I build godowns, hold them as stock in trade and let them out. I have offered the rent as house property income and taken the thirty per cent under section 24(a). The Assessing Officer has recast it as business income. Can he do that when I am the owner and the rent is plainly rent?
On these facts yes, and the Tribunal dismissed all four appeals. Where a firm constructs godowns and lets them out in an organised manner as its only activity, the receipts are business income under section 28 and not annual value under section 22, so the section 24(a) deduction is not available. The Tribunal expressly declined to apply CIT v Ansal Housing Finance & Leasing Co. Ltd., holding it to be about notional annual letting value on unsold flats and not about a business of letting warehouses.
Decided by the ITAT (Sandeep Gosain, Judicial Member and Prabhash Shankar, Accountant Member) on 2025-09-09, reported as ITA Nos. 3395, 3396, 3397 and 3398/MUM/2024 (ITAT Mumbai, A Bench), assessment years 2012-13, 2014-15, 2015-16 and 2017-18. It bears on section 22, section 23, section 24, section 24(a), section 28, section 147, section 148 of the Income Tax Act 1961, in House Property and Deductions & Disallowances matters.
This is the same doctrine as Chennai Properties and Rayala Corporation running in the opposite direction, and it is the case the library needs alongside the taxpayer-side decisions. Where the taxpayer wants the business head for depreciation and actual expenses, Chennai Properties helps; where the taxpayer wants the house property head for the flat thirty per cent under section 24(a), the very same reasoning defeats him. The facts that decided it are ordinary and easy to reproduce in any developer's file: the nature of business stated in Form 3CD, the objects in the partnership deed, rental income forming the dominant part of the profit and loss account, property expenses such as local body tax and electricity debited to that account, and the let properties carried in closing stock rather than shown as investments. Note the Tribunal's distinction at paragraph 7.1 between a business of letting and the different case of unsold units lying vacant that are let for an intervening period, which is where section 23(5) operates.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee is a partnership firm at Bhiwandi which constructs godowns and galas and lets them out. For assessment year 2012-13 it returned income of Rs 1,69,14,565; the assessment under section 143(3) was completed at Rs 1,76,58,540, the case was reopened by a notice under section 148 dated 29 January 2019, and the reassessment under section 143(3) read with section 147 was completed at Rs 2,60,33,300. The Assessing Officer found that the firm had credited Rs 2,82,16,861 as rental income in its profit and loss account, had treated it as income from house property and had claimed the standard deduction; that Form 3CD, at item 10(a) on the nature of business or profession, described the business as construction of godowns and galas, land development and renting of immovable property; that rental income from warehouses formed the dominant part of the credit side of the profit and loss account against sales of Rs 96,36,300; and that expenses such as Gram Panchayat tax and electricity bills relating to those warehouses had been debited in that account. He concluded that the firm was not constructing properties with the intention of selling them but only to let them out, that this was its business, and that the house property head had been adopted to obtain the section 24(a) deduction; he taxed the receipts as business income. The Commissioner (Appeals), National Faceless Appeal Centre, confirmed, applying Chennai Properties and distinguishing Raj Dadarkar on the footing that there the object clause of a partnership deed was in issue whereas here the nature of business was certified by the auditor in Form 3CD. The same issue arose on the same facts for assessment years 2014-15 (rent Rs 3,70,00,453, deduction claimed Rs 1,10,35,995), 2015-16 (Rs 3,95,73,709 and Rs 1,18,06,775) and 2017-18 (Rs 3,87,56,614 and Rs 1,14,40,908). The assessee relied on CIT v. Ansal Housing Finance & Leasing Co. Ltd. and on Raj Dadarkar.
All four appeals of the assessee were dismissed (paragraphs 10, 14 and 15). The rental receipts from the godowns and warehouses are business income and not income from house property, so the standard deduction under section 24(a) is not available; there was no infirmity in the conclusion of the Assessing Officer as upheld by the Commissioner (Appeals) (paragraph 9).
