The Mumbai bench of the Income Tax Appellate Tribunal (ITAT), while allowing the assessee, a builder to credit the rental income from tenants towards the work-in-progress, held that such income cannot be taxed under the head “Income from House Property”.
The assessee is in the business of builder and developer, was in the possession of Datar Block property which it was in the process of developing. The said property had some tenants. The assessee had to pay large amounts of money in order to get the property vacated.
The Assessing Officer allowed to capitalize the said sum capitalized in work-in progress. However, for the same property, the tenants had paid rent also which were treated by the assessee by crediting to the work-in-progress. However, the Assessing Officer held the same to be income from house property.
The bench noted that the assessee’s business is the development of the property. “For the same property, for getting vacation, the sums paid are being debited to the work-in-progress which is being accepted by the Assessing Officer. However, pending vacation, the rent receipt from the tenants of the said property is not being given the same treatment by the Assessing Officer. He is treating the same as income from house property.”
It was further noted that the rent received is inextricably linked with the business of the assessee, i.e., development of the property.
“Hence, in our considered opinion, the rent received cannot be treated as income from house property and the assessee’s treatment of crediting the same towards work-in-progress is justified. For this proposition, the case laws relied upon by the ld. Counsel of the assessee referred in the submissions hereinabove are germane and support the case of the assessee, particular the case law from the Hon’ble Bombay High Court in the case of Lokholdings (supra) is of particular emphasis,” the bench said.
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