1986 (9) TMI 21 - HC - Income Tax

Summary

Issues involved:
The judgment involves the assessment of income from a leasehold property, specifically regarding the treatment of income received by a sub-lessee in the hands of the original lessee.

Summary:

Facts and Proceedings:
The assessee obtained a leasehold interest and subsequently sub-leased a portion of the property to another company. The Income-tax Officer included the sub-lease income in the assessee's total income as notional income. The Commissioner (Appeals) held that the income should be assessed under the head "Business" rather than "Income from house property."

Appeals and Tribunal Orders:
The Commissioner (Appeals) passed orders in favor of the assessee, directing exclusion of the sub-lease income from the assessee's total income. The Tribunal upheld the Commissioner's decision, stating that the income should be assessed as business income.

Recomputation and Further Appeals:
The Income-tax Officer recomputed the income, including the sub-lease income, which was challenged by the assessee. The Commissioner (Appeals) set aside the recomputation, directing exclusion of the sub-lease income. The Revenue appealed to the Tribunal, arguing for inclusion of the sub-lease income in the assessee's total income.

Tribunal Decision and Question of Law:
The Tribunal held that the sub-lease income should be assessed as business income of the assessee. The Tribunal referred a question of law to the High Court regarding the justification of assessing the sub-lease income as the assessee's business income.

Legal Arguments and Supreme Court Precedents:
The assessee argued that the sub-lease income should not be considered the business income of the assessee as it did not directly receive the income. Citing Supreme Court precedents, the assessee contended that only income actually accrued or arisen should be taxable.

High Court Decision:
The High Court agreed with the assessee, ruling that the sub-lease income received by the sub-lessee should not be assessed as the business income of the assessee. The Court emphasized that the assessee was not the owner of the property and had no benefit from the sub-lease income. The Court clarified that the judgment did not prevent the Revenue from assessing the sub-lessee separately.

Conclusion:
The High Court answered the question in favor of the assessee, stating that the sub-lease income should not be treated as the business income of the assessee. The Court highlighted the distinction between the assessee and the sub-lessee, emphasizing that the sub-lease income did not belong to the assessee.