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Issues: (i) Whether notional lease rent in respect of the premises was assessable either as income from other sources or as income from house property; (ii) Whether interest received from the vendee on unpaid instalments was assessable as income from other sources.
Issue (i): Whether notional lease rent in respect of the premises was assessable either as income from other sources or as income from house property.
Analysis: The agreement to sell did not culminate in a registered conveyance during the relevant previous years, but possession had been handed over under the arrangement. The absence of a completed transfer did not by itself justify taxing a notional amount under the head income from other sources, because no rent or licence fee was received or accrued. The property was also treated as incapable of being let out in the given circumstances, and even on the assumption of assessability under the house property head, the authorities could not proceed on the artificial rent adopted by them; at the highest, standard rent principles would govern computation.
Conclusion: The addition of notional lease rent was not sustainable under either head and was deleted, in favour of the assessee.
Issue (ii): Whether interest received from the vendee on unpaid instalments was assessable as income from other sources.
Analysis: The interest was received pursuant to the agreement and was distinct from the sale consideration. It had the character of income in the hands of the assessee and was not part of the capital receipt representing the sale price.
Conclusion: The interest amount was rightly assessable as income from other sources and the addition was sustained, against the assessee.
Final Conclusion: The assessee succeeded on the levy of notional lease rent but failed on the taxability of interest on overdue instalments, resulting in a partial relief for one year and full relief for the other year.
Ratio Decidendi: A mere agreement to sell with possession handed over does not permit taxation of a notional rent as income from other sources in the absence of actual receipt or accrual, and where house property computation is considered, the charge and valuation must still conform to the governing legal basis, including standard rent principles where applicable.
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