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Issues involved: Interpretation of income derived from sub-leasing property as "income from property" or "business income".
Summary: The High Court of Madras heard an appeal against the Income-tax Appellate Tribunal's order regarding the treatment of income derived from subletting a property for the assessment year 1998-99. The main question raised was whether such income should be considered as "income from property" or "business income." The assessee had sublet a portion of a property they had leased. The Assessing Officer initially treated the income as "income from house property," but the Commissioner of Income-tax (Appeals) directed it to be treated as "business income," a decision upheld by the Tribunal. The appeal questioned whether a lessee can be deemed the owner of a property solely because they sublet it. The computation of income from house property is governed by sections 22 to 27 of the Income-tax Act, 1961. Section 22 defines "income from house property" as the annual value of property owned by the assessee, excluding portions used for business or profession. Section 27 defines the "owner of house property," including scenarios where possession is transferred or acquired under specific conditions. In this case, the lease agreement allowed the lessee to retain possession for a maximum of 11 months with a further option for two years, paying monthly rent. As per section 27(iiib), the lessee, having acquired rights through a lease not exceeding one year, is excluded from being considered the owner of the property. Therefore, the provisions of sections 22 to 26 do not apply to the assessee. Ultimately, the court found no substantial question of law and dismissed the appeal without costs.
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