TaxTMI 
TaxTMI 
2020 (1) TMI 491
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.... that for computing the period of twelve years, 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....
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.... Assessing Officer found that in the relevant previous year, the assessee had received lease rentals as under:- Description of property To whom let out Rent /Compensation When the property purchased Gr. Floor (Pt.) Kantilal House, 1^st 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 ....
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....e pertaining to the treatment of lease rental income from Kantilal House, whether income from business or income from house property, which 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 ....
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....ate Tribunal nor the order of the High Court indicate any consideration of the above aspects in respect of the house property named Kanti Lal House except observing that the 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 accordanc....
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.... learned Authorised Representative submitted, section 27(iiib), does not apply to lease on month to month basis or for a period not exceeding one year. He submitted, as per section 106 of the Transfer of Property Act, 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 co....
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....nditions of section 269UA(f)(i) r/w section 27(iiib). Undisputedly, it is evident from the facts on record that the assessee had been a lessee of Kantilal House property since the year 1948. It is also evident that the assessee has entered into lease agreement with Bank 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 ....
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.... business purpose of the assessee as the assessee was to benefit from the service or services from the Bank in its premise and the dominant purpose of such letting out is to run the business more efficiently and smoothly with the said bank service available in the premises. It 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. More....
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....y tenancy. As stated earlier, a heavy burden is cast upon the assessee to prove the fact of monthly tenancy by producing clinching evidence, considering the fact that it continues to be in occupation of the property since the year 1948. The argument of the learned Authorised Representative 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 fil....
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....ement has been made for them. The Ld. AO observed that sub-letting would not be possible unless there was an understanding that the assessee had the right to sub-let the premise. The payment on monthly basis was done for convenience and not on the basis of any such binding agreement. 4.3 So far as the assessee's reliance on Sections 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, ho....
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....nder a long term lease, the Hon'ble tribunal has held that "the entire onus is on the assessee to prove that "he is a tenant on monthly basis, more so, when the assessee has entered into long term lease agreement extending beyond period of 12 years with the Bank by letting out the premise", "more so, when the assessee has entered into long 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, pu....
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........ There is another practice whereby property is transferred to the purchaser after receiving the consideration but without getting the sale registered under s. 54 of the Transfer of Property Act. This is done by executing power of attorney in favour of a persons who by virtue of that power of attorney enjoys the property. In such cases, legally, the property remains with the registered owner but for all practical purposes the holder 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 ....
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....med to be the owner of the property. Hence, to resolve the controversy it is also necessary to refer to relevant cl. (f) of s. 269UA as applicable to the year under appeal. The relevant cl. (f) of s. 269UA of the Act reads as follows: "269UA(f) 'transfer', - (i) in relation to any immovable property referred to in sub-cl. (i) of cl. (d), means transfer of such property by way of sale or exchange or lease for a term of not less than twelve years, and includes allowing the possession 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....
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....erred to as "the Licencee", the Lessors granted to the Lessees a licence of part of the ground floor admeasuring 2,300 sq. ft. which includes a strong Room (hereinafter referred to as "the old strong Room") for a term of 12 years commencing from 1st August, 1962 and expiring by efflux of time on 31st July, 1974, at and for the monthly compensation and on the terms and conditions as more particularly stated in the said Agreement dated 29th January, 1964; (d) As the Lessees were short of space, the with the consent and concurrence of the 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 wit....
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....er the said Indenture of Lease was 3,088.06 sq.ft. at the revised lease rent of Rs. 10/- per square feet per month aggregating to Rs. 30,880.60 ps per month until the Lessees handed over the vacant and peaceful possession of the said old strong room of 90.57 sq.ft. to the Lessors which was to be handed over after the Lessors construct new strong within the demised premises 35 agreed and as more particularly mentioned in the said Indenture of Lease dated 4th April, 1985 after the vacant and peaceful possession of the said old strong room was handed over as aforesaid (which 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 o....
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....ellant is referred as "the Sub-Lessors" and the Bank of Baroda as "the Bank". On the expiry of the lease on 31st July 1984,the said lease was renewed for a further period of 9 years and 9 months w.e.f. 1st August 1984 under the "Indenture of Lease" dated 4th April 1985 and again on 29th March 1996 for a period of 10 years w.e.f. 1SI May 1994 by and under the'lndenture of Lease" under consideration. 6.4.14 It is apparent from the above discussion that though the appellant has initially granted licence to the Bank for part of Ground Floor of the demised premises vide Licence Agreement 29th January 1964, 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 ....
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....that the appellant has been described as Sub-Lessor in the "Indenture of Sub-Lease" dated 20th November 1976, as mentioned in clause (f) of the lease deed dated 29th March 1996. The fact the appellant is referred as sub- Lessors in the aforesaid indenture negates the claim of the appellant that it is a monthly tenant, had it been the case the appellant was a monthly tenant, the appellant would have not been referred as Sub-lessor. A sublease is the lease of all or a portion of premises by a tenant who has leased the premises from the owner and Sublessor is a tenant who leases a leased property to another tenant. Thus, it was incumbent on part 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 ....
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....nant on month to month basis cannot be given much credence considering the fact that the property happens to be owned by the father of the Managing Director of the appellant company more particularly because the contemporaneous, evidence whatever exist, were not produced by the appellant for examination. 6.4.19 In view of the aforesaid it is concluded that the appellant has leased the demised premises from the owner from 1st August, 1962 when the appellant licenced a part of the ground floor of the demised premises for a term of 12 years to Bank of Baroda by virtue of Agreement dated 29th January, 1964 and by virtue of provisions of section 27(iiib), r.w. clause (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 re....
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....writing to the Lessees PROVIDED HOWEVER that if the Lessees decided to prefer Appeal and/orrevision against imposition of Municipal taxes, rates assessments on the demised premises the Lessors shall at the cost of the Lessees sign and affirm such appeal and/or revision and such other applications and other papers as may be required by the Lessees and the Lessors shall assist the Lessees in such proceedings. 6.4.21 Hence, considering that the appellant is competent to sign and affirm such appeal, revision and other applications and other papers against imposition of Municipal taxes, rates assessments on the demised premises, it can be safely concluded that the appellant is owner of the property in its own right.The 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 Ta....
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....deliberated on various judicial pronouncements as cited before us. Our adjudication to the issue would be as given in succeeding paragraphs. 7. As already narrated by us in para-3, the coordinate bench had observed the 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. 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....