Flats held as stock in trade-Municipal rateable value to be income from house property

Residential Flats held as stock in trade-Municipal rateable value to be adopted for determining income from house property

In a recent judgment, ITAT has held that in respect of residential Flats held as stock in trade, the municipal rateable value to be adopted  for determining income under the head income from house property – ITAT

ABCAUS Case Law Citation:
ABCAUS 3944 (2024) (04) ITAT

Important Case Laws relied upon:
Ansal Housing Finance & Leasing Co. Ltd. (2013) 29 taxmann.com 303
DCIT vs. M/s. Inorbit Malls Pvt., Ltd.
M/s. Bengal Shapoorji Housing Development Pvt. Ltd

In the instant case, the assessee had challenged the order passed by the CIT(A), National Faceless Appeal Centre in confirming taxation of notional rent of vacant residential flats held as stock in trade under the head “income from house property”.

The assessee was a builder and engaged in the business of development of land & construction of a building. The return of income was processed under section 143(1) of the Income Tax Act, 1961 (the Act).

The case was selected for complete scrutiny and notices under section 143(2) and 142(1) of the Act were issued and served on the assessee along with questionnaire.  

One of the reasons for selecting the assessee’s case was “Real Estate business with High Closing Stock”.

The Assessing Officer from submissions of the assessee observed that assessee had vacant flats at the end of the relevant assessment year. Accordingly, assessee was show caused as why the annual value of the vacant flats shown in the closing stock for the projects for which the occupancy certificate is received be not included in the head “income from house property”.

In response, assessee submitted that the assessee holding the flats as stock in trade and not as capital assets. The assessee was not in the business of renting out of the flats and thus notional rent is not justifiable.

However, The Assessing Officer rejected the submission by relying on the decision of the Hon’ble Delhi High Court and amendment in Section 23 i.e., insertion of sub-section 5 in section 23 of the Act.

Accordingly, he collected the information from the market rates from the websites “Makhan.com” and “Magicbricks.com”. Accordingly, he determined the gross annual value of flats held as stock in trade with the assessee at the end of the year and after giving standard deduction of 30% on gross annual value and added to the income of the assessee under the head income from house property.

The CIT(A) dismissed the grounds raised by the assessee.

Before the Tribunal, the assessee submitted that the facts in the present appeal are exactly similar to the facts in the case decided by the Co-ordinate Bench wherein it had been held that the units on which assessee has received any advance during this year or in the earlier years but not given possession to the buyer, then no notional rent can be charged as it tantamount to sale. It was also held that Annual Letable Value (ALV) should be determined based on the municipal ratable value for computing notional rent.

Accordingly, the Tribunal opined that with regard to flats for which assessee had already received advances these flats has to be excluded from the stock held by the assessee as stock-in-trade. With regard to flats which assessee accepted being held as stock-in-trade, the municipal rateable value has to be adopted for the purpose of determining the income under the head “income from house property”.

Accordingly, the ITAT remanded the case to the AO with direction to determine the income under the head “income from house property” as above.

Download Full Judgment ABCAUS 3944 (2024) (04) ITAT Click Here >>

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