No provision in PGBP which deems rental income from unsold flats held as stock as Business income: ITAT

ITAT Discussed that:

The Finance Act, 2017 introduced sub-section (5) to section 23 providing that where a property held as stock in trade is not let out during the year, its annual value, after a period of one year or as revised to two years, shall be considered for the purposes of inclusion under the head `Income from House property’. This amendment has been brought out w.e.f. 01-04-2018. Thus, this provision manifestly does not apply to the assessment year2017-18. Prior to the amendment, the Tribunal considered this aspect in several cases including the one taken note of by the ld. CIT(A), namely, Cosmospolis Construction vs. ITO (ITA No.230 & 231/PUN/18) and held that no income from house property can result in respect of unsold flats held by a builder as stock in trade at the year-end.

While disposing off the above referred case, the Tribunal observed that income from unsold flats could be considered only under the head “Profits and Gains from business or profession” and not “Income from House Property”.

The ld. CIT(A) considered these observations of the Tribunal qua the inclusion of income, if any, under the head “Business Income” and directed to include deemed annual value as business income in the impugned order. He however, did not appreciate that the Tribunal nowhere held for the inclusion of the deemed rental income under the head “Profits and Gains from business or profession”. It simply directed that income, if any, from unsold flats held as stock in trade can be considered only as “Business Income”.

In the ultimate analysis, the Tribunal eventually deleted the addition. It is but natural that if a particular income is to be taxed under a specific head, the computational mechanism governing that head only can come into play. There is no provision under the head “Profits and Gains from business or profession” which deems the rental income from unsold flats held as stock as ‘Business income’. Considering the above factual and legal position, I am of the considered opinion that the addition of Rs.9,83,339 made by the AO and as sustained in the first appeal, is not called for. The same is directed to be deleted.

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