INCOME TAX ACT, 1961

Section 23

Income from house property - Annual value - Unsold unit/flat used as stock in trade -

Assessee was a builder and developer. AO computed ALV of unsold unit/flat of assessee and on the basis of the ALV so computed and after granting 30% deduction under section 24, brought the income of such unit under the head “Income from house property”. Further, CIT (A) confirmed the action of the AO. Assessee contended that as the unsold flat was used as stock in trade, then said property would become or partake the character of stock and any income derived from such stock would be 'business income' and not 'income from house property'. Revenue contended that the legislature had already brought the amendment in section 23 by inserting sub-section (5) and that the assessee would be allowed one year vacancy period from the end of financial year in which the completion certificate was obtained from the competent authority. Held: 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 said property would become or partake the character of the stock, and income derived from the stock, would be 'income' from the business, and not from the property. Further, the contention of the Revenue that the legislature had already brought the amendment in section 23(5) to bring the unsold unit after a vacancy period of one year was not acceptable as the said amendment was brought by Finance Act, 2017 and was applicable from 1-4-2018. Thus, the said amendment was not applicable for the year under consideration. Therefore, the AO was not justified in computing the ALV of unsold unit and bringing the same under the head “Income from house property”.

Followed:CIT v. Neha Builders Pvt. Ltd. 2008 296 ITR 661 (Guj) : 2008 TaxPub(DT) 0294 (Guj-HC) Runwal Constructions Runwal&Ors. v. ACIT 2018 TaxPub(DT) 1298 (Mum-Trib)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2015-16

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