2018 (6) TMI 1465 - AT - Income Tax

Rental income received by the Assessee - sub-tenancy rent receipts from ICICI Bank - Assessed as Income from Other sources OR Income from House property - deemed ownership - Held that - In the past years, the issue has been consistently decided by the Tribunal in favour of the assessee, starting with the lead order for assessment year 2005-06 as held that the owners of the property M/s. Vrindavan Lal Goverdhan Lal have allowed the assessee firm to create sub-tenancy with the regard to the premises and has given their premises for creating the sub-tenancy in favour of ICICI Bank, Ltd. for a period of 15 years on certain terms and conditions as detailed in their letter dated 24/11/2000 addressed to the assessee, copy thereof filed in the compilation before us. The assessee become a deemed owner in accordance with provision of section 27(iiib) r.w.s. 269UA(f)(i) of the Act - no mistake in the order of CIT(A) in holding that the assessee is the deemed owner of the premises u/s 27(iiib) of the Act and the order of the CIT(A) is confirmed and the grounds of appeal of the revenue are dismissed.

Issues:
1. Ownership of immovable property for income deduction under section 24(a) of the Income Tax Act.
2. Deemed ownership under section 27 of the Income Tax Act.
3. Part performance under section 53A of the Transfer of Property Act.
4. Interpretation of section 27(iii b) and section 269UA clause(f).
5. Reliance on documents for legal conclusions.

Issue 1: Ownership of immovable property for income deduction under section 24(a) of the Income Tax Act:
The Revenue challenged the order passed by the ld. CIT(A) regarding the ownership of immovable property and the entitlement to deduction under section 24(a) of the Income Tax Act. The Revenue argued that the absence of authenticated and registered documents to prove ownership should disqualify the assessee from claiming income earned from property let out to ICICI bank. However, the Tribunal referred to a previous decision in the assessee's case for the Assessment Year 2010-11, where a similar disallowance was deleted. The Tribunal upheld that the income from the property should be taxed under the head 'income from house property,' as the assessee was deemed the owner based on the terms and conditions of the arrangement with the property owner.

Issue 2: Deemed ownership under section 27 of the Income Tax Act:
The dispute revolved around the deemed ownership status of the assessee under section 27 of the Income Tax Act. The Revenue contended that the assessee was a mere licensor and not a deemed owner, hence the income received should be taxed under 'income from other sources.' However, the Tribunal analyzed the terms of the sub-tenancy agreement with ICICI Bank Ltd. and the property owner, establishing that the assessee became a deemed owner under section 27(iiib) r.w.s. 269UA(f)(i) of the Act. The Tribunal emphasized that the CIT(A) erred in not following the Tribunal's earlier decision in the assessee's case and directed the Assessing Officer to treat the sub-tenancy rent receipts as assessable under 'income from house property.'

Issue 3: Part performance under section 53A of the Transfer of Property Act:
The CIT(A) was criticized for not appreciating the requirement of part performance under section 53A of the Transfer of Property Act for according deemed ownership status under section 27(iii b). The Tribunal, however, found that the entire arrangement and compliance with the conditions of section 53A were evident in the agreement between the assessee and the property owner, leading to the conclusion that the assessee fulfilled the criteria for deemed ownership.

Issue 4: Interpretation of section 27(iii b) and section 269UA clause(f):
The Tribunal clarified the application of section 27(iii b) and section 269UA clause(f) in determining deemed ownership, emphasizing the importance of analyzing the part performance as stated in section 53A of the Transfer of Property Act. The Tribunal highlighted that the concept of acquiring rights for a specific period was not relevant, and what mattered was the fulfillment of part performance conditions for establishing deemed ownership.

Issue 5: Reliance on documents for legal conclusions:
The Revenue's reliance on a letter from the landlords as a document for drawing legal conclusions regarding the subject property was questioned. The Tribunal emphasized the need for substantive reasons of fact or law to support legal assertions, and in the absence of such material, the decision was made to dismiss the appeal filed by the Revenue.

In conclusion, the Tribunal upheld the order of the ld. CIT(A) based on the precedent set in the assessee's own case, where the Tribunal had previously ruled in favor of the assessee regarding the taxation of income from the property let out to ICICI Bank Ltd. The decision highlighted the importance of analyzing the terms of agreements, compliance with legal provisions, and the concept of deemed ownership in determining the taxability of rental income under the Income Tax Act.

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