2010 (10) TMI 679 - AT - Income Tax

Subletting of Property - annual letting value - adjustment rent paid against rent received - Held that - ALV of house property is to be taken as if it is under self occupation and by applying provision of Section 6(1) and and of Delhi Rent Control Act. If NDMC has determined the rateable value of the property then the said be adopted as basis for ALV of property for the purpose of section 22/23 of IT Act. if no assessment has so far be made under Rent Control Act or by NDMC then assessment of ALV be made determined as directed by the Hon ble Delhi High Court. Payment of rent and claim of deduction against rent received - income from other sources - Held that - rent paid by the assessee for the said property to LIC of India can by no stretch of imagination be considered as expenditure incurred for earning the said income. - As it is incomprehendible as to how can one take a premises at rent of Rs.257543/- to earn lease rental income of Rs.1,44,000/-

Summary

Issues:
1. Determination of annual letting value of property under Delhi Rent Control Act.
2. Disallowance of deduction for rent paid against lease rental income.

Issue 1: Determination of annual letting value of property under Delhi Rent Control Act:
The appeal concerned the assessment year 2005-06 and the issue revolved around the determination of the annual letting value (ALV) of the appellant's share in a property at 12, Aurangzeb Lane, New Delhi. The contention was that the Assessing Officer should have calculated the ALV based on the land and construction cost as per the Delhi Rent Control Act. The Tribunal noted that a similar issue had been addressed previously, directing the Assessing Officer to determine the ALV with reference to the rateable value determined by the Municipal Corporation. The Tribunal referred to past cases where the ALV was determined based on municipal valuation. The appellant's representative argued that the High Court had directed the rateable value of the property to be determined based on the cost of land and construction as per the Rent Control Act. Consequently, the Tribunal upheld the direction to determine the ALV based on the rateable value determined by the Municipal Corporation or as per the High Court's order if no assessment had been made under the Rent Control Act.

Issue 2: Disallowance of deduction for rent paid against lease rental income:
The second issue involved the disallowance of a deduction claimed by the appellant for rent paid to LIC of India against lease rental income received. The Assessing Officer disallowed the deduction due to lack of evidence supporting the expenses incurred and the genuineness of the payments. The Commissioner of Income Tax (Appeals) upheld the disallowance, noting that the appellant was not the owner of the premises and that the lease rental income could not be taxed under the head "Income from house property." The Commissioner further stated that expenses could only be allowed under specific provisions if they were incurred wholly and exclusively for earning the income. The Tribunal concurred with the Commissioner's findings, emphasizing the lack of evidence regarding the expenses incurred and the incongruity of paying higher rent than the income earned from subletting. Consequently, the Tribunal upheld the decision to tax the lease rental income separately as "income from other sources" and disallow any expenses claimed against that income.

In conclusion, the Tribunal partially allowed the appeal concerning the disallowance of the deduction for rent paid against lease rental income. The Tribunal upheld the direction to determine the annual letting value of the property based on the rateable value determined by the Municipal Corporation or as per the High Court's order if no assessment had been made under the Rent Control Act.