ITR/220/1994 1/6 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 220 of 1994 For Approval and Signature: HONOURABLE MR.JUSTICE R.S.GARG HONOURABLE MR.JUSTICE M.R. SHAH ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= COMMISSIONEROF INCOME-TAX - Applicant(s) Versus NEHA BUILDERS PVT LTD - Respondent(s) ========================================================= Appearance : MR BB NAIK for Applicant(s) : 1, NOTICE SERVED for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE R.S.GARG and HONOURABLE MR.JUSTICE M.R. SHAH Date : 18/08/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE R.S.GARG) ITR/220/1994 2/6 JUDGMENT . . . , . Mr B B Naik learned counsel for the Revenue . 2 , ( ) Present Reference under Section 256 1 of the , Indian Income Tax Act has been made by the Income Tax , , Appellate Tribunal Ahmedabad Bench 'A' at the instance of the Revenue which is dissatisfied with the order of the Income Tax Appellate Tribunal who is aggrieved by the order passed by the Income Tax Appellate Tribunal in . / / ( ) Income Tax Appeal No 266 Ahd 90 Annexure 'C' in the . [ , Reference Book We must record that in most of the , cases we find that date of the Appellate Order is not exhibited on the final order nor the same is mentioned in ]. the Reference Order . 3 The following question has been referred to this ; Court for its opinion , 'Whether on the facts and in the , circumstances of the case the rental income received from any property in the construction business can be claimed under the head of 'Income from property' even though the said property was included in the closing stock and expenses on maintenance were debited to the profit and loss account ?' ITR/220/1994 3/6 JUDGMENT . 4 , , The short facts leading to the Reference are that - the non applicant assessee company is engaged in the , business of construction of property one of the building properties was included in the Closing Stock in the Balance . Sheet drawn for the business The assessee filed revised Return submitting that a part of its property was given on rent and the income derived on that basis should be computed under the head 'Income from house property' and . , not as business income The Assessing Officer during the , course of the assessment proceedings observed that the expenses on maintenance of the property were debited to the profit and loss account and so also the building was - - , shown as stock in trade therefore the property would partake the character of the stock and any income derived . from the stock cannot be taken to be income from property . , It accordingly framed the assessment order As the Appeal , , against the order proved futile the assessee filed the abovereferred Income Tax Appeal before the Income Tax . Appellate Tribunal The Tribunal allowed the Appeal , , observing inter alia that any dividend received on the shares or any interest received from the Bank would be , taken to be income from other sources therefore any income derived under the head of 'Rent' would also become , income from the property it accordingly allowed the Appeal . and directed reconsideration of the matter ITR/220/1994 4/6 JUDGMENT . 5 . , Mr Naik learned counsel appearing for the , , Revenue submits that if the property is used as a property then any income derived from the property would be an , income from property but if the property is used as a , stock then any income from the stock would not be an . income from the property He submits that the analogy . applied by the Tribunal is patently illegal . 6 . . We have heard Mr Naik at length None appears , . for the respondent despite service of notice . 7 From the order passed by the learned , ( ), Commissioner Income Tax Appeals it would clearly appear that the case of the assessee was that the company was , incorporated with the main object of purchase take on , , - lease or acquire by sale or let out the buildings . constructed by the assessee Development of land or property would also be one of the businesses for which the . company was incorporated . 8 , True it is that income derived from the property , would always be termed as 'income' from the property but - - , if the property is used as 'stock in trade' then the said property would become or partake the character of the , , , stock and any income derived from the stock would be ITR/220/1994 5/6 JUDGMENT , 'income' from the business and not income from the . property If the business of the assessee is to construct the - , property and sell it or to construct and let out the same , then that would be the 'business' and the business stocks , which may include movable and immovable would be taken - - , to be 'stock in trade' and any income derived from such . stocks cannot be termed as 'income from property' Even , otherwise it is to be seen that there was distinction between the 'income from business' and 'income from , property' one one side and 'any income from other . , , sources' The Tribunal in our considered opinion was absolutely unjustified in comparing the rental income with the dividend income on the shares or interest income on . , the deposits Even otherwise this question was not raised , , before the subordinate Tribunals and all of sudden the . Tribunal started applying the analogy . 9 , From the statement of the assessee it would - - clearly appear that it was treating the property as 'stock in . , trade' Not only this it will also be clear from the records , - , - that except for the ground floor which has been let out by , the assessee all other portions of the property constructed . , , have been sold out If that be so the property right from - - . the beginning was a 'stock in trade' . 10 . , Agreeing with the submissions made by Mr Naik , learned counsel for the Revenue we hold that the Tribunal ITR/220/1994 6/6 JUDGMENT . was not correct in granting the Appeal of the assessee . 11 , For the reasons aforesaid the Reference deserves . to be answered in favour of the Revenue It is accordingly . . answered and stands disposed of No costs [ . . , . ] R S Garg J . rmr [ . . , . ] M R Shah J