आयकर अपीऱीय अधिकरण, मुंबई न्यायपीठ ‘सी’, मुंबई ।

IN THE INCOME TAX APPELLATE TRIBUNAL “C”, BENCH MUMBAI

सर्वश्री आय.सी.शभमव, रेखम सदस्म एवुं श्री संजम गगव, न्ममयमक सदस्म
BEFORE SHRI R.C.SHARMA, AM
&
SHRI SANJAY GARG, JM
आमकय अऩीर सं./ITA No.4277/Mum/2012
( नििाारण वषा / Assessment Year :2009-10)
M/s C.R. Developments Pvt. Vs. JCIT-8(1)(OSD), Mumbai
Ltd., Shyamkamal Trade
Centre, 27, Tejpal Road,
B.N.Agarwal Market, Vile
Parle (East), Mumbai-400057
स्थममी रेखम सं ./ जीआइआय सं ./ PAN/GIR No. : AAACC 1658 D
(अऩीरमथी /Appellant) .. (प्रत्मथी / Respondent)

यनधमवरयती की ओर से /Assessee by : Shri S.M.Bandi

यमजस्र् की ओर से /Revenue by : Shri Asghar Zain VP

सन
ु र्मई की तमयीख / Date of Hearing : 05/05/2015
घोषणम की तमयीख/Date of Pronouncement 13/05/2015

आदे श / O R D E R

PER R.C.SHARMA (A.M):

This is an appeal filed by the assessee against the order of CIT(A)-

16, Mumbai, dated 31-5-2012 for the assessment year 2009-10 in the

matter of order passed u/s.143 of the I.T.Act, on the following grounds :-

1. “The Learned CIT(A) has grossly erred in law as well as on facts in

confirming the action of AO in charging notional Income as Income
from House Property in respect of the 3(three) unsold shops shown
as Stock-in-trade.
2. “The Ld. CIT(A) has grossly erred in law as well as on facts in
confirming the action of A.O. in restricting the claim of deduction
u/s.54EC of the I.T.Act to Rs.50,00,000/- as against Rs.1 Crore
claimed by the Appellant.”

2. Rival contentions have been heard and record perused. The

assessee is engaged in the business of construction and development.

 2
ITA No.4277/12

During the course of scrutiny assessment the AO found that assessee

has three shops as stock-in-trade as at the end of the year. The AO

computed the income in respect of all the three shops u/s.23 as income

from house property. The contention of the assessee was that three

shops at the end of the year was its trading assets cannot be charged to

tax under the head income from house property as profit on sale thereof

shall be chargeable to tax under the head of income from business. The

AO did not agree with the assessee’s contention and brought the notional

rental income in assessee’s hands u/s.23. By the impugned order the

CIT(A) restored the matter back to the file of the AO with the following

observations :-

“2.3.1. I have carefully considered the contention of the appellant

and also carefully gone through the documents available on record.
Similar issue arose for my consideration in the previous year i.e.
A.y. 2007-08 wherein I have directed the Ld. AO to determine the
annual rateable value as per the directions given by the Hon'ble IT
AT in the case of Parkpaper Industries P. Ltd. I also find that the
decision as regards to the rateable value has also been recently
decided by the Hon'ble Delhi High Court in the case of Moni Kumar
Subba reported in (2011) 333 ITR 38 has held that operative words
in s. 23(1)(a) are lithe sum for which the property might reasonably
be expected to let from year to year. Having regard to the provision,
the AO is expected to make an enquiry as to what would be the
possible rent that the property might fetch. If he finds that the actual
rent received is less than the fair rent for the reason that the
assessee has received abnormally high interest-free security
deposit, he can undertake necessary exercise in that behalf-
However, by no stretch of imagination, the notional interest on
interest-free security deposit can be taken as a determinative factor
to arrive at the fair rent-Provisions of s. 23(1)(a) do not mandate
this. Since the provisions of fixation of annual rent under the Delhi
Municipal Corporation Act are pari materia with s. 23 of the IT Act,
the annual value fixed by the municipal authorities can be a rational
yardstick subject to the condition that the year in which the annual
value was fixed bears a close proximity with the assessment year in
question. If there is a change in circumstances because of passage
of time, the annual value fixed by the municipal authorities at a
much earlier point of time on the basis of rent then received may
not provide a safe yardstick. Thus, in a given case, AO can ignore
 3
ITA No.4277/12

the municipal valuation for determining the annual letting value if he

finds that the same is not based on relevant material and there is
sufficient material on record for taking a different valuation.
Therefore, the Ld. AO is directed to adopt the net rateable value
accordingly. This ground of appeal is thus allowed for statistical
purpose.”

3. The ld. AR placed the order of Bombay Tribunal in the case of M/s

Perfect Scale Company Pvt. Ltd., ITA Nos.3228 to 3234/Mum/2013, order

dated 6-9-2013, wherein it was held that in respect of assets held as

business, income from the same is not assessable u/s.23(1) of the IT Act.

4. On the other hand, ld. DR relied on the order of Hon’ble Delhi High

Court in the case of Ansal Housing Finance & Leasing Co. Ltd., 354 ITR

180 (Delhi) in support of the proposition that even in respect of unsold

flats by the developer is liable to be taxed as income from house property.

