2003 (1) TMI 256 - AT - Income Tax

Lease rent earned by the assessee by sub-letting the property should be treated as income from house property or business income - Whether the assessee is deemed to be the owner of the property u/s 27(iiib) r.w.s. 269UA(f) of the Income Tax Act? Circular concludes All these types of transactions have the effect of transferring the house property in fact though not in law. With the extended definition of the expression ownership transactions covered by section 269UA of the Income tax Act 1961 (including transfer of property by power of attorney) shall be considered as having the effect of transfer of title. The Finance Act 1987 by substitution of clauses (iii) (iiia) and (iiib) in section 27 covers all the transactions referred to above for the purpose of determining the ownership of the property for assessing income under the head income from house property . This means this Circular applies to the transactions mentioned above and not to any other transaction. In the instant case of the assessee it is not a transfer or transaction as referred to above and as such the extended meaning of ownership cannot be applied. In the light of the above it is of view that the orders of the revenue authorities are liable to be set aside.

Issues Involved:
1. Whether the lease rent earned by the assessee by sub-letting the property should be treated as income from house property or business income.
2. Whether the assessee is deemed to be the owner of the property under section 27(iiib) read with section 269UA(f) of the Income Tax Act.
3. The applicability of Chapter XXC of the Income Tax Act in the context of the assessee's case.
4. The relevance and application of the Board's Circular No. 495 dated 22-9-1987.

Issue-wise Detailed Analysis:

1. Treatment of Lease Rent:
The primary issue was whether the lease rent earned by the assessee by sub-letting the property should be treated as income from house property or business income. The assessee contended that since he was not the owner of the building and was engaged in the business of taking properties on lease and sub-letting them, the lease rent should be treated as business income. The Assessing Officer (AO), however, treated the lease rent as income from house property, deeming the assessee as the owner under section 27(iiib) read with the Explanation to section 269UA(f).

2. Deemed Ownership under Section 27(iiib):
The AO held that the assessee was deemed to be the owner of the property because the property was leased for more than 12 years through successive agreements. The first appellate authority accepted the submission that the term of the lease had not exceeded 12 years, thus not making the assessee a deemed owner under the Explanation to section 269UA(f). However, it held that the lease rent should still be treated as income from house property, referencing various judicial decisions.

3. Applicability of Chapter XXC:
The Tribunal examined the applicability of Chapter XXC, which deals with the acquisition of immovable properties by the Central Government to counteract tax evasion. It was noted that Chapter XXC was introduced to prevent tax evasion and is applicable in specific areas notified by the Central Government. The Tribunal concluded that Chapter XXC, including the extended meaning of 'transfer' under section 269UA(f), was not applicable to the assessee's case as there was no agreement for transfer or apparent consideration for transfer.

4. Board's Circular No. 495:
The assessee relied on the Board's Circular No. 495 dated 22-9-1987, which extended the meaning of 'ownership' for computing income under the head "income from house property". The Tribunal noted that the circular applies to transactions where the assessee possesses all rights to an immovable property except the legal title, such as in cases of transfer of property by power of attorney or part performance under section 53A of the Transfer of Property Act. The Tribunal concluded that the circular did not apply to the assessee's case as there was no transfer of ownership or transaction as referred to in the circular.

Conclusion:
The Tribunal held that the assessment was erroneous and based on a misconception of law. It concluded that the extended meaning of 'ownership' under section 27(iiib) read with section 269UA(f) did not apply to the assessee's case. The Tribunal set aside the orders of the revenue authorities and allowed the appeal by the assessee, treating the lease rent as business income.

Result:
The appeal by the assessee was allowed.

← Previous Next →