Saranga Estates Pvt. Ltd. Vs DCIT (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT) Mumbai has ruled in favor of Saranga Estates Pvt. Ltd., a property developer, in a dispute concerning the taxation of deemed rental income from unsold flats held as stock-in-trade. The tribunal’s decision, dated March 13, 2019, for the Assessment Year 2012-13, addresses whether notional rental income from such properties should be assessed under “income from house property.”
The case originated from the assessment proceedings for Saranga Estates Pvt. Ltd., a company engaged in construction and real estate development. For A.Y. 2012-13, the company filed its return declaring a total income of Rs. 9,79,23,426. During the assessment, the Assessing Officer (AO) identified two unsold flats – one in Jolly Bhavan, Khar, and another in Aurovilla, Santacruz – totaling 1815 sq. ft. and 3125 sq. ft. respectively, as part of the company’s inventory at the end of the financial year.
The AO sought an explanation from Saranga Estates as to why the annual letting value of these unsold units should not be assessed as “income from house property” under Section 22 of the Income Tax Act, 1961. Saranga Estates contended that it was in the business of real estate development and had no intention of leasing or renting out the flats. The company argued that the flats were occupied for business purposes and constituted stock-in-trade, thus any income derived from them, if any, should be considered “income from business” and not “income from house property.”
