Opinion Of Eminent Legal Luminaries On Controversial Issues

Business income or capital gains-Developers position on renting & selling of flats

QUERY: Assessee is a developer of housing complex. He intends to sell the all the flats in a building constructed. However latter on instead of selling flats assessee gave them on the rent. Under which head of income such rental income would be taxable? Further if sells such flats after 7/8 years to same tenants. Whether sale proceeds would be taxed as business income or capital gains?
ANSWER: Though, the assessee being a developer and developed housing complex with intention to sell the flats. Due to circumstances, he could not sell the flats and therefore he has rented out the same,. The income from renting outould be assessed under the head “Income from house property”.
Later on, if he disposes of the flats after 7/8 years to the same tenants, the gain from such flats would be assessed as business income or capital gains, would depend on the facts. If the flats are shown in the books of account as stock-in-trade, it would be assessed as business income. But, if those flats are shown as investment, then, it would be assessed as capital gains.

Posted in Income-tax

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