CERTAIN PROPERTIES AND THE RENTAL INCOME AS RECEIVED THEREFROM 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 DECIDING FACTOR FOR DETERMINING AS TO WHETHER THE INCOME IS TO BE CHARGED UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS NOT THE OWNERSHIP OF 4 ITA NO.1946/PUN/2017 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 CLAIMED SUCH RENTAL INCOME AS FALLING UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE AO DENIED SUCH A TREATMENT. 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 UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 5. IN VIEW OF THE FOREGOING DISCUSSION, IT IS APPARENT THAT 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 LET OUT, BUT IT IS EQUALLY TRITE THAT A DEEMING PROVISION CANNOT BE EXTENDED BEYOND ITS AMBIT, SO AS TO COVER THE HEADS OF INCOME 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 NOT 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 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 RESPECT OF INCOME FROM WHATEVER SOURCE WHICH IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA OR ACCRUES OR ARISES OR DEEMED TO 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 CATEGORIES GIVEN IN CLAUSES (A) TO (C) OF SECTION 5(1), I HOLD THAT THERE 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. 7. ON CONSIDERING OUR AFORESAID DECISION AND THE FACTS ON RECORD, WE FIND THERE IS NO NEED FOR ANY DEVIATION FROM OUR OWN FINDINGS AS AFORE-STATED. 5 ITA NO.1946/PUN/2017 HENCE, WE ALLOW THE APPEAL OF THE ASSESSEE SETTING ASIDE THE ORDER OF THE LD. CIT(APPEAL). 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 07 TH DAY OF JULY, 2020. SD/- SD/- ( R. S. SYAL ) ( PARTHA SARATHI CHAUDHURY ) VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 07 TH JULY, 2020 SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-5, PUNE. 4. THE PR. CIT-4, PUNE. 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.