Court rules lease rent not business income; clarifies property vs. business income distinction under Income-tax Act.

The court ruled in favor of the assessee, a private limited company, regarding the assessment of lease rent as business income under the Income-tax Act, 1961 for the assessment years 1977-78 and 1978-79. The Tribunal found that since the lease rent was collected by the vendee after possession was handed over, it could not be considered as the assessee's business income under section 28. The judgment clarified the distinction between income assessable under the head "Property" and business income, emphasizing that until ownership of property was transferred by execution and registration of a sale deed, the lease rent could not be assessed as business income.

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Issues:
Interpretation of Income-tax Act, 1961 regarding assessment of lease rent as business income.

Analysis:
The judgment pertains to a reference made by the Revenue under section 256(2) of the Income-tax Act, 1961, concerning the assessment years 1977-78 and 1978-79. The main issue was whether the assessee should be liable to be assessed to tax in respect of the lease rent of Rs. 6,000 attributable to the sites agreed to be sold. The assessee, a private limited company, had leased certain sites and later entered into an agreement to sell some of those sites, resulting in a lease rent of Rs. 6,000 per annum. The Revenue contended that the lease rent accrued to the assessee should be included in its business income until the ownership of the sites was transferred to the vendee. However, the Tribunal found that the lease rent was collected by the vendee after possession was handed over, and thus, it could not be assessed in the hands of the assessee as business income.

The Tribunal differentiated between income assessable under the head "Property" under section 22 and income assessable as business income under section 28. It noted that the case at hand falls under business income, and there is no provision similar to section 22 regarding ownership transfer. The judgment emphasized that since the right to collect the lease rent was transferred to the vendee, and the vendee actually collected the rent, it could not be considered as the assessee's business income under section 28.

The judgment also referred to a previous case involving the same assessee, where it was held that until ownership of property was transferred by execution and registration of a sale deed, the owner was liable for income accrued from the property under section 22. However, in the present case concerning business income under section 28, the ownership transfer provision of section 22 did not apply. Consequently, the court answered the question in the affirmative and in favor of the assessee, concluding that the lease rent was not to be assessed as the assessee's business income.

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