Income from house property

This query is : Resolved

Ca Siddharth Mehta (Querist)
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07 February 2012 Mr. Mukund Mahadevan is a builder. In his project at Ghatkopar there are some
unsold flats which he is not able to sell for variety of commercial reasons. Owing to
redevelopment activities in the area, there is a huge demand of taking flats on rent. Mr.
Mukund Mahadevan found the proposal of renting the flats lucrative on the ground that
he will be able to generate income from these flats, and by the time period of lease is
over, he will be able to sort the commercial issues out as well as would get better
appreciation in those flats. Mr. Mukund Mahadevan has filed his income tax return for
Assessment Year 2010-11 and offered such rental income as house property income.
The Assessing Officer finds that Mr. Mukund Mahadevan has already completed the
project and has no further expenses. Thus he feels that, by treating the rental income as
income from house property, Mr. Mukund Mahadevan has unduly claimed 30%
expenditure under section 24 of the Income-tax Act 1961. Hence he proposes to treat
this income as business income as such income is flowing out of exploitation of stock in
trade and not from investment.

Kindly Advice

CA. Hari Kishan

CA. Hari Kishan (Expert)
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07 February 2012 Should the unsold flats been shown in the books of accounts as stock in trade and only during the previous year the income is being offered as income from house property, then the treat of such rental income as income from house property in my view is wrong and shall be required to be offered under income from house property. The income tax officer is correct in his view should the above facts be true.

The way out i see is to prepare books of accounts so that the rental received is shown as business income and correspondingly book business expenses which are atleast equal to the 30% deduction claimed. You tax liability shall not change then.

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