Income from house property

under which the I-T department can levy tax on any unsold flat by treating it as 'income from house property' under Section 43-CA of the I-T Act, 1961.

According to tax authorities, real-estate companies should have to pay tax based on Annual Letting Value (ALV) on unsold flats as they are the owners of the flats and it does not matter whether the properties are rented out or not.

This means inventory of builders will be taxed on the basis of notional ALV -- a value on which tax has to be paid on the annual value of house property or the rent actually earned, whichever is higher.

A senior I-T officials said, "The builders' lobby has been creating artificial scarcity through hoarding of flats, only to sell them at higher prices later".

It has been noticed that this practice has been in vogue for over a decade and such flats or stocks are shown 'unsold' in the books of accounts while the main aim was to rig the prices upwards, said a tax official on condition of anonymity

as per DNA News Paper [ Sat, 6 Jun 2015 ]

Thanks for your reply :)

on which ground they are treating it as deemed let out property..!!??

beacase i have never found any such case buider have to pay taxe on it.

Please read the Section 43-CA of the I-T Act, 1961.

i read it and it is related to valuation of real estate property held as stock in trade and nothing mentioned related to above metter.

Dear Sudhanshu,

There is no such specific provision on taxability of the unsold flats of the builders held as stock in trade.

Further there are judgements on the same issue which contradicting each other for whether to tax under head “Income from house property” (Azimganj Estate (P) Ltd–352 ITR  82 (CAL))  or “Income from business or profession” (Neha Builders–296 ITR 661 (GUJ)).

But if it is considered under head “Income from house property” than vacant flats are notionally taxed taking the Annual Letting Value (“ALV”)-(CIT vs. Ansal Housing Finance & Leasing Ltd. – 354 ITR 180(Del))

Further if any update or contradicting view please do share

CA. Chandan Sharma

Warm Greetings CA Chandan Sharma,

Truely, the judgements of cases cited  viz. Azimganj Estate (P) Ltd - 352 ITR 82 (CAL) and Neha Builders - 296 ITR 661 (GUJ) contradict each other.

On this issue, i want to read section 22 of Income Tax Act 1961,
" The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head "Income from house property".

So, the stock-in-trade i.e. unsold flats so held by builders, are not being exploited commercially by letting it out but only for the purpose of enjoyment of rent.

Put simply, fundamentaly; the builders are into business of construction of properties and then selling it off and not into business of renting out such properties.

And when you have distinctive heads in income tax act to assessee the income, why not assess such income as income from property. [East India Housing and Land Development Trust Ltd. vs. Commissioner of Income-Tax, West Bengal (1961) 42 ITR, 49]

I'm not biased, but it would be safe, to consider the income derived by renting the unsold flats under 'Income from house Property' only.

As for the doubt of Mr. Sudhansu Shekhar Singh, according to above interpretation, it might be safe to consider the 'Vacant Unsold Flats' as deemed to be let out property.

Hi Shagun

I appreciate your reply, it’s always safer to pay tax. Further the judgement quoted is a landmark judgement and it’s safer to follow the same.

My view is also in the same lines and for the same reason and to correlate with question of Mr. Sudhanshu i.e. tax on the unsold vacant flat, I have quoted the judgement of CIT vs. Ansal Housing Finance & Leasing Ltd. – 354 ITR 180(Del)

CA. Chandan Sharma

Dear Friends, 

First, it was proposed by Tax Authorities to charged tax on unsold flats owned by the builder. It is not yet come in to effect. May be you can heard from FM in this budget. But till yet nothing officially declared.

Secondly, in case of Azimganj Estate (P) Ltd - 352 ITR 82 (CAL) and Neha Builders - 296 ITR 661 (GUJ), only those income are charged to tax under house property, which are actually let out on rent. So no deeming fiction was used in that case.

So as of now you don’t have to pay tax on unsold flats under deeming fiction

Hi,

We are also looking forward for the budget.

In the meantime do consider the judgment of CIT vs. Ansal Housing Finance & Leasing Ltd. – 354 ITR 180(Del) were the facts are similar.