S. 28(i) : Business income-Income from house property-Builder- Stock in trade-Leave and licence-Income from licencing of residential flats assessable as business income and not as income from house property. [S. 22, 23]
Assessee, a builder, constructed building called Kanchenjunga and sold most of its flats. Some flats were unsold. In the interim disputes arose between family members and directors. High court appointed Administrator till dispute was resolved. It directed that no third party rights could be created and gave permission only to give the unsold flats on leave and license till dispute is resolved. Administrator declared the rental income of the Co as business income. The Assessing Officer assessed the income as income from house property. CIT(A) affirmed the order of the Assessing Officer. On appeal the Tribunal held that though flats were stock in trade, but not tradable on account of high court order, flats were in the nature of commercial assets. Thus source of activity was business activity, curtailed in view of the High Court order. Since the assessee was not permitted to create third party rights, it gave the flats on leave and license, and hence rental income was business activity. Accordingly the leave and license activity is done on account of circumstances and governed by its memorandum and thus rental income to be assessed as business income. Appeal of the assessee is allowed. (ITA No. 556/M/2023 dt. 11-8-2023)(AY. 2012-13)
Tulsidas V. Patel Pvt. Ltd. v. Dy. CIT (Mum.)(Trib.) www.itatonline.org
[Coram : Hon’ble Shri Prashant Maharishi, (AM) and Hon’ble Shri Rahul Chaudhary, (JM)]