2015 (3) TMI 1307 - AT - Income Tax

Deemed rental income - Increasing the rents of protected tenants - Held that - Assessing Officer had committed an error in considering the amount of money deposited, in court, by Bank of Punjab in the subsequent assessment years as rent due to the assessee instead of compensation/occupation charges, which is directed by the court to be paid by party (in this case Bank of Punjab) against whom eviction order had been passed, which is in direct contradiction of the Assessing Officer s own finding in Page-2 of the Assessment Order, wherein the Assessing Officer has admitted that in July,2003, Bank of Punjab was directed to pay compensation of ₹ 1,42,000/- per month by Delhi High Court. This amount (deposited by Bank of Punjab) which the Assessing Officer treats as rental income is in reality compensation for wrongful possession which was deposited only in the subsequent assessment years by Bank of Punjab, and was received by the assessee only in A.Y.2007-2008, and A.Y.2008-09. There is wrong presumption by the Assessing Officer that Bank of Punjab and not Hem Kunt Chemicals was the assessee s tenant without appreciating that as per Sec. 16(a) and (b) of the Delhi Rent Act no tenant without the previous consent in writing of the land lord has the right to sublet or assign the premises occupied by him. Once eviction orders are passed the relationship of land lord/tenant comes to an end. Thereafter, the land lord can be awarded only compensation by the Court till possession is handed back to the land lord by the tenant. Thus, there was a gross error in the assessment order in increasing the rents of all the Appellant s remaining 39 protected tenants (being ₹ 23,769/- per Month paid to the Appellant by its lawful/ protected tenants) by 19000% i.e. to ₹ 50, 72,233/ - Per Month because these lawful tenants are protected tenants who enjoy protection under the Delhi Rent Control Act,1958. Sec 6A of the Delhi Rent Act 1958 has restricted the power of land lords (i.e. the appellant herein) to increase rents beyond 10% and that too only after every 3 years. Section 105 and 107 of the transfer of Transfer of Property Act does not confer any right on any Civil Court to fix the rent of any premises, which is a matter between the Lessor and the Lessee subject to provisions of the Rent Act. The Appellant is expressly barred from receiving any consideration for creation of a sub-tenant or the tenants as per see 16(4) of the Delhi Rent Act. - Decided against revenue

Summary

Issues:
Challenge to deletion of rental income addition in Assessment Years 2003-04 to 2006-07.

Analysis:
1. The Revenue contested the deletion of rental income addition totaling Rs. 3,00,31,873 in Assessment Year 2003-04 and Rs. 3,67,96,393, Rs. 3,95,69,419, and Rs. 4,26,06,757 in Assessment Years 2004-05 to 2006-07 by the First Appellate Authority.

2. The Assessing Officer calculated rental income from shops owned by the assessee in Connaught Place, New Delhi, differently from the declared amount due to a dispute. The High Court determined rent payable by a tenant, but the Assessing Officer calculated deemed rental income for other units, resulting in a discrepancy.

3. The Assessing Officer erroneously assumed retrospective rent enhancement for all tenants based on a specific court order related to a particular property. The Tribunal noted errors in the assessment, emphasizing that the rent determination was specific to a disputed property and could not be extrapolated to other properties without individual orders.

4. The Tribunal highlighted that the Assessing Officer misinterpreted payments made by a tenant as rental income, while they were actually compensation for wrongful possession. The Tribunal also emphasized the statutory protection enjoyed by tenants under the Delhi Rent Act, restricting rent increases.

5. The Tribunal referred to legal provisions under the Transfer of Property Act and the Delhi Rent Act to support its decision. It also cited a previous order by the Commissioner of Income tax (Appeals) in a similar case, which was upheld due to lack of contradictory evidence.

6. The Tribunal dismissed general grounds raised by the Revenue, concluding that the appeals were unfounded. The judgment favored the assessee, upholding the deletion of rental income additions for the respective assessment years based on the legal and factual analysis presented.

7. Ultimately, the Tribunal dismissed the Revenue's appeals, affirming the decision to delete the rental income additions. The judgment was pronounced in open court with representatives from both sides present, concluding the legal proceedings on 04/03/2015.