I-T - Whether rental income derived by exploiting stock-in-trade or work-in-progress is to be treated as income from house property - YES: ITAT
By TIOL News Service
KOLKATA, NOV 12, 2015: THE issue is - Whether the rental income derived by exploiting the stock in trade or work-in progress of the assessee concern can be treated as its income from house property. YES is the verdict.
Facts of the case
The assessee declared total loss amounting to Rs.20,88,554/-. The bifurcation was that business loss of the assessee was Rs.28,57,569/- and income from house property at Rs.7,69,005/-. The AO observed that the income from rental is business income and hence he reduced the business loss and directed to be carried forward the loss to the tune of Rs.10,99,585/-. Aggrieved, assessee preferred appeal before CIT(A). Before CIT(A) it was claimed that the assessee has computed income from house property by claiming standard deduction u/s 24 amounting to Rs.3,29,577/- out of total rental income of Rs.10,98,593/-. According to assessee, the AO has computed the entire rental income as business income by denying deduction u/s. 24 and also reducing the business loss. The CIT(A) following the Tribunal's order in assessee's own case for AYs 2004-05 and 2005-06 in ITA Nos. 1287 & 1288/K/2008 dated 24.10.2008 allowed the assessee's appeal on the ground that the issue of the appeal is covered by the Tribunal's order.
During the relevant AY 2008-09, the assessee claimed interest amounting to Rs.39,17,274/- and debited to P&L Account on account of interest on loan. The assessee claimed that the above loan was utilized for refunding the advance taken against flat booking in the project during earlier years. AO disallowed this interest on the ground that project was not abandoned and he also mentioned that loan fund was also utilized in the development of project and project was not in progress. According to AO, no loan has been utilized for construction during the year. Accordingly, AO disallowed the claim of interest. On appeal, CIT(A) allowed the claim of the assessee after considering the fresh submissions made by assessee before him. When this was pointed out to counsel for the assessee that the plea taken before CIT(A) first time and the facts narrated were not emanating from the order of CIT(A).
Having heard the matter, the Tribunal held that,
++ we find that the issue is exactly identical and covered in favour of the assessee by the coordinate bench decision in assessee's own case for AYs 2004-05 and 2005-06 in ITA Nos. 1287 & 1288/K/2008 dated 24.10.2008, where it has been held that the assessee has let out the said flats for a period of three years with an option of renewal for two similar terms. Considering the period for which the flats have been let out, as per the agreement, it could not be said that the said flats have been let out only for a short period. We are of the considered view that the assessee has let out those flats as an owner to exploit the income from those flats as owner of the assets. Therefore, the above decision of the Madras HC as well as the decision of the ITAT, Gauhati Bench squarely apply to the case before us. Accordingly, we hold that the rental income realized by the assessee is the income from house property and is to be assessed under the head "income from house property". Therefore, we uphold the orders of the CIT(A) by rejecting the grounds of appeal taken by the Department for both the assessment years under consideration. Since the issue is exactly identical in the present case and is covered in favour of assessee by the decision cited supra, we respectfully following the same dismiss this issue of revenue's appeal.
++ assessee's counsel fairly stated that the facts were relating to the issue in hand were raised before CIT(A) for the first time and this can be verified by the AO in case bench feels so. The relevant fresh submissions are reproduced at para 3 of CIT(A)'s order which need not to be reproduced here again for the sake brevity. Thus, we deem it fit and appropriate in the interest of natural justice and fair play to set aside this issue to the file of AO to consider the fresh submissions made by the assessee before the CIT(A) for the first time and decide the issue in accordance with law. Needless to mention that assessee be given reasonable opportunity of being heard. This ground of appeal of revenue is allowed for statistical purposes. In the result, appeal of revenue for AY 2006-07 is dismissed and that of for AY 2008-09 is allowed for statistical purposes.
(See 2015-TIOL-1826-ITAT-KOL)
