2014 (2) TMI 649 - AT - Income Tax

Reopening of Assessment - Inclusion of Rental income Sub-letting of property - Assessability of notional income on account of self-occupancy - Whether the CIT(A) has erred in deleting the addition made by the Assessing Officer for Assessment Year 1991-92 and 1994-95 to 2000-01 by including the rental income received on account of sub-letting the property Held that - The tax demands in question have already been paid by Smt. Adarsh Kaur for the relevant assessment years - There is no evidence or arguments brought to bear that in case such re-accounting is done, the tax demands for the relevant assessment years qua the said property would have increased, and some benefit would have accrued to the exchequer - As such, it is evident that this effort of re-accounting, even if successful, may yield no benefit to the exchequer, whatsoever, and is merely an academic exercise sans any benefit - this sort of adjudication cannot be permitted the findings of the CIT(A) upheld that had the rental income been separately assessed in the hand of the estate then the tax payable would be lower than what has been paid by Smt. Adarsh kaur Gill because she has other income also, than the rental income thus, CIT(A) has found that there is no reduction of tax on account of rent from sub-letting of property assessed in the hand of Smt. Adarsh Kaur Gill as an individual. The dispute has a long and chequered history spanning over half a century - Despite courts having tried to resolve the controversy many times, the basic dispute between the parties is coming under challenge again and again, albeit under new and in genuine grounds - it is only under exceptional grounds that any court or authority can re-open the dispute thus, the appeal of the revenue is devoid of merits and dismissed Decided against Revenue.

Issues Involved:
1. Deletion of addition made by the Assessing Officer for rental income received by Smt. Adarsh Kaur Gill for Assessment Years 1991-92 and 1994-95 to 2000-01.
2. Deletion of addition on account of notional income for self-occupancy for Assessment Years 1994-95 to 1997-98.
3. Validity of the lease agreement between Smt. Abnash Kaur and Smt. Adarsh Kaur.
4. Division and assessment of the estate of late Smt. Abnash Kaur.

Detailed Analysis:

1. Deletion of Addition Made by the Assessing Officer for Rental Income:
The primary issue was whether the rental income from property No. 3, South End Road, New Delhi, should be assessed in the hands of the estate of late Smt. Abnash Kaur or in the hands of Smt. Adarsh Kaur Gill. The Assessing Officer included the rental income received by Smt. Adarsh Kaur Gill in the hands of the estate, arguing that the lease agreement was a sham and the estate was still undivided. However, the CIT(A) and the Tribunal found that the rental income assessable in the hands of the estate would only be Rs. 1500/- per month, as per the lease agreement and the Will of Smt. Abnash Kaur. The Tribunal upheld the CIT(A)'s decision, noting that the lease agreement was acknowledged in the Will and had been acted upon, and the rental income had been consistently assessed in the hands of Smt. Adarsh Kaur Gill.

2. Deletion of Addition on Account of Notional Income for Self-Occupancy:
The Assessing Officer had added notional income for self-occupancy of the property for certain years. The CIT(A) and the Tribunal found that since the property was actually in possession of Smt. Adarsh Kaur Gill as a tenant, no notional income for self-occupancy could be assessed in the hands of the estate. The Tribunal confirmed the CIT(A)'s decision that the property was not self-occupied by any of the heirs but was rented out, and therefore, the addition on account of notional income was not justified.

3. Validity of the Lease Agreement:
The Assessing Officer and the legal heirs challenging the lease argued that the lease agreement was a sham and pre-dated to avoid tax liabilities. The CIT(A) and the Tribunal, however, found that the lease agreement was acknowledged in the Will of Smt. Abnash Kaur and had been acted upon for many years. The Tribunal noted that the original lease deed was not produced, but its existence and terms were corroborated by the Will and consistent actions of the parties involved. The Tribunal also noted that the High Court had dismissed claims challenging the lease agreement as time-barred, and therefore, it could not be re-litigated.

4. Division and Assessment of the Estate:
The Assessing Officer contended that the estate of late Smt. Abnash Kaur was still undivided and therefore, the rental income should be assessed in the hands of the estate. The CIT(A) and the Tribunal found that the estate was indeed still undivided due to ongoing litigation among the heirs. However, they held that the rental income assessable in the hands of the estate would only be Rs. 1500/- per month, as per the lease agreement. The Tribunal emphasized that the rental income had already been taxed in the hands of Smt. Adarsh Kaur Gill, and reassessing it in the hands of the estate would not yield any additional tax benefit to the revenue. The Tribunal upheld the CIT(A)'s decision, confirming that the estate's income should be assessed as per the existing lease agreement until the estate is partitioned.

Conclusion:
The Tribunal dismissed the appeals filed by the revenue and the cross-objections filed by the legal heirs challenging the CIT(A)'s order. The Tribunal confirmed the CIT(A)'s decision that the rental income from the property should be assessed at Rs. 1500/- per month in the hands of the estate, and no notional income for self-occupancy should be added. The Tribunal also upheld the validity of the lease agreement and noted that the estate's division and assessment should follow the terms of the Will and the lease agreement until the estate is partitioned.

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