5. We have considered rival contentions and perused the record. The

issue under consideration has been restored by the CIT(A) to the file of

AO to compute the annual value. Recently the Hon’ble Supreme Court in

the case of M/s Chennai Properties & Investments Ltd. Vs. CIT, reported

in (2015) 42 SCD 651, vide judgment dated 9-4-2015 has held that where

assessee company engaged in the activity of letting out properties and

the rental income received was shown as business income, the action of

AO treating the rental income as income from house property in place of

income from business shown by the assessee was held to be not justified.

The Hon’ble Supreme Court held that since the assessee company’s

main object, is to acquire and held properties and to let out these

properties, the income earned by letting out these properties is main

objective of the company, therefore, rent received from the letting out of
 4
ITA No.4277/12

the properties is assessable as income from business. On the very same

analogy in the instant case, assessee is engaged in business of

construction and development, which is main object of the assessee

company. The three flats which could not be sold at the end of the year

was shown as stock-in-trade. Estimating rental income by the AO for

these three flats as income from house property was not justified insofar

as these flats were neither given on rent nor the assessee has intention to

earn rent by letting out the flats. The flats not sold was its stock-in-trade

and income arising on its sale is liable to be taxed as business income.

Accordingly, we do not find any justification in the order of AO for

estimating rental income from these vacant flats u/s.23 which is

assessee’s stock in trade as at the end of the year. Accordingly, the AO is

directed to delete the addition made by estimating letting value of the flats

u/s.23 of the I.T.Act.

6. The assessee is also aggrieved for restricting the claim of deduction

u/s.54EC to Rs.50 lakhs as against Rs.1 crore claimed by the assessee.

From the record we found that the assessee has shown long term capital

gain of Rs.40,15,660/- on sale of equity shares of India Finance &.

Construction Co. Pvt. Ltd. after availing deduction u/s.54EC amounting to

Rs.1,00,00,000/-. The.AO noted that assessee company sold equity

shares of India Finance & Construction Co. Pvt. Ltd on 31.03.2009 and

earned long term capital gains of Rs.1,40,15,680/- on which assessee has

claimed deduction of Rs.1,00,00,000/- u/s. 54EC and declared LTCG at

Rs.40,15,660/-. The AO also noted that proviso to sub-section (1) of

 5
ITA No.4277/12

section 54EC of the Act wherein the Legislature has prescribed limit of

Rs.50 lakhs for the purpose of deduction under that section by the

Finance Act, 2007 which is effective from 01.04.2007. The assessee had

invested Rs.50 lacs on 31.3.2009 and Rs.50 lacs on 30.4.2009. However,

the AO did not allow exemption in respect of Rs.50 lakhs invested on 30-

4-2009 on the plea that limits prescribed u/s.54EC relates to transaction

and not to the financial year. By the impugned order, the CIT(A) confirmed

the action of the AO.

7. We have considered rival contentions and found that the issue is

squarely covered by the decision of the Hon’ble Madras High Court in the

case of CIT Vs. C.Jaichander & Sriram Indubal, T.C.(A).Nos.419 and 533

of 2014, vide order dated 15-9-2014, held as under :-

“11. In any event, from a reading of Section 54EC(1) and the first
proviso, it is clear that the time limit for investment is six months
from the date of transfer and even if such investment falls under two
financial years, the benefit claimed by the assessee cannot be
denied. It would have made a difference, if the restriction on the
investment in bonds to Rs.50,00,000/- is incorporated in Section
54EC(1) of the Act itself. However, the ambiguity has been
removed by the legislature with effect from 1.4.2015 in relation to
the assessment year 2015-16 and the subsequent years.”

The Hon’ble High Court also clarified that the legislature has also

removed the ambiguity by inserting second proviso to Section 54EC

w.e.f.1-4-2015. The memorandum explaining the provisions in the

Finance (No.2) Bill, 2014 also states that the same will be applicable from

1.4.2015 in relation to assessment year 2015-16 and the subsequent

years. The intention of the legislature is to clarify that this amendment

 6
ITA No.4277/12

should be for the assessment year 2015-16 to avoid unwanted litigations

of the previous years.

8. Respectfully following the decision of Hon’ble Madras High Court in

the case of CIT Vs. C.Jaichander & Sriram Indubal (supra), we do not find

any merit for disallowing claim of deduction u/s.54EC.

9. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on this 13/05/2015.

Sd/- Sd/-
(संजम गगव) (आय.सी.शभमव)
(SANJAY GARG) (R.C.SHARMA)
न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER
भंफ
ु ई Mumbai; ददनमंक Dated 13/05/2015
प्र.कु.मभ/pkm, यन.स/ PS

आदे श की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to :

1. अऩीरमथी / The Appellant
2. प्रत्मथी / The Respondent.
3. आमकय आमक्
ु त(अऩीर) / The CIT(A), Mumbai.
4. आमकय आमक्
ु त / CIT
5. वर्बमगीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai

6. गमर्व पमईर / Guard file.

आदे शािसार/ BY ORDER,
सत्ममवऩत प्रयत //True Copy//

उप/सहायक पुंजीकार
(Asstt. Registrar)
आयकर अपीऱीय अधिकरण, भुंफई / ITAT, Mumbai