The Tribunal took as undisputed that Form 3CD described the business as construction of godowns and galas, land development and renting of godowns, that the partnership deed described the object as construction of godowns and galas and land development, that rental income from warehouses formed the dominant part of the credit side of the profit and loss account against which property expenses were claimed, and that the let properties were shown in closing stock as part of business stock and not separately as investments; apparently the assessee was not constructing properties with an intention to sell them but only to let them out, which was its business (paragraph 7). It recorded that the assessee gave no satisfactory answer on the period of construction or on the treatment of such income in earlier years from the date of construction, could not demonstrate that parts of the stock had actually been sold over the entire holding period, and that this was not a case where unsold units lying vacant were leased out for an intervening period (paragraph 7.1). It analysed Chennai Properties, where the object clause named the properties and the entire income came from letting, and Rayala Corporation, where the assessee had stopped its other activity and letting was its sole business, and held that both support taxation as business income where the taxpayer is involved only in the business of bare letting supported by the object clause and by actual conduct (paragraph 7.2). Applying those decisions it held that a firm engaged in constructing godowns for subsequent letting in an organised manner has all the ingredients of business income (paragraph 7.3). It followed the Bombay High Court's decision in National Leasing Limited, which set aside a Tribunal order on an identical issue and held that income from leasing or renting properties is assessable as business income, distinguishing East India Housing on the ground that the nature of the business there was different (paragraphs 7.4 and 7.5), and set out the factors drawn from Chennai Properties, including the dominant intention of the assessee and whether the letting is part of its business operations (paragraph 7.7). It distinguished CIT v. Ansal Housing Finance & Leasing Co. Ltd. as concerning whether a real estate developer should be taxed on the notional annual letting value of unsold flats, whereas this case concerned the letting of warehouses as the main business activity with no question of notional rent and no question of stock remaining vacant for a temporary period (paragraph 8).
the assessee being engaged in the construction of godowns for subsequent letting them out in an organized manner has all the ingredients of business income.
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Handle my notice → Ask a CA on WhatsAppOn these facts yes, and the Tribunal dismissed all four appeals. Where a firm constructs godowns and lets them out in an organised manner as its only activity, the receipts are business income under section 28 and not annual value under section 22, so the section 24(a) deduction is not available. The Tribunal expressly declined to apply CIT v Ansal Housing Finance & Leasing Co. Ltd., holding it to be about notional annual letting value on unsold flats and not about a business of letting warehouses. This was decided by the ITAT (Sandeep Gosain, Judicial Member and Prabhash Shankar, Accountant Member) and bears on section 22, section 23, section 24, section 24(a), section 28, section 147, section 148 of the Income Tax Act 1961. It is reported as ITA Nos. 3395, 3396, 3397 and 3398/MUM/2024 (ITAT Mumbai, A Bench), assessment years 2012-13, 2014-15, 2015-16 and 2017-18. This is the same doctrine as Chennai Properties and Rayala Corporation running in the opposite direction, and it is the case the library needs alongside the taxpayer-side decisions. Where the taxpayer wants the business head for depreciation and actual expenses, Chennai Properties helps; where the taxpayer wants the house property head for the flat thirty per cent under section 24(a), the very same reasoning defeats him. The facts that decided it are ordinary and easy to reproduce in any developer's file: the nature of business stated in Form 3CD, the objects in the partnership deed, rental income forming the dominant part of the profit and loss account, property expenses such as local body tax and electricity debited to that account, and the let properties carried in closing stock rather than shown as investments. Note the Tribunal's distinction at paragraph 7.1 between a business of letting and the different case of unsold units lying vacant that are let for an intervening period, which is where section 23(5) operates. If it applies to you, the first step is this: Before choosing the head, look at what the client has already told the Department: Form 3CD item 10(a) on the nature of business, the partnership deed or memorandum, and how the property is carried in the balance sheet.
