The assessee is engaged in the business of development of properties and had in its inventory certain unsold flats/bungalows at the year end. The AO opined that deemed notional rental income on such vacant flats/bungalows should be taxed and accordingly taxed the same under Section 22 of the Act. The CIT(A) upheld the order of the AO. On appeal before the Hon’ble Tribunal, the Tribunal held that 4 conditions must be satisfied so as to fall under the exclusion clause.

In relation to the first condition being that the property or its part should be occupied by the assessee as an owner, the Tribunal held that the word occupy has not been defined anywhere and hence relied on the meaning provided under the Oxford Dictionary of Law as the physical possession and control of land. Since there is no one other than the assessee having physical possession and control over such flats, the assessee is deemed to be the sole occupant and the first condition is thereby satisfied.

In relation to second condition being that any business or profession should be carried on by the assessee-owner, the Tribunal held that the assessee has returned income from its business under the head of PGBP and hence was engaged in the business of property development satisfying the second condition.

In relation to the third condition being that occupation of the property should be for the purpose of business or profession, The Tribunal observed that “purpose of occupation of the flats” means to hold them either for readying them for final sale or holding them during the interregnum from the ready stage to sale stage. The Tribunal held that this activity was performed by the assessee and thereby the third condition was also satisfied.

In relation to the fourth condition being that profits of such business or profession should be chargeable to income-tax, the Tribunal held that it is indisputable that the profits of the business of property development by the assessee are chargeable to income-tax the fourth condition is also satisfied.

Therefore, the Tribunal noted that all the four conditions for exclusion from Section 22 of the Act are cumulatively satisfied in the present case. Further relying on the decision of Hon’ble Gujarat High Court  in the case of CIT v. Neha Builders (Pvt.) Ltd. (2008) 296 ITR 661 (Guj) (HC)  the Tribunal held that no income from house property can result in respect of unsold flats held by a builder at the year end. Further the amendment in Finance Act, 2017 w.e.f. 1 April 2018 is prospectively applicable from AY 2018-19 onwards. In view of the same the Tribunal deleted the addition made on account of deemed rent on unsold stock.  (AY. 2013-14)