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TMI Blog2010 (8) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as “income from other sources” - Decided in favor of revenue. - ITA NO. 1272 To 1278/AHD./2006 - - - Dated:- 20-8-2010 - BHAVNESH SAINI, JUDICIAL MEMBER J. AND N.S. SAINI, ACCOUNTANT MEMBER J. M.J. Shah for the Appellant. R.K. Dhanesta for the Respondent. ORDER Per Bhavnesh Saini Judicial Member. - This order shall dispose of all the above appeals filed by different assessee on common ground of appeal. 2. All the appeals were earlier dismissed in default vide order dated 19-12-2008 which were recalled by allowing the Misc. Applications filed by the assessees vide order dated 7-8-2009. All the appeals were accordingly fixed by the Registry for final hearing. 3. The learned representatives of both the parties submitted that the learned CIT(A) passed the main order in the case of the assessee Shri Punitkumar Shantilal Shah in ITA No. l277/Ahd/2006 and followed the same order in the remaining appeals. Both the parties, therefore, argued mainly in the case of Shri Punitkumar Shantilal Shah and submitted that order in this case may be followed in the case of the other assessees being the issue/ground of appeal common in all the cases. ITA No. 1277 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the assessee claimed rent receipt of Rs. 13,33,695 from property at Acme Plaza, Mumbai as income from house property though the same was not owned by him. It was also noticed by the Assessing Officer that the assessee was also paying rent of Rs. 2,10,000 on this property. Therefore, the Assessing Officer by his letter dated 17-10-2005 asked the assessee to explain why the rent received by the assessee on this property should not be treated as income from other sources instead of treating the same as income from house property . In the assessment proceedings, the assessee submitted that the legal owner of the property is Smt. Daxaben Shah and by virtue of leave and license agreement the assessee became owner under section 23 read with section 269UA of the IT Act. The Assessing Officer considered the above submissions but did not accept the argument of the assessee by referring to the provisions of section 27 of the IT Act, wherein deemed ownership has been specified as under : a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the building or part thereof in part performance of a contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis the Assessing Officer held that the assessee is not deemed owner of the property at Acme Plaza. 8. The findings of the Assessing Officer was challenged before the learned CIT(A) and in the appellate proceedings, the assessee made a detailed submissions and it was stated that the assessee is not legal owner of the property at Acme Plaza and that he is only in possession of the property and is entitled to receive money in his own right by sub-leasing the said property. The tenancy agreement is extended from time to time and that he is the only owner of the property who enjoys all the rights of the same. By the tenancy agreement legal owner of the property Smt Daxaben P. Shah has entitled the assessee to enjoy all the rights including subleasing of the property and therefore, the assessee has rightly treated the income from this property as income from house property. The assessee mainly contended that it is covered by the provisions of section 269UA( f )( i ) of the IT Act and pointed out the effects of non-registration of documents as under: In the assessment order vide para 2.5 the A.O. has mentioned that the appellant is a tenant on month to month basis ( or entered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required by this Act or the TOPA, 1882 ( 4 of 1882 ) , to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877 (1 of 1877) or as evidence of any collateral transaction not required to be attracted by registered instrument; On the perusal of the above your kind office would observe that nowehere it is mentioned that if the agreement is not registered it would lead to a construction that the appellant is a tenant on a month to month basis and cannot be considered as the owner of the property. The contention of the Assessing Officer that since the deed is not registered the appellant is a tenant for month to month basis is not as per TOPA or even as per the Registration Act. We would further like to mention that non-registration of a document would not take away the validity of the agreement. Nowhere it is provided in the Registration Act, 1908 that the agreement if nor registered is invalid. Further, there is no allegation that the agreement is bogus or sham. The A.O. has accepted the sanctity of the agreement. We therefore, submit that the ground used by the A.O. for denying the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement of registration of the sale deed, in the context of section 22 is not warranted. To support our contention we would rely on the following decisions: It was held by Full bench of the Allahabad High Court in Indar Sen v. Naubat Singh [1885] ILR 7 All absolute ownership is an aggregate of component rights such as the right of possession, the right of enjoying the usufruct of land and so on. Mrs. M.P. Fnanambai v. CIT [1982] 136 ITR 103 Madras. Dy. Commissioner v. Prominent Hotels Ltd. 73 ITD 51 ( Delhi ) . It was held by the Delhi Tribunal that where as person is entitled to receive income in his own right, he is treated as owner of that asset for the purpose of section 22. In the appellant case, the appellant is the only person entitled to receive income from the lease in his own right. None other than appellant can enjoy the benefit of the rent received, from the letting out of the properties at Acme Plaza, Andheri, Mumbai. Even the tenancy agreement between Mrs. Daxahen P. Shah who is the legal owner of the property and the appellant provide the appellant right to sub-lease the properties without transferring any benefit received, from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectricity bills as per actuals and to reimburse to the First Party the Society maintenance charges in respect of the said premises. 2. The First Party declare and covenant as under: * That their title to the said premises is free, clear and marketable. * That they have not alienated their interest in the said premises to any third party orally or in writing. * That they are fully entitled, and authorized to execute these presents and there are no other claimant in respect thereof. 3. The Second Party does hereby covenant that they will during the tenure of their tenancy pay unto the First Party the said rent on the day in the manner hereinabove provided. 4. The Second Party shall be entitled to use the said premises for any legal permitted purpose only. 5. The said premises shall not he used for immoral or illegal purposes. Nor shall any material prohibited under the Explosive Substances Act, 1908 be stored in the said premises. 