The assessee is a partnership firm at Bhiwandi which constructs godowns and galas and lets them out. For assessment year 2012-13 it returned income of Rs 1,69,14,565; the assessment under section 143(3) was completed at Rs 1,76,58,540, the case was reopened by a notice under section 148 dated 29 January 2019, and the reassessment under section 143(3) read with section 147 was completed at Rs 2,60,33,300. The Assessing Officer found that the firm had credited Rs 2,82,16,861 as rental income in its profit and loss account, had treated it as income from house property and had claimed the standard deduction; that Form 3CD, at item 10(a) on the nature of business or profession, described the business as construction of godowns and galas, land development and renting of immovable property; that rental income from warehouses formed the dominant part of the credit side of the profit and loss account against sales of Rs 96,36,300; and that expenses such as Gram Panchayat tax and electricity bills relating to those warehouses had been debited in that account. He concluded that the firm was not constructing properties with the intention of selling them but only to let them out, that this was its business, and that the house property head had been adopted to obtain the section 24(a) deduction; he taxed the receipts as business income. The Commissioner (Appeals), National Faceless Appeal Centre, confirmed, applying Chennai Properties and distinguishing Raj Dadarkar on the footing that there the object clause of a partnership deed was in issue whereas here the nature of business was certified by the auditor in Form 3CD. The same issue arose on the same facts for assessment years 2014-15 (rent Rs 3,70,00,453, deduction claimed Rs 1,10,35,995), 2015-16 (Rs 3,95,73,709 and Rs 1,18,06,775) and 2017-18 (Rs 3,87,56,614 and Rs 1,14,40,908). The assessee relied on CIT v. Ansal Housing Finance & Leasing Co. Ltd. and on Raj Dadarkar. The matter was decided on 2025-09-09 by the ITAT (Sandeep Gosain, Judicial Member and Prabhash Shankar, Accountant Member). On those facts the ITAT held as follows. All four appeals of the assessee were dismissed (paragraphs 10, 14 and 15). The rental receipts from the godowns and warehouses are business income and not income from house property, so the standard deduction under section 24(a) is not available; there was no infirmity in the conclusion of the Assessing Officer as upheld by the Commissioner (Appeals) (paragraph 9).
The Tribunal took as undisputed that Form 3CD described the business as construction of godowns and galas, land development and renting of godowns, that the partnership deed described the object as construction of godowns and galas and land development, that rental income from warehouses formed the dominant part of the credit side of the profit and loss account against which property expenses were claimed, and that the let properties were shown in closing stock as part of business stock and not separately as investments; apparently the assessee was not constructing properties with an intention to sell them but only to let them out, which was its business (paragraph 7). It recorded that the assessee gave no satisfactory answer on the period of construction or on the treatment of such income in earlier years from the date of construction, could not demonstrate that parts of the stock had actually been sold over the entire holding period, and that this was not a case where unsold units lying vacant were leased out for an intervening period (paragraph 7.1). It analysed Chennai Properties, where the object clause named the properties and the entire income came from letting, and Rayala Corporation, where the assessee had stopped its other activity and letting was its sole business, and held that both support taxation as business income where the taxpayer is involved only in the business of bare letting supported by the object clause and by actual conduct (paragraph 7.2). Applying those decisions it held that a firm engaged in constructing godowns for subsequent letting in an organised manner has all the ingredients of business income (paragraph 7.3). It followed the Bombay High Court's decision in National Leasing Limited, which set aside a Tribunal order on an identical issue and held that income from leasing or renting properties is assessable as business income, distinguishing East India Housing on the ground that the nature of the business there was different (paragraphs 7.4 and 7.5), and set out the factors drawn from Chennai Properties, including the dominant intention of the assessee and whether the letting is part of its business operations (paragraph 7.7). It distinguished CIT v. Ansal Housing Finance & Leasing Co. Ltd. as concerning whether a real estate developer should be taxed on the notional annual letting value of unsold flats, whereas this case concerned the letting of warehouses as the main business activity with no question of notional rent and no question of stock remaining vacant for a temporary period (paragraph 8). In the words reproduced by the source cited on this page: "the assessee being engaged in the construction of godowns for subsequent letting them out in an organized manner has all the ingredients of business income." The decision followed or applied Chennai Properties & Investments Ltd. v. CIT [2015] 56 taxmann 456 (SC) — applied; Rayala Corporation Pvt. Ltd. v. ACIT — applied; National Leasing Limited (Bombay High Court, ITA No. 685 of 2007, 21 October 2024, as cited in the order) — followed; Haware Infotech Ltd., ITA Nos. 281 and 291/Mum/2018, order dated 30 September 2024 — followed on identical facts; Arihant Estate Pvt. Ltd., ITA No. 346/Mum/2019, order dated 6 January 2021 — noted as the sister concern's case on the identical issue; Raj Dadarkar & Associates v. CIT (394 ITR 592) (SC) — relied on by the assessee and distinguished; CIT v. Ansal Housing Finance & Leasing Co. Ltd. — relied on by the assessee and distinguished; East India Housing and Land Development Trust Ltd. v. CIT — distinguished through National Leasing Limited.
