2010 (9) TMI 41 - HC - Income Tax

Rectification of mistakes - taxation of income by way of rent derived by a person other than the legal owner - ITAT held that such rent is taxable under the head income from other sources - Held that - where the assessee has not become the owner of the property in question rental there from could be treated as income under the head of income from house property and not income from other sources

Summary

Issues:
Assessment of rental income under different heads for assessment years 1981-82 and 1984-85; Application of Section 154 and Section 155 of the Act; Interpretation of legal ownership for taxation purposes; Validity of Assessing Officer's actions based on previous court judgments.

Analysis:
The case involved the assessment of rental income for the years 1981-82 and 1984-85, initially categorized under "income from house property" but later amended to "Income from other sources" due to pending sale deeds. The Assessing Officer relied on the judgment in Sushil Ansal Vs. CIT, Delhi, 160 ITR 308 to support this reclassification under Section 154 and Section 155 of the Act. The assessee challenged this decision, leading to two questions referred for opinion to the Court.

The first question raised was whether the Tribunal was correct in applying the decision in Sushil Ansal to govern the taxation of rental income derived by a person other than the legal owner under the head "Income from other sources." However, the Supreme Court's ruling in Commissioner of Income Tax Vs. Podar Cement Pvt. Ltd. And Others, 226 ITR 625, overturned the Sushil Ansal judgment. The Supreme Court clarified that if the assessee has not acquired legal ownership of the property, the rental income should be treated as "income from house property" and not "income from other sources." Consequently, the first question was answered in favor of the assessee, rendering the need to address the second question unnecessary.

In conclusion, the judgment highlighted the importance of legal ownership in determining the taxation category of rental income. The Supreme Court's decision in Podar Cement Pvt. Ltd. case superseded the earlier precedent set by Sushil Ansal, leading to a favorable outcome for the assessee regarding the treatment of rental income under the appropriate head for assessment purposes.