ITAT directed AO to assess assessee's income as business income

1. The assessee company had received rental income of Rs.96,000/- and after declaring the same as its business income and claiming various expenses aggregating to Rs.48,783/- under the said head, total income of Rs.48,217/- was declared by the assessee in the return of income. During the course of assessment proceedings, the assessee was called upon by the Assessing Officer to explain as to why the rental income should not be assessed under the head "Income from House Property". In reply, it was submitted by the assessee-company that it had taken the house property on lease for a period of 40 years and since the said lease period had already expired and there was a dispute about the extension of lease period, rent was being deposited with the Rent Controller, and it was not the legal owner of the house property. AO held the assessee to be the owner of the property u/s 27(iiib) (of Income Tax Act, 1961) and the rental income. AO brought to tax the rental income in the hands of the assessee under the head "income from house property" after allowing deduction at the rate of 30% u/s 24(a) (of Income Tax Act, 1961) instead of the expenses of Rs.48,783/- claimed by the assessee under the head 'business'.

2. CIT(A) upheld the action of the Assessing Officer.

3 On appeal, the ITAT held as under:

"4. As per the relevant facts as narrated by the ld. CIT(Appeals) in his impugned order, the property in question belonged to one Petros Hyrapict Crete, who leased the same to M/s. Martin Burns Limited for the period 1930 to 1980 with the power to sub-lease the same. The assessee became the sub-lessee of M/s. Martin Burns Limited and when M/s. Martin Burns Limited sought to evict the assessee-company from the premises after the expiry of lease on 31.03.1980, they failed to do the same due to lapse of the lease with Petros Hyrapict Crete. The suit brought by M/s. Martin Burns Limited against the assessee was also rejected by the District Judge, Alipore and accordingly the assessee even questioned the authority of M/s. Martin Burns Limited to seek rent from it. The assessee-company, however, continued to remain in possession of the property. The provisions of section 116 of the Transfer of Property Act, 1882 deal with the effect of "holding over", which means to retain possession as tenant of property leased, after the end of the term. A distinction is drawn between a tenant continuing in possession after the determination of the lease, without the consent of the landlord, and a tenant doing so with the landlord's consent. The former situation as is obtained in the present case is called a tenant by sufferance, who is no better than a mere trespasser and keeping in view this legal position, I am of the view that the assessee-company in the present case, who is no better than a mere trespasser, can not be treated as a deemed owner in view of the provisions of section 27(iiib) (of Income Tax Act, 1961) read with section 269UA(f) (of Income Tax Act, 1961), which are clearly not applicable. In that view of the matter, I set aside the impugned order of the ld. CIT(Appeals) on this issue and direct the Assessing Officer to assess the rental income in question in the hands of the assessee as business income instead of income from house property.

5. In the result, the appeal of the assessee is allowed.”

Case Reference - The Cardboard Material & Printing Co. Private Limited vs Income Tax Officer.

IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA 'SMC' BENCH, KOLKATA

Before Shri P.M. Jagtap, Accountant Member I.T .A. No. 1101/KOL/ 2015

(Assessment Year: 2006-2007)