It was decided by the ITAT on 2025-09-09 and is reported as ITA Nos. 3395, 3396, 3397 and 3398/MUM/2024 (ITAT Mumbai, A Bench), assessment years 2012-13, 2014-15, 2015-16 and 2017-18. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 22, section 23, section 24, section 24(a), section 28, section 147, section 148, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. All four appeals of the assessee were dismissed (paragraphs 10, 14 and 15). The rental receipts from the godowns and warehouses are business income and not income from house property, so the standard deduction under section 24(a) is not available; there was no infirmity in the conclusion of the Assessing Officer as upheld by the Commissioner (Appeals) (paragraph 9). It arises in House Property and Deductions & Disallowances matters, on section 22, section 23, section 24, section 24(a), section 28, section 147, section 148 of the Income Tax Act 1961, and was decided by Sandeep Gosain, Judicial Member and Prabhash Shankar, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not assume that stock-in-trade treatment secures the house property head; here it pointed the other way, because the stock was built to be let and not to be sold. Be ready to explain the period of construction and the treatment of the same income in earlier years from the date of construction, and to show that parts of the stock were actually sold; the assessee's failure to do so was held against it. Keep the two stock-in-trade lines apart: Ansal Housing and section 23(5) are about notional annual value on unsold units, while this case is about actual rent from a letting business. If the client genuinely lets unsold units temporarily while trying to sell them, plead those facts specifically, because that is the distinction the Tribunal left open. Weigh the arithmetic before arguing: the business head costs the thirty per cent under section 24(a) but opens depreciation and actual expenditure, and the answer differs from client to client.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator returns nothing and a case-name search returns four documents, only one of which is this order; the others are unrelated Mumbai orders from 2011-2018. Nothing has followed or doubted the holding that godowns held as stock-in-trade yield business income with no s.24(a) deduction, and no appeal to the Bombay High Court was traced. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order runs to 15 numbered paragraphs at the outer level, but the numbering is not continuous in the report: paragraphs 7.4 to 7.9 reproduce other orders at length, and those reproduced orders carry their own paragraph numbers (5, 6, 7, 8, 9, 10, 11 and again 5, 6) which appear in the text and must not be cited as this Tribunal's paragraphs. The Tribunal's own reasoning is at paragraphs 7 to 7.3, 8, 8.1 and 9; paragraphs 4 to 4.5 reproduce the Commissioner (Appeals)'s order and paragraphs 5 and 6 the arguments. The grounds for assessment years 2014-15, 2015-16 and 2017-18 are set out at paragraphs 11 to 13 and disposed of by paragraph 14 mutatis mutandis. The report renders the Bombay High Court decision it follows as 'ITA NO. 685 of 2007 National Leasing Limited, 21 October 2024', and paragraph 8.1 refers to 'Banzai estates Bombay'; neither citation was independently verified for this entry. The assessment for 2012-13 was a reassessment under section 143(3) read with section 147 following a notice under section 148 dated 29 January 2019, but no ground on the validity of the reopening was decided. The outer numbering also has a gap: it runs 1, 2, then 3.1 to 3.4, with no plain paragraph 3. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
All four appeals of the assessee were dismissed (paragraphs 10, 14 and 15). The rental receipts from the godowns and warehouses are business income and not income from house property, so the standard deduction under section 24(a) is not available; there was no infirmity in the conclusion of the Assessing Officer as upheld by the Commissioner (Appeals) (paragraph 9).
TaxSphere, “Arihant Developers v ACIT”, https://taxnotice.vittsphere.com/caselaw/case/arihant-developers-godowns-stock-in-trade-business-income-no-24a/ (validity last checked 2026-09-08)
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My society lets space on the terrace to cellular operators for their towers and antennae. The Assessing Officer says that is income from other sources and has disallowed the thirty per cent under section 24(a). Is he right?
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I am a builder and I let out the flats I could not sell, which sit in my books as closing stock. Is that rent business income, and can I claim the section 24 deductions including interest on the money that built them?
