TaxTMI 
TaxTMI 
2020 (1) TMI 491
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....s, it was not necessary that initial terms of lease must be of twelve years, but if the lease provides for extension of lease and such lease has been extended by a further term or terms and the aggregate of such terms is not less than twelve years, it is deemed to be a transfer of immoveable property and such transferee is deemed to be owner of such immoveable property u/s 27(iiib). Therefore, the matter was remanded back to Tribunal which was adjudicated in the second round vide order dated 28/10/2016. Vide said order, the matter was remitted back to the file of Ld.AO with certain directions. However, in set-aside proceedings, the assessee's claim was not accepted by revenue authorities and hence the present appeal before us. The grounds raised by the assessee reads as under: - Being aggrieved by the order dated 06.07.2018 passed by the learned Commissioner of Income Tax (Appeals)-l0, Mumbai. ["Ld. CIT(A)"] u/s 250 of the Income-tax Act,1961 ("Act"), your appellant prefers this appeal, among others, on the following grounds of appeal, each of which is without prejudice to, and independent of, the other: 1. On the facts and in the circumstances of the case, and in law, the Ld. ....
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....tals as under:- Description of property To whom let out Rent /Compensation When the property purchased Gr. Floor (Pt.) Kantilal House, 1st Floor Bank of Baroda Rs. 6,29,047 Assessee company is a tenant of the premises Shanker Gully, Kandivali (W), Bombay 67 State Bank of India Rs. 4,83,552 Assessee is the owner of the premises Bagwada Gate, Station Road, Patan Various parties Rs. 39,600 - do - 4. The Assessing Officer called upon the assessee to explain why the lease rentals received from leasing out the properties owned by the assessee should not be treated as "Income From House Property". In response, it was submitted by the assessee that in assessment year 1985-86, the learned Commissioner (Appeals) has accepted assessee's claim of business income in respect of Kantilal House property let out to Bank of Baroda. It was further submitted, the same reasoning of the learned Commissioner (Appeals) would equally apply to the other properties from which the assessee derived rental income. As far as lease rental received from Kantilal House property is concerned, the Assessing Officer while completing the assessment did not disturb the assessee's claim. How....
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....h is the issue in dispute in the present appeals, the Tribunal in Para-10, of the order, though, agreed that the assessee was not the owner of the house property, however, taking note of the fact that the assessee has taken the house on long lease and had been occupying the premises for a period of more than 12 years approved the finding of the learned Commissioner (Appeals) that by virtue of provisions of section 27(iiib), r/w clause (f) of section 269UA, the assessee should be treated as deemed owner of the property. Accordingly, the Tribunal dismissed the ground raised by the assessee by upholding the order of the learned Commissioner (Appeals). Against the order of the Tribunal, assessee preferred appeals before the Hon'ble Jurisdictional High Court. 7. The Hon'ble Jurisdictional High Court in judgment dated 28th November 2005, in ITA no.388/2004, ITA no.389/2004 and 458/2004, upheld the decision of the Tribunal on the issue holding as under:- "3. As far as first submission is concerned, the definition excludes only those tenants from month to month or which are for a period not exceeding one year. In the instant case, the assessee has been a tenant for a long perio....
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.... assessee has been a tenant for a long period and that it had let out the premises. No definite finding of fact about the pre-requisites of section 269UA(f)(i) read with explanation as noted above has been recorded either by the Tribunal or by the High Court. 5. Having regard to the above flaw in consideration of the case, we are satisfied that the matter needs reconsideration by the Tribunal since the question involves determination of facts as indicated above. We, accordingly, deem it appropriate to remand the matter to the Income Tax Appellate Tribunal, Mumbai. 6. Consequently, civil appeal is allowed. The impugned order of the High Court dated 28.11.2005, in I.T.A. no.458 of 2004 and the order fo the Income Tax Appellate Tribunal dated 03.11.2003 in I.T.A. no.6550/Bom./95 (Assessment Year 1991- 1992) are set aside. I.T.A. no.6550/Bom/95 (Assessment Year 1991-1992) are is restored to the file of the Income Tax Appellate Tribunal, "I" Bench, Mumbai, for fresh hearing and disposal in accordance with law." 10. Following the aforesaid decision, identical issue arising in other assessment years under appeal were also restored back to the file of Tribunal by the Hon'ble Supr....
