I let out the unsold part of my project. Is that rent business income or house property?
Income from house property. The developer's business was constructing and selling, not letting, so letting the unsold portion pending sale was incidental to the business and the rent was the fruit of ownership, assessable under s.22 rather than s.28(i).
Decided by the High Court (Bombay High Court — M. S. Sanklecha J and A. K. Menon J) on 2018-07-31, reported as (2019) 102 taxmann.com 27 (Bom.)(HC); ITA No. 347 of 2016. It bears on section 22, section 28(i) of the Income Tax Act 1961, in House Property matters.
The outcome favoured the revenue here, but the test cuts both ways and that is why it is worth having: the question is always whether letting is itself the assessee's business or merely the exploitation of property by an owner. A developer who has been offering rent from unsold inventory as business income - and taking business deductions against it - is exposed on this reasoning. The Court distinguished Chennai Properties and Rayala Corporation on the facts, so those decisions do not help where letting is not the business.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee was engaged in the business of developing real estate projects. For assessment year 2008-09 it returned rent of Rs 30.18 lakhs under the head income from house property, so as to claim the 30 per cent deduction for repairs and maintenance. By an assessment order of 30 December 2010 under s.143(3) the Assessing Officer held the receipt to be business income and denied that deduction. The Commissioner (Appeals) allowed the assessee's appeal on 25 March 2011, holding the rent assessable as income from house property with the 30 per cent deduction, and the Tribunal upheld that by its order of February 2014, treating the point as covered by the Supreme Court's decision in Sambhu Investment (P.) Ltd. v. CIT. The revenue appealed under s.260A, contending that Chennai Properties and Rayala Corporation had since concluded the issue in its favour.
The Court refused to entertain the revenue's question on the head of income, holding that it gave rise to no substantial question of law (para 3(f)). It was undisputed that the assessee's business was the development of real estate projects and that letting property was not its business; Chennai Properties and Rayala Corporation, on which the revenue relied, were cases where the Supreme Court found on the facts that the appellant was in the business of letting its property on lease, which was clearly not so here; and this Court had already taken the view on identical facts in CIT v. Sane & Doshi Enterprises that rent from the unsold portion of property constructed by a real estate developer is assessable as income from house property (para 3(e)). The appeal was not dismissed. A third question, on disallowance under s.80-IB of common expenses, was likewise not entertained as covered by earlier orders in the same assessee's own case (para 4). But the second question, whether receipts from the sale of stilt parking form part of the residential unit and so qualify for s.80-IB(10), was admitted as a substantial question of law and directed to be listed with ITXA Nos. 1513 of 2012 and 2253 of 2011 for final hearing (paras 5-8).
The reasoning occupies a single paragraph. The test the Court applied was what the assessee's business in fact is: the assessee's business was developing real estate projects and letting property was not its business. Chennai Properties and Rayala Corporation were distinguished on that footing — in each the Supreme Court found on the facts that the appellant was in the business of letting its property on lease and earning rent from it. The Court then relied on its own earlier decision in Sane & Doshi Enterprises, which it described as having decided identical facts the same way, and concluded that no substantial question of law arose (para 3(e)-(f)). The Tribunal below had decided the point on Sambhu Investment (P.) Ltd. v. CIT (para 3(c)). The order contains no discussion of the fruit of ownership, of s.22 applying in preference to s.28(i), or of letting being incidental to the developer's business — the reasoning a practitioner needs on this question is in Sane & Doshi, not here.
In the present facts it is undisputed that the respondent-assessee is in the business of development of real estate projects and letting of property is not the business of the respondent-assessee.
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Handle my notice → Ask a CA on WhatsAppIncome from house property. The developer's business was constructing and selling, not letting, so letting the unsold portion pending sale was incidental to the business and the rent was the fruit of ownership, assessable under s.22 rather than s.28(i). This was decided by the High Court (Bombay High Court — M. S. Sanklecha J and A. K. Menon J) and bears on section 22, section 28(i) of the Income Tax Act 1961. It is reported as (2019) 102 taxmann.com 27 (Bom.)(HC); ITA No. 347 of 2016. The outcome favoured the revenue here, but the test cuts both ways and that is why it is worth having: the question is always whether letting is itself the assessee's business or merely the exploitation of property by an owner. A developer who has been offering rent from unsold inventory as business income - and taking business deductions against it - is exposed on this reasoning. The Court distinguished Chennai Properties and Rayala Corporation on the facts, so those decisions do not help where letting is not the business. If it applies to you, the first step is this: Establish what the business actually is from the accounts and the activity, because the head follows that and not the stock in trade label.
