Relief from notional tax on unsold flats of developers

February 1, 2017 8804 Views
Manoj Mehta
CA

Introduction

Under the heading of Income from House Property, all types of house property covered including, property held as stock in trade as per books of accounts. As per provisions of section 22 of the Act, if any person is having a house property and such house property is not being used for his self-occupation or business or profession, a deemed annual value to be charged to tax, even such house property is vacant for whole year. Exception to this provision only for one house for self-occupation and a house property which is being used by assessee in his own business or profession.

As per provisions of section 23(1)© of the Act, if a house property is let and it was vacant for whole or part of the year, such vacancy allowance will be available to the assessee. Main condition for such vacancy allowance is property should first let. The Act is silent for the case in which a house property was never let. In those cases, a deemed annual value will be charged to tax.

Controversy

The concept of deemed annual value is even applicable on house property which is held under stock in trade. This provision creates a lot of problems for real estate industry. Particularly in metro cities where a lot of apartments which have not sold out after construction, are being treated as deemed let out properties by income tax department and charged to tax accordingly. Many judicial precedents are available both in favour of revenue and assessee. In many occasions, ITAT said that if the property was not let out during the year and it vacant for whole year, annual value would be NIL.

Proposed amendment

In Union Budget 2017, it is proposed that if any house property is held as stock in trade and such property is not let during the whole or part of the year, deemed annual value would be NIL for the period up to one year from the end of financial year in which certificate of completion of construction of property obtained from the competent authority.

In real estate Industry where unsold house property is being kept as stock in trade, now assessing officer cannot charge deemed annual value as rental income for such unsold stock for at least one year.

Rationale behind amendment

In fact, in real estate business, properties in the form of apartment or house, are being constructed or sold. Unsold properties are always stock in trade for this industry. letting out of property is not intended business activity for real estate developers. In case of CIT Vs Ansal Housing Finance & Leasing Co. Ltd [2016] 72 taxmann.com 254 (Delhi), hon'ble Delhi HC held that provisions of sections 22 and 23 would be applicable and assessee would be liable to pay tax on annual letting value of unsold flats as income from house property. Apex court accepted aforementioned assessee's special leave petition Ansal Housing Finance & Leasing Co. Ltd 74 taxmann.com 245 (SC). Final decision is yet to be delivered by Apex Court. Considering the business needs of real estate developers, this amendment is brought.

Conclusion

Though is it not full relief for real estate industry but nonetheless it will bring certainty for at least one year for not coming under deemed annual value of unsold stock of properties. This amendment was expected and done some justice to not charge tax on income which never turn into a reality. Certainly it is welcome amendment.

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