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....t, 1882, a lease of immovable property for any purpose other than agricultural or manufacturing shall be deemed to be a lease from month to month if there is no written contract or there is a local law or usage to the contrary and such lease shall be determinable on the part of either leasee or lessor by giving 15 days notice expiring with the end of a month of the tenancy. He submitted, as there is no written contract between the assessee and the landlord, the conditions of section 106 of Transfer of Property Act, is fulfilled and the tenancy is on month to month basis. Referring to section 107 of the Transfer of Property Act, the learned Authorised Representative submitted in a case where the lease is for more than one year registered instrument is mandatory. In this context, he referred to some judicial precedents as submitted in the paper book. He submitted, as per the aforesaid provision of Transfer of Property Act, until notice to vacate / quit is given, tenancy continues from month to month and such notice duration is uncertain, hence, the tenancy is classified as month to month. He submitted, month to month tenancy does not cease to be such merely because the lessee is in p....
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....of Baroda for leasing out the ground floor of the property admeasuring 2,300 sq.ft. for a term of 12 years commencing from 1st April 1962 and expiring on 31st July 1974. It is further evident, after the expiry of the said agreement, the assessee entered into another agreement with Bank of Baroda on 30th March 1973, leasing out not only the part of the ground floor earlier leased out to them but also leased out additional space and such lease agreement with Bank of Baroda continued from time to time as is evident from lease agreement dated 29th March 1996, sought to be produced before us by way of additional evidence. It is pertinent to mention here, in response to a query raised by the Bench, the learned Authorised Representative on the instructions of assessee submitted that the lease continued with Bank of Baroda till the year 2004 when it vacated the premises, though, the assessee is still occupying the premises till date. Thus, from the aforesaid facts, it is evident that the assessee is in possession of the Kantilal House property since the year 1948 and continues to occupy the same even after the death of the landlord. As opposed to aforesaid facts, to get over the mischief....
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....does not appear from the order of the learned Commissioner (Appeals) that the assessee ever claimed that it was a tenant on monthly basis. Even before the Tribunal also, as it appears from the facts recorded by the Tribunal in Para-11 of its order passed earlier, the assessee never took the contention that he is a tenant on monthly basis, hence, outside the purview of section 27(iiib) of the Act. Thus, as it appears, assessee's claim of being a tenant on month to month basis and also the fact that there is no written agreement between the assessee and the landlord was not examined at any stage earlier i.e., either by the Assessing Officer or by the learned Commissioner (Appeals). Moreover, the certificate dated 7th January 1998, purportedly issued by the landlord has not been referred to either by the Assessing Officer or by the learned Commissioner (Appeals) or even in the earlier order of the Tribunal. Moreover, the authenticity and genuineness of the certificate also needs verification / examination. It is also necessary to observe, to demonstrate that the assessee is a tenant, the learned Authorised Representative has relied upon the lease agreements with Bank of Baroda. Admitt....
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....ntative that the averments made in affidavits filed before the High Court and Supreme Court claiming monthly tenancy has not been controverted by the Department is too simplistic and general in nature, hence, cannot be accepted on the face of of it without a thorough inquiry or the assessee demonstrating it through positive evidence. Moreover, the Hon'ble Supreme Court has specifically directed the Tribunal to examine the exact period of lease to satisfy the condition of section 269UA(f)(i). Had it been a fact that assessee's claim of monthly tenancy was uncontroverted, then nothing remains to be decided. We, therefore, do not accept assessee's contention that assessee's claim of monthly tenancy has not been controverted by the Department. 16. In view of the aforesaid, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the matter back to the file of the Assessing Officer to decide the issue relating to the proper head under which the rental income from Kantilal House is to be assessed after thorough inquiry and investigation and only after providing adequate opportunity of being heard to the assessee. 17. The aforesaid decision of ours ....
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....ctions 106 & 107 of the Transfer of Property Act were concerned, the same were controverted by Ld. AO by observing that the premise was let out to Bank of Baroda for a period of more than 12 years. The assessee leased out ground floor for a term of 12 years from 1st April 1962 expiring on 31st July, 1974. After expiry, another agreement dated 30/03/1973 was entered into for leasing out not only the part of ground floor as leased out earlier but some additional space was also leased out. The Ld.AO opined that such agreement would not be possible unless the assessee has entered into lease agreement / has an understanding with Shri Himatlal Kantilal that the assessee would continue over the possession of the property as a tenant for the period which was more than 12 years. It was also noted that although the lease with Bank of Baroda continued till 2004, however, the assessee was still occupying the premise even after the death of original landlord i.e. Shri Himatlal Kantilal. In the above background, the shelter taken by the assessee u/s 106 & 107 of The Transfer of Property Act & Sec. 27(iiib) r.w.s. 269UA(f) were found to be not tenable. Finally, it was held that the rental income ....