The assessee was engaged in the business of developing real estate projects. For assessment year 2008-09 it returned rent of Rs 30.18 lakhs under the head income from house property, so as to claim the 30 per cent deduction for repairs and maintenance. By an assessment order of 30 December 2010 under s.143(3) the Assessing Officer held the receipt to be business income and denied that deduction. The Commissioner (Appeals) allowed the assessee's appeal on 25 March 2011, holding the rent assessable as income from house property with the 30 per cent deduction, and the Tribunal upheld that by its order of February 2014, treating the point as covered by the Supreme Court's decision in Sambhu Investment (P.) Ltd. v. CIT. The revenue appealed under s.260A, contending that Chennai Properties and Rayala Corporation had since concluded the issue in its favour. The matter was decided on 2018-07-31 by the High Court (Bombay High Court — M. S. Sanklecha J and A. K. Menon J). On those facts the High Court held as follows. The Court refused to entertain the revenue's question on the head of income, holding that it gave rise to no substantial question of law (para 3(f)). It was undisputed that the assessee's business was the development of real estate projects and that letting property was not its business; Chennai Properties and Rayala Corporation, on which the revenue relied, were cases where the Supreme Court found on the facts that the appellant was in the business of letting its property on lease, which was clearly not so here; and this Court had already taken the view on identical facts in CIT v. Sane & Doshi Enterprises that rent from the unsold portion of property constructed by a real estate developer is assessable as income from house property (para 3(e)). The appeal was not dismissed. A third question, on disallowance under s.80-IB of common expenses, was likewise not entertained as covered by earlier orders in the same assessee's own case (para 4). But the second question, whether receipts from the sale of stilt parking form part of the residential unit and so qualify for s.80-IB(10), was admitted as a substantial question of law and directed to be listed with ITXA Nos. 1513 of 2012 and 2253 of 2011 for final hearing (paras 5-8).
The reasoning occupies a single paragraph. The test the Court applied was what the assessee's business in fact is: the assessee's business was developing real estate projects and letting property was not its business. Chennai Properties and Rayala Corporation were distinguished on that footing — in each the Supreme Court found on the facts that the appellant was in the business of letting its property on lease and earning rent from it. The Court then relied on its own earlier decision in Sane & Doshi Enterprises, which it described as having decided identical facts the same way, and concluded that no substantial question of law arose (para 3(e)-(f)). The Tribunal below had decided the point on Sambhu Investment (P.) Ltd. v. CIT (para 3(c)). The order contains no discussion of the fruit of ownership, of s.22 applying in preference to s.28(i), or of letting being incidental to the developer's business — the reasoning a practitioner needs on this question is in Sane & Doshi, not here. In the words reproduced by the source cited on this page: "In the present facts it is undisputed that the respondent-assessee is in the business of development of real estate projects and letting of property is not the business of the respondent-assessee." The decision followed or applied CIT v. Sane & Doshi Enterprises [2015] 377 ITR 165 (Bom.) — followed (para 3(e)); Chennai Properties & Investments Ltd. v. CIT [2015] 373 ITR 673 (SC) — distinguished on the facts (para 3(e)); Rayala Corporation (P.) Ltd. v. ACIT [2016] 243 Taxman 360 (SC) — distinguished on the facts (para 3(e)).
