2018 (2) TMI 1285 - HC - Income Tax

Income from house property - Whether a person though a Licensee but has exclusive rights over a property is not owner for the purposes of Section 22? - entitled to 1/5th statutory deduction as claimed in view of various provisions as enshrined U/S 22 to 27 and 269UA or would it constitute income from other sources? - Held that - The appellant accepts that sub-clauses (i) and (ii) of clause (f) to Section 269UA are not applicable and the appellant does not satisfy the conditions stipulated therein. Contention of the appellant that the license agreement was renewed from time to time is not a ground or reason to hold that the appellant had acquired ownership rights. The license agreement dated 14.01.1986 placed on record does not support the said contention. The new license agreements have not been placed on record. It is equally possible that the license agreement may not have been renewed. The license agreement is not a registered document. The appellant does not even claim that the license agreement is a lease deed. Even otherwise an unregistered document or an oral lease only creates month to month tenancy and not a lease for a period exceeding one year. Conditions of clause (iiib) to Section 27 would not be therefore satisfied. It has to be held that the appellant was not an owner as defined in Section 27 of the Act. Consequently the sub-license fee received by the appellant is not chargeable to tax under the head income from house property . It is not the case of the appellant that the said income was chargeable to tax under the head salary profits and gains of business or profession or capital gains. Thus the said income has to be assessed under the residuary head income from other sources . - Decided in favour of the Revenue

Summary

Issues Involved:
1. Ownership status of a licensee under Section 22 of the Income Tax Act, 1961.
2. Entitlement to 1/5th statutory deduction under Sections 22 to 27 and 269UA of the Income Tax Act, 1961, and classification of income.

Issue-wise Detailed Analysis:

1. Ownership Status of a Licensee under Section 22 of the Income Tax Act, 1961:

The appellant, M/s Ram Krishan Associates Private Limited, contended that despite being a licensee, it should be considered the owner of the property for the purposes of Section 22 of the Income Tax Act, 1961. The appellant had acquired the right to use certain shops in a shopping plaza within a 5-star hotel through a license agreement with M/s Asian Hotels Ltd. The agreement allowed the appellant to use the space for business purposes for a renewable period of five years, with a monthly license fee. The appellant argued that the rights granted under the agreement should be considered as ownership, and thus, the sub-license fee paid to the appellant should be treated as rent taxable under the head "Income from house property."

The court, however, noted that for income to be charged under the head "income from house property," the assessee must be the owner of the property as defined in Section 27 of the Act. The appellant did not satisfy the conditions stipulated in clauses (i), (ii), (iii), (iiia), and (iiib) of Section 27. Specifically, clause (iiib) relates to a person who acquires rights in a building by virtue of a transaction referred to in clause (f) of Section 269UA, which includes a lease for a term of not less than twelve years. The appellant's license agreement did not meet these conditions, as it was not a registered document and did not create a lease for a period exceeding one year.

2. Entitlement to 1/5th Statutory Deduction under Sections 22 to 27 and 269UA of the Income Tax Act, 1961, and Classification of Income:

The appellant claimed entitlement to a 1/5th statutory deduction under various provisions of the Income Tax Act, arguing that the sub-license fee should be treated as "income from house property." The court examined the relevant sections, including Section 22, which charges income on the annual value of property owned by the assessee, and Section 27, which defines "owner" for the purposes of Sections 22 to 26. The court concluded that the appellant was not an owner as defined in Section 27, and thus, the sub-license fee received by the appellant could not be charged under the head "income from house property."

The court also referenced the Supreme Court decisions in Commissioner of Income Tax v. Podar Cement (P.) Ltd. and Raj Dadarkar & Associates v. Assistant Commissioner of Income Tax. In Podar Cement, the term "owner" was interpreted for the purpose of Section 22, where the assessees had acquired rights in flats upon payment of the entire sale consideration without registered sale deeds. However, this case did not aid the appellant's submission, as it was held that the appellant was not the owner of the shops under Section 27 of the Act. In Raj Dadarkar, the assessee was considered the owner of shops given on rent, and the rent received was taxable under "income from house property." This case was factually different from the appellant's situation.

Conclusion:

The court held that the appellant was not the owner of the property under Section 27 of the Income Tax Act, and thus, the sub-license fee received was not taxable under "income from house property." Instead, it was to be assessed under the residuary head "income from other sources." The questions of law were answered in favor of the Revenue, and the appeals were dismissed, affirming the Tribunal's finding.