Deemed ownership and annual value: long-term lease to family member partly attracted tax fiction, with higher actual rent governing valuation.

A long-term lease that substantially divests possession and enjoyment can constitute a transfer for the house-property deeming rules, and a transfer to a spouse or minor child may attract deemed ownership only to the extent covered by the statutory ambit. Here, the deemed ownership provision applied only to the wife's share, not the minor son's share, because the transaction was treated as a transfer for inadequate consideration. For annual value, where the actual rent receivable exceeds the rent at which the property might reasonably be expected to let, section 23(1)(b) requires adoption of the higher actual rent, so the bank rent prevailed over municipal valuation.

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Issues: Whether the lease of a portion of house property in favour of the assessee's wife and minor son attracted the deeming provision of deemed ownership under section 27(i), whether the transaction constituted a transfer for inadequate consideration, and whether the annual value had to be taken on the basis of the rent received from the bank rather than municipal valuation.

Analysis: The lease for 12 years resulted in relinquishment of possession and enjoyment and therefore fell within the meaning of transfer in section 2(47). The rent of Rs. 1,000 per month charged by the assessee was far below the rent of Rs. 7,282 per month received from the bank, showing that the transfer was not for adequate consideration. Since the deeming provision applies to transfers to a spouse or minor child not being a married daughter, only the wife's share was covered, while the son's share fell outside its ambit. On annual value, section 23(1)(b) required adoption of the amount actually receivable where it exceeded the sum for which the property might reasonably be expected to let, so the bank rent prevailed over municipal valuation.

Conclusion: The deeming provision under section 27(i) applied only to 50 per cent of the transaction relating to the wife, and the annual value was correctly taken on the basis of the bank rent rather than municipal valuation.

Ratio Decidendi: A lease that substantially divests possession and enjoyment may amount to transfer for the purposes of the house-property deeming provision, and where actual rent receivable exceeds the reasonably expected rent, section 23(1)(b) requires adoption of the higher rent for annual value.

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