2016 (8) TMI 367 - AT - Income Tax

Taxability of income - deemed ownership - AO of treating Income from House Property earned in respect of three different properties as Income from Other Sources on the ground that the assessee is not the owner of the said properties but the tenant of the said property - Held that - In the present case, the appellant has entered into lease agreements in respect of the concerned properties for a period of not less than 12 years. The appellant has furnished copies of lease agreements and rent receipts in support of its claim. On perusal of the documents placed on record, as observed that the assessee though not an owner of the property but is a deemed owner of the property in view of the provisions of section 27(iiib) r.w.s269UA(f) of the I.T.Act, 1961 as the assessee is holding the aforesaid properties on lease for a period of more than 12 years. The department has dealt the matter of controversy in the assessee s own case for the A.Y.2007-08. In view of the above said observations made by the CIT(A) in the assessee s own case, the assessee s income from the house property was found to be taxed under the head of income form house property. These findings were not challenged by the revenue meaning thereby the revenue has accepted this contention. No doubt in the said circumstances the income of the assessee is liable to be treated as under the head income from house property and accordingly the assessee would also to be entitled for the consequential benefit as per law. - Decided in favour of assessee

Summary

Issues Involved:
1. Treatment of Income from House Property as Income from Other Sources.
2. Disallowance of Expenses against Interest Income.
3. Violation of Natural Justice.
4. Levy of Interest under Sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

1. Treatment of Income from House Property as Income from Other Sources:

The primary issue was whether the income derived from sub-letting properties should be treated as 'Income from House Property' or 'Income from Other Sources.' The Assessing Officer (AO) treated the income as 'Income from Other Sources' on the grounds that the assessee was not the owner but a tenant sub-letting the properties. The assessee contended that they were deemed owners under section 27(iiib) read with section 269UA(f) of the Income Tax Act, as the properties were leased for more than 12 years.

The CIT(A) had previously ruled in favor of the assessee for AY 2007-08, accepting the rental income as 'Income from House Property.' This decision was not appealed by the department, making it final. The Tribunal upheld this view, citing the Mumbai ITAT judgment in the case of DCIT Vs. D.B.S. Financial Services Limited, which supported the assessee's position that rental income from properties leased for more than 12 years should be treated as 'Income from House Property.' Consequently, the Tribunal allowed the assessee's appeal on this issue, entitling them to the standard deduction under section 24(a).

2. Disallowance of Expenses against Interest Income:

The AO disallowed business expenses of ?10,088/- claimed against interest income of ?94,233/-, arguing that the assessee was not engaged in money lending during the year as no new loans were advanced. The CIT(A) upheld this view, noting that the interest income was from money lent in earlier years and treated it as 'Income from Other Sources.'

The assessee did not press this issue further during the appeal, leading the Tribunal to decide in favor of the revenue, upholding the disallowance of expenses.

3. Violation of Natural Justice:

The assessee argued that there was a serious violation of natural justice as the CIT(A) did not provide a specific opportunity to prove the deemed ownership of the properties and the continuation of the money lending business. The assessee claimed that the AO ignored evidence and explanations provided, making additions based on conjectures without material evidence.

However, the assessee did not press this issue further during the appeal. Consequently, the Tribunal decided in favor of the revenue, dismissing the claim of violation of natural justice.

4. Levy of Interest under Sections 234A, 234B, and 234C:

The assessee challenged the levy of interest under sections 234A, 234B, and 234C, arguing errors in calculations and a lack of opportunity for a hearing. The CIT(A) confirmed the levy without providing a speaking order or an opportunity for the assessee to contest the calculations.

The Tribunal did not specifically address this issue in detail, as the assessee did not press it further. The Tribunal's decision favored the revenue, upholding the levy of interest.

Conclusion:

The appeals were partly allowed, with the Tribunal ruling in favor of the assessee on the primary issue of treating rental income as 'Income from House Property,' while the other issues were decided in favor of the revenue. The order was pronounced in the open court on 29th June 2016.