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.... term lease agreement extending beyond period of 12 years with Bank of Baroda by letting out the premise." 6.4.5 Thus, taking note of the fact that the additional evidence on the basis of which the assessee has sought to demonstrate / establish his claim of monthly tenancy i.e. the lease agreements with Bank of Baroda and the certificate dated 7th January 1998, purportedly issued by the landlord, were not before the Departmental Authorities, and considering that assessee's claim of being a tenant on month to month basis was not examined at any stage earlier i.e., either by the AO or by the ld. CIT(A) and further that the authenticity and genuineness of the certificate also needs verification / examination, the Hon'ble tribunal has restored the matter back the file of the AO to verify assessee's claim of monthly tenancy, pursuant to the directions issued by the Hon'ble Tribunal, the AO has assessed the rental income from the demised premises as "Income from Other Sources", after verifying the facts. 6.4.6 The facts of the present case are now tested in the light of the above background. The main thrust of the arguments of the appellant is that the rental income w....
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....der of the power of attorney is the owner. A similar situation arises where possession of any immovable property is allowed to be taken or retained in part performance of a contract of the nature referred to in s.53A of the Transfer of Property Act, 1882. All these types of transactions have the effect to transferring the house property in fact, though not in law. With the extended definition of the expression "ownership", transactions covered by s.269UA of the IT Act. 1961 (including transfer of property by power of attorney), shall be considered as having the effect of transfer of title. The Amending Act by insertion of sub-cls, (iii), (iiia) and (iiib) in s.27, covers all the transactions referred to above for the purpose of determining the ownership of the property for assessing income under the head" Income from house property." 6.4.9 Further, in the Memorandum explaining provisions in Finance Bill, 1987 concerning s.27, it was explained as follows: SIMPLIFICATION AND RATIONALISATION OF PROVISIONS Enlarging the meaning of "owner of house property". 27. Under the existing provisions of s. 22 of the IT Act, any income from house property is chargeable to tax only in the h....
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....session of such property to be taken or retained in part performance of a contract of the nature referred to in s. 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 years; 6.4.11 In the instant case, relying on the lease agreements with Bank of Baroda and the certificate dated 7th January 1998, purportedly issued by the landlord, the AR has argued that the present tenancy is from month to month, therefore the appellant cannot be considered as deemed owner u/s 22 of the Act, since the lease from month to month for a period not exceeding one year is excluded from the definition of deemed owner in section 27 (iiib) itself. It is evident that the assessee has entered into licence agreement with Bank of Baroda for letting out the ground floor of the property admeasuring 2,300 sq. ft. for a term of 12 years commencing from ....
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.... Lessors constructed a Mezzanine floor admeasuring 600 sq. ft. approximately in the said licenced premises and by and under an Agreement dated 30th March,1973, duly entered into by and between the Lessors herein, therein referred to as "the Licensor" and the lesees herein, therein referred to as "the Licencee", the Lessors granted to the Lessees a Licence of said Mazzanine floor with effect from 16th August,1972, at and for the compensation and on the terms and conditions as more particularly stated in the said Agreement dated 30th March,1973. Under the said Agreement it was, inter alia, agreed that the said Agreement shall be coextensive with the said Agreement dated 20th August, 1964 and therefore licence granted under the said Agreement dated 30th March 1973 of the Mezzanine floor was to expire by efflux of time simultaneously with the expiry of the licence granted of the said ground floor premises under the said Agreement dated 29lh January,1964. i.e. on 31st July,1974 as aforestated; (e) The Lessees however remained in occupation with the subsequent consent of the Lessors of the demised premises after the expiry of the said licence period granted under the Licence Agreement ....
