Itr/220/1994 Of Commissionerof Income-Tax v. Neha Builders Pvt Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 220 of 1994 For Approval and Signature: HONOURABLE MR.JUSTICE R.S.GARG HONOURABLE MR.JUSTICE M.R. SHAH =========================================================1[Whether Reporters of Local Papers may be allowed ]to see the judgment ?1[Whether Reporters of Local Papers may be allowed ]to see the judgment ? 2To be referred to the Reporter or not ? 3[Whether their Lordships wish to see the fair copy ]of the judgment ?of the judgment ? Whether this case involves a substantial question of law as to the interpretation of the 4constitution of India, 1950 or any order made thereunder ?constitution of India, 1950 or any order made thereunder ? 5[Whether it is to be circulated to the civil judge ]?? ========================================================= COMMISSIONEROF INCOME-TAX - Applicant(s)Versus NEHA BUILDERS PVT LTD - Respondent(s) ========================================================= Appearance : MR BB NAIKfor Applicant(s) : 1,NOTICE SERVED for Respondent(s) : 1, ========================================================= CORAM :HONOURABLE MR.JUSTICE R.S.GARG and HONOURABLE MR.JUSTICE M.R. SHAH Date : 18/08/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE R.S.GARG) Mr B B Naik learned counsel for the Revenue. . . , . 2.PresentReference, underSection256 1( ) oftheIndian Income Tax Act, has been made by the Income TaxAppellate Tribunal, Ahmedabad Bench 'A', at the instance oftheRevenuewhichisdissatisfiedwiththeorderoftheIncomeTaxAppellateTribunalwhoisaggrievedbytheorderpassedbytheIncomeTaxAppellateTribunalinIncomeTaxAppealNo. 266 Ahd 90// (Annexure'C') intheReferenceBook. [Wemustrecordthat, inmostofthecases, wefindthatdateoftheAppellateOrderisnotexhibited on the final order nor the same is mentioned inthe Reference Order]. 3.The following question has been referred to thisCourt for its opinion; 'Whether, onthefactsandinthecircumstancesofthecase, therentalincome received from any property in theconstructionbusinesscanbeclaimedunder the head of 'Income from property'eventhoughthesaidpropertywasincludedintheclosingstockandexpenses on maintenance were debited tothe profit and loss account ?' 4.The short facts leading to the Reference are that, , thenon applicant-assesseecompanyisengagedinthebusinessofconstruction ofproperty, one ofthe buildingproperties was included in the Closing Stock in the BalanceSheet drawn for the business. The assessee filed revisedReturn submitting that a part of its property was given onrentandtheincomederivedonthatbasisshouldbecomputed under the head 'Income from house property' andnot as business income. The Assessing Officer, during thecourse of the assessment proceedings, observed that theexpenses on maintenance of the property were debited tothe profit and loss account and so also the building was--shownasstock in trade, thereforethepropertywouldpartake the character of the stock andany income derivedfrom the stock cannot be taken to be income from property.It accordingly framed the assessment order. As the Appeal,againsttheorder, provedfutile, theassesseefiledtheabovereferred Income Tax Appeal before the Income TaxAppellateTribunal. TheTribunalallowedtheAppealobserving, interalia, thatanydividendreceivedontheshares or any interest received from the Bank would betakentobeincomefromothersources, thereforeanyincome derived under the head of 'Rent' would also becomeincome from the property it accordingly allowed the Appeal, and directed reconsideration of the matter. 5.Mr. Naik, learnedcounselappearingfortheRevenue submits that if the property is used as a property, ,then any income derived from the property would be anincomefromproperty, butifthepropertyisusedasastock, then any income from the stock would not be anincome from the property. He submits that the analogyapplied by the Tribunal is patently illegal. 5.Mr. Naik, learnedcounselappearingfortheRevenue submits that if the property is used as a property, ,then any income derived from the property would be anincomefromproperty, butifthepropertyisusedasastock, then any income from the stock would not be anincome from the property. He submits that the analogyapplied by the Tribunal is patently illegal. 6.We have heard Mr Naik at length. . None appearsfor the respondent despite service of notice, . 7.FromtheorderpassedbythelearnedCommissioner Income Tax, (Appeals), it would clearly appearthat the case of the assessee was that the company wasincorporated with the main object ofpurchase, take on-lease, oracquirebysale, orlet outthebuildingsconstructedbytheassessee. Developmentoflandorproperty would also be one of the businesses for which thecompany was incorporated. 8.True it is, that income derived from the propertywould always be termed as 'income' from the property, butifthepropertyisusedas'stock in trade'--, thenthesaidpropertywouldbecomeorpartakethecharacterofthestock, and any income, derived from the stock, would be ITR/220/1994 'income'fromthebusiness, andnotincomefromtheproperty. If the business of the assessee is to construct the-property and sell it or to construct and let out the same,then that would be the 'business' and the business stocks,which may include movable and immovable would be taken, --to be 'stock in trade', and any income derived from suchstocks cannot be termed as 'income from property'. Evenotherwise, itistobeseenthattherewasdistinctionbetweenthe'incomefrombusiness'and'incomefromproperty'oneoneside, and'anyincomefromothersources'. TheTribunal, inourconsideredopinion, wasabsolutely unjustified in comparing the rental income withthe dividend income on the shares or interest income onthe deposits. Even otherwise, this question was not raisedbeforethesubordinateTribunalsand, allofsudden, theTribunal started applying the analogy. 9.Fromthestatementoftheassessee, itwould--clearly appear that it was treating the property as 'stock intrade'. Not only this, it will also be clear from the records--that, except for the ground floor, which has been let out bythe assessee, all other portions of the property constructedhave been sold out. If that be so, the property, right from--the beginning was a 'stock in trade'. 10.Agreeing with the submissions made by Mr. Naik,learned counsel for the Revenue, we hold that the Tribunal ITR/220/1994 . was not correct in granting the Appeal of the assessee 11.For the reasons aforesaid the Reference deserves, to be answered in favour of the Revenue. It is accordinglyanswered and stands disposed of No costs. . [ . . R S Garg J, . ] . rmr [ M R Shah J. . , . ]