2015 (5) TMI 1254 - AT - Income Tax

Correct head of income - Taxing the rental income from property - income from house property or Income from other sources - real owner of property - assessee stated to have been received property as gift from her father - AO did not accept the ownership of flat of the appellant therefore assessed the receipt of stated rent under the head Other Sources and disallowed statutory deduction u/s 24 (30% towards repairs) and payment of Municipal taxes - According to the ld CIT(A) the transfer of the house property is not in accordance with law because the Gift Deed of immovable property was not registered by payment of stamp duty HELD THAT - As decided by Smt. Kamla Sondhi 2004 (2) TMI 741 - DELHI HIGH COURT under the common law owner means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act Registration Act etc. But in the context of section 22 of the Income Tax Act having regard to the ground realties and further having regard to the object of the Income Tax Act namely to tax the income we are of the view owner is a person who is entitled to receive income from the property in his own right. We find that the Ld CIT(A) got carried away by the judgment of Suraj Lamps and Industries Pvt. Ltd. ( 2011 (10) TMI 8 - SUPREME COURT ) wherein SC delivered the judgment in a different context and highlighted the well settled law on the importance of registration of property as per the Registration Act and frowned upon the menace of transaction being done of immovable property by General Power of Attorney and the said case has nothing to do with the Income Tax Act 1961 which we are dealing with. However we find that the aforesaid order of the Hon ble High Court of Delhi bolsters the case and claim of the appellant. Since there is no dispute that income/rent from the flat No-21 Hope Apartments Sector-15 Gurgaon is received by the assessee/ appellant then as per the Income Tax Act owner is the person who is entitled to receive income in his own right. Respectfully following the order of the Hon ble High Court in the case of CIT vs. Smt. Kamla Sondhi (Supra) as held by the Hon ble Supreme Court in Poddar Cement (supra) we set aside the order of the revenue authorities and decide the issues in dispute in favour of the assessee.

Summary

Issues Involved:
1. Validity of the assessment order under Section 143(3) of the Income Tax Act, 1961.
2. Ownership proof and taxation of rental income under the head "Other Sources".
3. Deduction of municipal taxes under Section 57 of the Income Tax Act, 1961.
4. Disallowance of car insurance expenses.
5. Dismissal of the appeal by CIT(A) without deciding on ground no. 4.
6. Rejection of contentions regarding ownership and municipal taxes by CIT(A).

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3) of the Income Tax Act, 1961:
The Assessee challenged the assessment order under Section 143(3) as bad in law and on facts. The Tribunal did not specifically address this issue as the primary focus was on the ownership and taxation of rental income.

2. Ownership Proof and Taxation of Rental Income Under the Head "Other Sources":
The Assessee claimed rental income from a flat in Gurgaon, which was shown as income from house property. The AO assessed the rental income under "Other Sources" due to lack of ownership proof in the Assessee's name. The CIT(A) upheld this, citing the lack of a registered gift deed, as per the Supreme Court judgment in Suraj Lamps & Industries Pvt. Ltd. vs. State of Haryana. The Tribunal, however, referred to the Delhi High Court judgment in CIT vs. Smt. Kamla Sondhi, which held that for income tax purposes, the owner is the person entitled to receive income from the property. Thus, the Tribunal ruled in favor of the Assessee, recognizing her right to receive the rental income and allowing it under "Income from House Property".

3. Deduction of Municipal Taxes Under Section 57 of the Income Tax Act, 1961:
The Assessee's claim for deduction of municipal taxes paid on the property was disallowed by the AO since the rental income was assessed under "Other Sources". The Tribunal overturned this, allowing the deduction under Section 24(b) since the rental income was recognized under "Income from House Property".

4. Disallowance of Car Insurance Expenses:
The AO disallowed a portion of the car insurance expenses, attributing it to the subsequent assessment year. The Assessee argued that the income was chargeable on a cash basis. The Tribunal did not specifically address this issue in detail, as the primary focus was on the rental income and ownership proof.

5. Dismissal of the Appeal by CIT(A) Without Deciding on Ground No. 4:
The Assessee contended that the CIT(A) erred by not deciding on the disallowance of car insurance expenses. The Tribunal did not explicitly address this procedural lapse, focusing instead on the substantive issues of rental income and ownership.

6. Rejection of Contentions Regarding Ownership and Municipal Taxes by CIT(A):
The CIT(A) rejected the Assessee's contentions based on the lack of a registered gift deed, relying on the Supreme Court judgment in Suraj Lamps & Industries Pvt. Ltd. vs. State of Haryana. The Tribunal, however, found that the Delhi High Court judgment in CIT vs. Smt. Kamla Sondhi was more pertinent, as it specifically addressed the issue of income tax liability on rental income without a registered sale deed. The Tribunal ruled in favor of the Assessee, allowing the rental income to be taxed under "Income from House Property" and permitting the associated deductions.

Conclusion:
The Tribunal set aside the order of the revenue authorities, recognizing the Assessee's right to receive rental income from the property and allowing the associated deductions under "Income from House Property". The appeal was allowed in favor of the Assessee.