It was decided by the High Court on 2018-07-31 and is reported as (2019) 102 taxmann.com 27 (Bom.)(HC); ITA No. 347 of 2016. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 22, section 28(i), 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 taxpayer. The Court refused to entertain the revenue's question on the head of income, holding that it gave rise to no substantial question of law (para 3(f)). It was undisputed that the assessee's business was the development of real estate projects and that letting property was not its business; Chennai Properties and Rayala Corporation, on which the revenue relied, were cases where the Supreme Court found on the facts that the appellant was in the business of letting its property on lease, which was clearly not so here; and this Court had already taken the view on identical facts in CIT v. Sane & Doshi Enterprises that rent from the unsold portion of property constructed by a real estate developer is assessable as income from house property (para 3(e)). The appeal was not dismissed. A third question, on disallowance under s.80-IB of common expenses, was likewise not entertained as covered by earlier orders in the same assessee's own case (para 4). But the second question, whether receipts from the sale of stilt parking form part of the residential unit and so qualify for s.80-IB(10), was admitted as a substantial question of law and directed to be listed with ITXA Nos. 1513 of 2012 and 2253 of 2011 for final hearing (paras 5-8). It arises in House Property matters, on section 22, section 28(i) of the Income Tax Act 1961, and was decided by Bombay High Court — M. S. Sanklecha J and A. K. Menon J. 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. If you want the receipt treated as business income, be ready to show that letting is itself the business, which is the basis on which the cited Supreme Court decisions were distinguished. Check the consequences of the head before conceding it, since the deductions available under s.22 and s.28(i) differ.
Validity check could not be completed. This is an order under s.260A declining to entertain the revenue's question because no substantial question of law arose. It decides nothing beyond that, and the reasoning it rests on is in CIT v. Sane & Doshi Enterprises [2015] 377 ITR 165 (Bom), which decided the same point on identical facts — that is the decision to cite. No later decision applying, following or affirming this order was established, and no special leave petition against it was found. Nothing doubting it was found either, but absence of contrary authority is not good law. Note also that the appeal was admitted on a separate question about stilt car parking and s.80-IB(10) and listed with two earlier appeals of the same assessee, so the order is not a final disposal. 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.
Read against the reported order, and the earlier record was wrong in three ways. The decision favours the assessee, not the revenue: the developer wanted the house property head for the 30 per cent statutory deduction and the Assessing Officer wanted business income. The appeal was not dismissed — the Court declined to entertain the head-of-income question and a s.80-IB expenses question for want of a substantial question of law, but admitted the appeal on a third question, about stilt car parking and s.80-IB(10), and listed it with two earlier appeals of the same assessee for final hearing. And the order contains no reasoning of its own beyond one paragraph: it turns on the undisputed fact that letting was not the assessee's business, distinguishes Chennai Properties and Rayala Corporation on that footing, and relies on this Court's earlier decision in CIT v Sane & Doshi Enterprises (2015) 377 ITR 165 (Bom), where the reasoning actually lives. Cite Sane & Doshi. Keep the two unsold-stock questions apart: this is about rent actually received, not the notional annual value of unlet stock under s.23(5). The bench was Sanklecha and Menon JJ. The order gives no ITR or other parallel citation beyond the taxmann.com reference, and does not give the Tribunal's appeal number; para 1 dates the impugned Tribunal order 18 February 2014 and para 3(c) dates it 19 February 2014. The separate question admitted on stilt car parking and s.80-IB(10) was still to be heard, and its outcome was not traced. 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.
The Court refused to entertain the revenue's question on the head of income, holding that it gave rise to no substantial question of law (para 3(f)). It was undisputed that the assessee's business was the development of real estate projects and that letting property was not its business; Chennai Properties and Rayala Corporation, on which the revenue relied, were cases where the Supreme Court found on the facts that the appellant was in the business of letting its property on lease, which was clearly not so here; and this Court had already taken the view on identical facts in CIT v. Sane & Doshi Enterprises that rent from the unsold portion of property constructed by a real estate developer is assessable as income from house property (para 3(e)). The appeal was not dismissed. A third question, on disallowance under s.80-IB of common expenses, was likewise not entertained as covered by earlier orders in the same assessee's own case (para 4). But the second question, whether receipts from the sale of stilt parking form part of the residential unit and so qualify for s.80-IB(10), was admitted as a substantial question of law and directed to be listed with ITXA Nos. 1513 of 2012 and 2253 of 2011 for final hearing (paras 5-8).
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