RC/108/1997 of THE COMMISSIONER OF INCOME TAX AP II HYD Vs M/S. SHAHJOHAN APARTMENTS HYD. on 30 December 2011

THE HON’BLE SRI JUSTICE V.V.S.RAOAND

THE HON’BLE SRI JUSTICE B.N.RAO NALLAR.C.No.108 OF 1997

ORDER:(Per the Hon’ble Sri Justice V.V.S.Rao)

The question referred for the opinion of this Court underSection 256 (1) of the Income Tax Act, 1961 (the Act), asextracted herein below, is at the instance of the Revenue.

“Whether on the facts and circumstances of the case, the ITATis justified in holding that the annual value of the property viz.,unsold flats, garages and shops of which the assessee is a legalowner cannot be assessed in the hands of the assessee undersec. 22 of the I.T.Act?”

The background facts leading to the said reference in briefare as follows.The respondent (assessee) is a builder ofresidential/commercial flats (the flats, for brevity).The assesseetakes advance amount from the intending purchasers and aftercompletion of the construction, transfers the flats duly executingregistered sale deeds in favour of the purchasers.During the--assessment years 198384 to 198586, the assessee could notsell three flats, five garages and five shops in an apartmentcomplex.The possession remained with the assessee (builder).The assessing officer, while assessing the return of income,assessed notional income from the property.In the appeal before--the CIT (A), it was held that the vacant flats being stockintradeand business assets, cannot be assessed in the hands of theassessee.The notional income was accordingly deleted.TheRevenue then appealed before the appellate Tribunal and agreedwith the Appellate Commissioner observing that inclusion ofnotional income from the property under Section 22 of the Act isnot justified.The reference was accordingly sought by theRevenue.

In spite of service of notice, none appears for therespondent.

The Junior Counsel for Income Tax made submissions.During the course of submissions, the counsel for the Revenuebrought to the notice of this Court the decision of the Supreme[1]Court in C.I.T. v. Podar Cement Pvt. Ltd..The Supreme Courtconsidered the question “whether the income derived by theassessee-company therein from flats is taxable under the head of‘Income from other sources’ under Section 56 of the Act and not‘’”income from house property under Section 22 of the Act.

On considering the earlier decision in Jodha Mal Kuthiala(R.B.) v. C.I.T[2], in Podar Cement Pvt. Ltd., it isheld that “the contextof Section 22 of the Act, the owner is a person, who is entitled to”receive income from the property in his own right.Thus, if thebuilder is not able to sell the flats, which are already constructed,the notional income has to be assessed in the hands of the builderonly.

Accordingly, the question referred to this Court is answeredin negative against the assessee and in favour of the Revenue andthe Referred Case shall stand disposed of accordingly, withoutany order as to costs.

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(V.V.S.RAO, J)

30[th] December 2011RRB

____________________(B.N.RAO NALLA, J)

[1](1997) 226 ITR 625 : (1997) 5 SCC 482(1997) 226 ITR 625 : (1997) 5 SCC 482

[2](1971) 82 ITR 570 (SC) : (1971) 3 SCC 369