In the ITAT
Bindals Developers (P.) Ltd.
v.
Income-tax Officer, Ward-3(1),
Vimal Gandhi,
President
And Rajendra Singh,
Accountant Member
IT Appeal
No. 468 (
[Assessment year
2001-02]
March 9, 2007
Section 27(iiib),
read with section 269UA(f), of the Income-tax Act, 1961 - Income from house
property - Deemed owner - Assessment year 2001-02 - Whether a lessee can be
treated to be owner of property, if lease is for a considerable long time, say
for 99 years, and lessee has right to construct property and to sell property
constructed by him - Held, yes - One ‘H’, owner of a property, executed a lease
in favour of assessee for a period of 9 years and 11 months - By said
agreement, ‘H’ transferred certain rights to assessee including right to sub-let
premises and to realise rent from sub-tenant -
Assessee sub-let premises to a company and realised
rent from it - Assessee claimed its rental income to be assessed as ‘income
from other sources’ - However, Assessing Officer assessed it as income from house
property invoking section 27 - Whether since period of lease in question was
less than statutory period of 12 years as mentioned in section 269UA(f),
assessee could not be said to be deemed owner or beneficial owner - Held, yes -
Whether, moreover, since (i) rights exercised by
assessee were referable to agreement with ‘H’; (ii) while ‘H’ was owner of
property, there could not be second owner like assessee; and (iii) it could not
be said that assessee was realizing rent in his own right, assessee could not
be said to be beneficial owner - Held, yes - Whether, therefore, rental income
realized by assessee was to be assessed under head ‘Other sources’ and not
under head ‘House property’ - Held, yes
Facts
One ‘H’ owned a property which was let out to some company from time to time. Since said company continued to occupy the premises even after the expiry of the term of last written lease, ‘H’ executed a lease in respect of same property on 17-11-1998 in favour of assessee for a period of 9 years and 11 months thereby entitling it to sub-let the premises to any third party on its own terms and conditions. The assessee sub-let the premises to the same company at an enhanced rent and declared the rent as income received by it under the head ‘Other sources’ on the ground that it was not the owner of the premises and he was merely a lessee. The Assessing Officer, however, assessed the rental income under the head ‘House property’ by applying section 27. He also disallowed expenditure claimed by the assessee against the rental income, and allowed expenditure as is permissible under the head ‘House property’. On appeal, the Commissioner (Appeals) held that the assessee was a beneficial owner of the property and was entitled to enjoy the rental income from the property in his own right. Alternatively, Commissioner (Appeals) held that the assessee was a deemed owner of the property under the provision of section 27(iiib), read with section 269UA(f), as the period of lease of 9 years and 11 months was fixed at the ‘first instance’ which clearly implied that there was no restriction to extend this period for an unlimited term. Therefore, the Commissioner (Appeals) upheld the impugned assessment.
On second appeal :
Held
Clause (iiib) of section 27
covers acquisition of any right in or with respect to any building by virtue of
any such transaction as is referred to in clause (f) of section 269UA.
It is clear from clause (f) that ‘transfer’ in
said clause would include a lease for a term of not less than 12 years. [
In the instant case, it was admitted that lease deed dated
17-11-1998 was for a period of 9 years and 11 months. It was no doubt stated
that the said period was fixed ‘at the first instance’, but there was no
material to show that it was extended or could be extended so that total period
of lease could be held to be ‘not less than 12 years. The gap that existed
between 9 years and 11 months and 12 years had been filled up by the revenue
authorities on imagination only. There was no material to support or hold that
period of lease fixed between assessee and ‘H’ was for more than 9 years and 11
months. Thus, without any material and on imagination, the case could not be
taken to be covered under clause (f) of section 269UA. The assessee
could not be treated to be deemed owner of the house property. [
Admittedly, ‘H’ was the owner of the property. He had not
transferred all his rights to the assessee, though some rights were transferred
to the assessee including right to realize rent. Rights exercised by assessee
were referable to agreement with ‘H’. There was no term in the deed to show
that ‘H’ could not transfer ownership of property or several other rights were
retained by him as owner. The assessee was not doing anything in its own
rights. He was exercising rights given to him or traceable to the documents in
his favour. That document was not a sale deed nor the instant
case could be treated as a case of merely husk of title with ‘H’. He was
the owner and lessor of the property and was
realizing rent of the same. The assessee was also liable to pay rent to ‘H’. He
was also to carry other obligations mentioned in the deed. A tenant can be
authorized to sub-let the premises and realize rent from tenants under him or
who has attorned to him. This is quite a well known
concept. Why such an arrangement was arrived at was also explained in the deed.
The assessee in the instant case was a lessee and tenants occupying the
property and liable to pay rent to the assessee as sub-lessee, of the premises
was with the consent of the owner. While ‘H’ was owner of property, there could
not be a second owner like assessee. It could not be said that the assessee was
realizing rent in his own right. There may be cases where the lessee can be
treated to be owner of the property. A lessee can be treated to be owner of
property, if lease is for a considerable long time, say for 99 years, and
lessee has right to construct property and to sell property constructed by him.
It is also reasonable to hold the lessee to be ‘deemed owner’ of the property
under section 27(iiib) where lease is not for
less than 12 years. The Legislature having prescribed the period of lease for
treating the lessee as deemed owner, it is not possible to hold a lessee as a
deemed owner where lease is for a period of less than 12 years nor such a
lessee can be treated to be a beneficial owner. Such an interpretation would
tantamount to acting against the mandate of the Legislature. It would be
illegal application of the statutory provision. Having already noted that lease
with the assessee was for a period of less than 12 years, he could neither be
treated as a beneficial owner nor a deemed owner. To hold otherwise, would be
to disregard the agreed terms as well as statutory provisions of the Act.
Therefore, there was no good reason to hold the assessee as an owner or deemed
owner of house property under section 22. Income realized from sub-lessee in
occupation of the premises was income of the assessee. There was no dispute on
that. The assessee’s contention that said income was
to be assessed under the head ‘Other sources’ as it was not owner of the premises, was well taken and was required to be accepted.
There was no question of estimating annual letting value of the property. It
was to be assessed as per agreement between the parties under the head ‘Other
sources’. The revenue authorities were not justified in assessing rental income
under the head ‘House property’. Therefore, the Assessing Officer was to be
directed to take assessee’s rental income under the
head ‘Other sources’. The assessee would also be entitled to consequential
relief under the law. [
Consequently, the appeal of the assessee was to be allowed.
Cases referred to
CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625/92 Taxman 541 (SC) (para 9), R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC) (para 9) and Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 (SC) (para 11).
Ajay Vohra and Ms. Anju Dodiya for the Appellant.
L.K.S. Dehiya for the Respondent.