2010 (8) TMI 490 - AT - Income Tax

Income from other sources or house property - Sub tenancy - Ownership of property - transfer by way of leave and licence agreement - Assessee claimed that he is the deemed owner of the property - Held that - The assessee could enjoy the property so long as the assessee continues to pay the monthly rent. In case of any dispute, notices could be given by the parties. Therefore, the essence of the tenancy agreement was payment of rent month by month and that the assessee could make the sub-letting as a tenant only because owner cannot make sub-letting of the property and in case of any dispute the notices could be given by the parties. There is no clause in the tenancy agreement to provide that the tenancy was for more than one year. No right to tenancy in perpetuity is granted to the assessee because the tenancy agreement was subject to certain conditions to be performed by the assessee. - Claim of the owner rejected for deemed ownership of the building in question as per section 22, read with section 27(iiib) - Assessee is not eligible for deduction u/s 24 - The income liable to be treated as income from other sources - Decided in favor of revenue.

Issues Involved:
1. Classification of rental income as "income from other sources" versus "income from house property."
2. Eligibility for a 30% deduction under Section 24 of the IT Act.
3. Applicability of deemed ownership under Sections 27(iiib) and 269UA(f) of the IT Act.

Detailed Analysis:

Issue 1: Classification of Rental Income
The primary issue was whether the rental income of Rs. 11,23,695 should be classified as "income from other sources" or "income from house property." The Assessing Officer (AO) noticed that the assessee received rent from a property at Acme Plaza, Mumbai, which was not owned by him but was sub-leased. The AO treated the rental income as "income from other sources" because the property was not owned by the assessee, and the tenancy agreement was unregistered, making it a month-to-month lease. The AO cited Section 27(iiib) of the IT Act, which states that a lessee cannot be deemed the owner if the lease is from month to month or for a period not exceeding one year. The CIT(A) upheld the AO's view, emphasizing that the tenancy was conditional and revocable, thus not meeting the criteria for deemed ownership under Section 269UA(f).

Issue 2: Eligibility for 30% Deduction
The assessee claimed a 30% deduction under Section 24 of the IT Act, which is allowed for income classified as "income from house property." Since the AO and CIT(A) classified the rental income as "income from other sources," the claim for a 30% deduction was disallowed. The CIT(A) noted that the tenancy agreement did not confer ownership rights to the assessee, and the lease was not for a term exceeding 12 years, as required by Section 269UA(f).

Issue 3: Applicability of Deemed Ownership
The assessee argued that under Section 269UA(f)(i), the lease should be considered perpetual, thus qualifying for deemed ownership. However, the CIT(A) and the Tribunal found that the tenancy agreement was month-to-month, conditional, and revocable. The Tribunal noted that the tenancy agreement lacked a clause for extension beyond 12 years and was unregistered, failing to meet the requirements of Section 27(iiib) and Section 269UA(f). The Tribunal also referenced several Supreme Court decisions, which held that in the absence of a registered lease deed, the person in possession is a tenant from month to month.

Conclusion:
The Tribunal upheld the decisions of the lower authorities, concluding that the rental income should be classified as "income from other sources" and not "income from house property." Consequently, the assessee was not eligible for the 30% deduction under Section 24. The Tribunal dismissed all appeals, affirming that the assessee did not qualify for deemed ownership under Sections 27(iiib) and 269UA(f) of the IT Act.

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