6. The Second Party agree to keep the said premises in good conditions and repair subject to the normal wear and tear and they shall not do anything to cause any damages to the said premises nor create any nuisance to the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e monthly rent. Thus, it is evident that the tenancy is conditional and revocable, even though the period of tenancy is specified as perpetual in the agreement. 3.9 Thus, it is evident that the tenancy is conditional and revocable at any time, in the happening of non-payment of rent even though the period of tenancy is specified as perpetual, in the agreement. 3.10 It is for reason that contrary to the appellant s claim that he is the owner of the impugned property, in terms of the provisions of section 269UA(f), is not tenable. As per the section 269US(f), the lease should exceed 12 years. However, in the case of the appellant, the tenancy can be terminated at any time by the landlord if any of the specified conditions of the agreement is not fulfilled or contravened. On these facts and circumstances, the appellant does not qualify as a deemed owner of the. property, being only a tenant thereof. Hence, the provisions of section 56 are applicable to his case and income from subletting is liable to be taxed as income from other sources. 3.11 In view of the above, I do not find any substance in the submission of the appellant. The appellant is not fulfilling the conditions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 625 in which it was held as hence, though under the common law owner means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, the Registration Act, etc. in the context of section 22 of the Income-tax Act, 1961, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely to tax the income, owner is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted . The learned Counsel for the assessee, therefore, submitted that the conditions of section 105 of the Transfer of Property Act have been complied with by the assessee and the orders of the authorities below may be set aside and income may be assessed as income from house property. 11. On the other hand, the learned DR relied upon the orders of the authorities below and submitted that the assessee was not owner of the property and has not fulfilled the conditions of above sections, therefore, the assessee cannot be a deemed owner of the property in question, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights ( excluding any rights by way of a lease from month to month or for a period not exceeding one year ) in or with respect to any building or part thereof by virtue of any such transaction as is referred to in clause ( f ) of section 269UA, shall be deemed to be the owner of that building or part thereof; Section 269 UA( f )( i ) of the Income-tax provides as under: ( f ) transfer, ( i ) in relation to any immovable property referred to in sub-clause ( i ) of clause ( d ) , means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years, and includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 ( 4 of 1882 ) . Explanation . For the purposes of this sub-clause, a lease which provides for the extension of the term thereof by a further term or terms shall be deemed to be a lease for a term of not less than twelve years, if the aggregate of the term for which such lease is to be granted and the further term or terms for which it can be so extended is not less than twelve ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, Lessee, premium and rent defined. The transferor is called, the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent. 106. Duration of certain leases in absence of written contract or local usage. In the absence of a contract or local law or usage to the contrary, a lease of immovable property for agricultural or manufacturing purposes, shall be deemed to be a lease from year to year, terminable, on the part of either lessor or lessee, by six months notice expiring with the end of a year of tenancy; and a lease of immovable property for any other purpose shall be deemed to be a lease from month to month, terminable, on the part of either lessee, by fifteen days notice expiring with the end of a month of tenancy. Every notice under this section must be in writing signed by or on behalf of the person giving it and either be sent by post to the party who is intended to be bound by it or be tendered or delivered personally to such party, or to one of his family or servants, at his residence, or ( if such tender or delivery is not practicable ) affixed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is month by month, conditional and could be revoked at any time on non-payment of rent. According to section 106 of the Transfer of Property Act, the lease of immovable property for any other purposes than agricultural or manufacturing purposes shall be deemed to be leased from month to month terminable on the part of either party by 15 days notice on expiry with the end of a month of tenancy. According to section 107 of the Transfer of Property Act, the lease of immovable property from year to year or for any term exceeding one year can be made only by registered instrument. Therefore, in case of lease was executed for exceeding one year, registration of the same was necessary. Non-registration of the tenancy would affect the immovable property in question and no right to receive rent could have been granted to the assessee in the event of non-registration of the tenancy agreement. Considering the salient features of the lease agreement in the case of the assessee in the light of the above provisions, it is very clear that the tenancy is month to month, conditional and revocable at any time in the event of breach of the conditions or for non-payment of the rent, even though, it ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Chapter XX-C ofthe IT Act would not be applicable on or after 1-7-2002 as per section 269UP of the Act. Therefore, none of the conditions of section 27( iiib ) has been satisfied in this case. 15. The learned Counsel for the assessee relied upon the order of the Tribunal in the case of Premavati Estates Investments (Pvt.) Ltd. ( supra ) in which the facts of the case are that the assessee has taken a premise on lease from Basantkumar Somani Memorial Trust on lease rent per month. In this premises, the Tribunal confirmed the orders of the authorities below that the assessee was deemed owner of the building in question considering the lease deed in question and came to the finding that the assessee is a permanent tenant. Therefore, the assessee was held to be deemed owner of the property in question. The facts of the present case are clearly distinguishable as noted above because none of the conditions of section 27( iiib ) of the IT Act have been complied with in the case of the assessee. The learned Counsel for the assessee further relied upon the decision of the Hon ble Supreme Court in the case of Poddar Cement Pvt. Ltd. and others ( supra ) in which br ..... X X X X Extracts X X X X X X X X Extracts X X X X
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