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.... was handed on 26th December,1990), the area demised and the lease rent both were reduced by Rs. 90.57 sq.ft. and Rs,905.70 respectively and were therefore reduced to 2,997.40 sq.ft. and Rs. 29,974.90 respectively. The access to the Lessors to the said old strong room remained the same from the demised premises as it was before. (i) As aforesaid the Lease period granted under the said Indenture of Lease dated under the said Indenture of Lease dated 4th April, 1985 expired on 30th April, 1994 and the Lessors have now agreed to extend the Lease of the demised premises at the revised lease rent for a period of 10 years commencing from the 1st May.1994, and expiring by efflux of time on 30th April,2004 at and for the lease rent hereunder reserved and upon the terms and conditions as hereinafter appearing. 6.4.12 The lease agreement dated 29th March 1996 for first floor is similar to the above agreement for ground floor however in place of clause (c) to (i) reproduced above, it has only two clauses the clause (c) & clause (d) as under: (c) From and out of the said various tenanted premises the Lessor have by and under an Agreement dated 1st June, 1984,1964, duly entered into betwe....
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...., wherein the appellant is referred as "the Licensor", and on expiry of the said Licence Agreement the said portion of the demised premises was leased by and under "Indenture of Sub-Lease" dated 20th November 1976 wherein the appellant is referred as "the Sub-Lessors". This lease was renewed from time to time till the expiry of the lease when the bank vacated the demised premises in April 2004. Considering that the appellant was referred as "Licensor" initially, subsequently as "Sub-lessors" and later as "Lessor" in the Indentures of Lease, which point to the fact that the appellant is also lessee of the demised premises, the AR was called upon to produce the Lincence Agreement and the Lease Deeds to ascertain the nature of appellant's rights in the demised property. However, the AR expressed his inability to produce the said agreement / indentures on the ground that these documents are net traceable now. It may be recalled here that the Hon'ble Tribunal while restoring the matter to the AO has categorically held that "a heavy burden is cast upon the assessee to prove the fact of monthly tenancy by producinq clinchinq evidence, considering the fact that it continues to occu....
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....rt of the appellant to produce these documents to demonstrate that it had not leased the demised premises from the owner when the aforesaid indenture of sublease was executed. The Sub-Lease Agreement would have been definitely one of the determinative factor in determining the nature of tenancy. It may be also be recalled here that the Hon'ble Tribunal has categorically observed in Para 15 of the order while restoring the matter to the file of the AC that when the assessee itself is not sure of period of tenancy as it is on monthly basis and the landlord can terminate it at any time on 15 days notice in terms of section 106 of Act, how the assessee can enter into an agreement with a nationalized bank tor a long term lease for 12 or more years. In view of the aforesaid that there cannot be a sublease without a lease, the claim of the appellant that it was a monthly tenant for the said premises, cannot be accepted. 6.4.17 As regards the reliance placed by the appellant on upon a photocopy of the certificate purportedly issued by the landlord Late Shri Himmatlal Kantilal on 7th January 1998 certifying that the appellant is occupying the premises on monthly basis, it is my view t....
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....use (f) of section 269UA, the appellant should be treated as deemed owner of the property. Accordingly, the rental income from Kantilal House premises is properly assessable u/s 22 of the Act as "Income from House Property". 6.4.20 Further, it has also emerged from the Indenture of Lease dated 29th March 1996 that the appellant is entitled to receive rent from the Bank in its own right. As per sub clause (ii) of clause 2 of the aforesaid agreement, the Bank is under obligation to pay all the existing ground rents and rates, taxes, cesses, assessments, dues etc. imposed or charged by the Municipality, Government or any local or other authority; and as per subclause (iii) of the aforesaid clause 2, the Bank is also under obligation to pay any and all increases in Municipal taxes, cesses including repair cesses or any other impositions of whatsoever nature, charged or levied or imposed upon the Lessors by on and after the date of execution of this Indenture. However, under the aforesaid subclause (iii) of the aforesaid clause 2 the appellant is under obligation to "sign and affirm such appeal and/or revision and such other applications and other papers as may be required by the Less....
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.... Hon'ble Supreme Court in the case of CIT vs. Podar Cement Private Limited (1997) 226 ITR 625 (SC) has ruled that under the common law, ' owner is 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, registration act etc. but, in the context of section 22 of the Income Tax Act, 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. 6.4.22 Accordingly, even on the principles laid down in the decision of the Hon'ble Supreme Court in the case of CIT vs. Podar Cement Private Limited (Supra), the income from the above properties is to be assessed under the head "Income from House Property" in the hands of the appellant. 6.4.23 As regards the contention of the AR that rental income is not assessable u/s 56 of the Act as income from other sources in view of the jurisdictional High Court's decision in CIT vs. T.P. Sidhwa (133 ITR 840) (Bom), wherein it is held that the rental income from house property cannot be....
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....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. Therefore, 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. From the perusal of the same, it is observed that 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 agg....