2006 (12) TMI 255 - AT - Income Tax

Issues Involved:
1. Assessability of rent received for the property situated at 24, G.B. Marg, Lucknow.
2. Allowability of vacancy allowance for the property situated at 11, Station Road, Lucknow.
3. Validity of proceedings under section 148 for assessment years 1997-98 and 1999-2000.

Detailed Analysis:

1. Assessability of Rent Received for the Property Situated at 24, G.B. Marg, Lucknow:
- Facts and Contentions: The assessee claimed entitlement to only 25% of the rental income from the property, while the Department taxed the entire net taxable rent of Rs. 6,28,737 in the hands of the assessee. The property was owned by the assessee, his wife, son, and daughter-in-law, but the Department argued that the entire rental income should be taxed in the assessee's hands due to the ownership evidence and loan agreements solely in the assessee's name.
- Assessing Officer's Findings: The Assessing Officer found that the purchase deed, lease agreement, and TDS certificates indicated the assessee as the sole owner. The assessee's claim of co-ownership was seen as a "colourable device" to divert income.
- CIT(A) Confirmation: The CIT(A) upheld the Assessing Officer's decision, citing the sole ownership evidence and negligible contributions from other alleged co-owners. The CIT(A) also dismissed the res judicata argument, stating that previous assessments did not conclusively establish co-ownership.
- Tribunal's Decision: The Tribunal considered the concept of ownership under section 22 and various case laws indicating that ownership of superstructure can be separate from land ownership. The Tribunal found that the agreement dated 3-5-1985 established co-ownership of the superstructure and that the contributions from other co-owners were made in their own right. The Tribunal set aside the CIT(A)'s order, recognizing the co-ownership and allowing the assessee's claim.

2. Allowability of Vacancy Allowance for the Property Situated at 11, Station Road, Lucknow:
- Facts and Contentions: The assessee claimed that rent was received only for five months, and thus, the rental income should be Rs. 1,00,000 after due deduction of vacancy allowance. The Assessing Officer and CIT(A) did not accept this claim as it was not made in the return, and there was no evidence of unrealized rent.
- Tribunal's Decision: The Tribunal emphasized that only real income should be taxed and noted that the assessee's claim was a legal one that could be made at any stage. The Tribunal restored the issue to the Assessing Officer to verify the claim of unrealized rent and allow vacancy allowance accordingly.

3. Validity of Proceedings Under Section 148 for Assessment Years 1997-98 and 1999-2000:
- Facts and Contentions: The Assessing Officer issued notices under section 148 based on the assessment for the year 2002-03, where the entire rental income was assessed in the hands of the assessee. The assessee challenged the initiation of proceedings, arguing that no new material was found to justify the reopening.
- CIT(A) Confirmation: The CIT(A) upheld the initiation of proceedings under section 148, stating that the Assessing Officer had reason to believe that income had escaped assessment.
- Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, noting that the original assessments were completed under section 143(1)(a) and the Assessing Officer had sufficient reason to believe that income had escaped assessment based on the findings for the year 2002-03.

Conclusion:
- The Tribunal allowed the assessee's claim regarding the co-ownership and distribution of rental income for the property at 24, G.B. Marg, Lucknow.
- The Tribunal restored the issue of vacancy allowance for the property at 11, Station Road, Lucknow, to the Assessing Officer for verification and appropriate action.
- The Tribunal upheld the validity of proceedings under section 148 for the assessment years 1997-98 and 1999-2000, allowing the reassessment based on the findings from the year 2002-03.

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