2020 (1) TMI 491 - AT - Income Tax

Tribunal rules rental income from Kantilal House taxable under 'Income from House Property'

The Tribunal upheld that the rental income from sub-letting 'Kantilal House' to Bank of Baroda is taxable under Section 22 as 'Income from House ... Rental income received by the appellant from sub-letting of the 'Kantilal House' premises to Bank of Baroda - taxable either u/s.22 or u/s.56 - onus to prove - Income from house property or income from other sources - long-term lease - Whether appellant is a deemed owner of the aforesaid premises u/s.27(iiib) read with Section 269UA(f)(i) of the Act, and is not a 'monthly tenant' as claimed by the appellant - computing the period of twelve years - order passed by CIT (Appeals) u/s 250 holding that the appellant is a deemed owner of the aforesaid premises - HELD THAT:- Assessee was in occupation of Kantilal House since the year 1948 and continues to do so even today which prima-facie would establish that the premise was taken under long-term lease. In the absence of any written contract, the submissions that tenancy was on ‘month to month’ basis would require higher degree of evidence. The entire onus was placed on assessee to prove the same by clinching evidences in the background of the fact that the assessee entered into long term lease agreement extending beyond a period of 12 years with Bank of Baroda. It was also observed that when the assessee was not sure of the period of tenancy, then how could it enter into a lease agreement with a nationalized bank for a period of 12 or more years. Heavy onus was casted upon assessee to prove that he was tenant on monthly basis as covered by exception provided u/s 27(iiib) and the lease was not a period exceeding 12 years to attract the provisions of Section 269UA(f). We find that except for letter from legal heirs of the deceased landlord which merely stated that the assessee has paid monthly rents, no other evidence could be adduced by the assessee to substantiate the fact that tenancy was on ‘month to month’ basis despite being specifically directed by the Tribunal to do so. In such eventuality, the only documents that would be available to adjudge the assessee’s claim would be in the shape of lease agreements entered into by the assessee with Bank of Baroda - despite assertions by the assessee that tenancy was on ‘month to month’ basis and the same could be terminated by tendering 15 days’ notice, the assessee conveniently entered into long-term lease agreement for aggregate period exceeding 12 years and that too with a Nationalized Bank, who require approval of regulatory authorities to open /operate the branches - setting up of branch would entail heavy infrastructure cost for the Bank. In the said background, it is difficult to acquiesce to the fact that Bank would agree to enter into such long-term lease agreement for as many as 12 years despite being fully aware of the fact that the tenancy was on ‘month to month’ basis and the premise could be got vacated by landlord by giving a very short notice. The same would not be possible unless there is assurance of high degree of successful performance of the lease agreement. Bank was assured of peaceful enjoyment of the said premise for the agreed period of lease without any interruptions. Hence, the entire facts and circumstances do not convince us to accept the argument that the tenancy was on ‘month to month’ basis and the assessee was covered in the exceptions contained in Sec. 27(iiib). We rely on the decision of Hon’ble Supreme Court rendered in CIT V/s Durga Prasad More [1971 (8) TMI 17 - SUPREME COURT] wherein it was observed that the authorities were entitled to took into the surrounding circumstances to find out the realities of the recitals made in the documents. Keeping in view the entirety of facts and circumstances, we hold that the tenancy was not on ‘month to month’ basis as asserted by the assessee but it was for aggregate period exceeding 12 years in terms of Sec. 269UA(f)(i). Accordingly, for the purpose of Sec. 27(iiib) r.w.s. 269UA(f)(i), the assessee was deemed owner of the property and therefore, the stated income was rightly brought to tax by revenue authorities as Income from House Property. In view of the same, the questions whether the income could be assessed as income from other sources would be tendered academic in nature. Finally, by concurring with the stand of lower authorities, we dismiss the appeal of assessee. Issues Involved:1. Taxability of rental income from sub-letting of 'Kantilal House.'2. Determination of deemed ownership under Section 27(iiib) read with Section 269UA(f)(i) of the Income-tax Act.3. Classification of rental income as 'Income from House Property' or 'Income from Business.'Issue-wise Analysis:1. Taxability of Rental Income from Sub-letting of 'Kantilal House':The primary issue was whether the rental income of Rs. 6,29,047 received by the assessee from sub-letting 'Kantilal House' to Bank of Baroda is taxable under Section 22 or Section 56 of the Income-tax Act. The assessee contended that the rental income should not be taxed under either section. The Tribunal, after examining the facts and the legal provisions, upheld the view that the rental income is taxable under Section 22 as 'Income from House Property' because the assessee was deemed to be the owner of the property under Section 27(iiib).2. Determination of Deemed Ownership under Section 27(iiib) read with Section 269UA(f)(i):The Tribunal had to determine if the assessee could be considered a deemed owner of the property under Section 27(iiib) read with Section 269UA(f)(i). The Hon'ble Supreme Court had remanded the matter back to the Tribunal to ascertain the pre-requisites of Section 269UA(f)(i). The Tribunal noted that the assessee had been in possession of the property since 1948 and had entered into long-term lease agreements with Bank of Baroda, which extended beyond 12 years. Despite the assessee's claim of being a monthly tenant, the Tribunal found that the long-term lease agreements indicated otherwise. The Tribunal concluded that the assessee was deemed to be the owner of the property under Section 27(iiib) because the lease agreements were for terms exceeding 12 years.3. Classification of Rental Income as 'Income from House Property' or 'Income from Business':The core issue was whether the rental income should be classified as 'Income from Business' or 'Income from House Property.' The Tribunal noted that the assessee had entered into long-term lease agreements with Bank of Baroda. The Tribunal observed that the assessee's claim of being a monthly tenant was not supported by sufficient evidence. The Tribunal concluded that the rental income should be classified as 'Income from House Property' under Section 22, as the assessee was deemed to be the owner of the property under Section 27(iiib). The Tribunal also noted that the classification of the income as 'Income from Other Sources' would be academic, given the conclusion that the income was taxable under 'Income from House Property.'Conclusion:The Tribunal dismissed the appeals, upholding the view that the rental income from sub-letting 'Kantilal House' to Bank of Baroda is taxable under Section 22 as 'Income from House Property.' The Tribunal concluded that the assessee was deemed to be the owner of the property under Section 27(iiib) read with Section 269UA(f)(i) because the lease agreements were for terms exceeding 12 years. The Tribunal also noted that the assessee's claim of being a monthly tenant was not supported by sufficient evidence. Accordingly, the appeals were dismissed, and the rental income was held to be taxable under the head 'Income from House Property.'