CIT Vs Gopal Das Estates & Housing Pvt. Ltd. (Delhi High Court)
The Delhi High Court adjudicated multiple appeals concerning various assessment years involving issues related to classification of income, allowability of expenses, and treatment of certain transactions under the Income Tax Act, 1961. The assessee, engaged in construction and sale of commercial space, followed the Completed Contract Method (CCM), under which revenue is recognized only upon completion of the project.
A key issue concerned compensation paid to allottees who surrendered their rights in commercial spaces. The Assessing Officer (AO) treated such payments as capital expenditure on the ground that the assessee had effectively repurchased the flats. However, the Court held that the spaces formed part of stock-in-trade and the compensation was paid for commercial expediency, including maintaining business reputation and facilitating resale at higher value. It was observed that such expenditure, though not contractually mandated, was incurred for business purposes and therefore constituted revenue expenditure. The Court rejected the ITAT’s earlier view that the payment was for extraneous considerations and restored the CIT(A)’s finding allowing deduction.
On the issue of rental income, the Court held that income derived from letting out properties forming part of stock-in-trade should be assessed under “Income from House Property” and not as business income. This conclusion was based on consistent treatment across assessment years and application of the rule of consistency, especially where the Revenue had accepted similar findings in other years.
