Case Law Details
Income from property let out to a director to be taxed as business income in the hands of the company
In the present case, the property had been let out to Snehal Jalan a share holder who is the daughter of the Director Ms. Rekha Jalan, who had 81.71% shareholding in the company. The Ld. AR for the assessee argued that since property had been let out to an individual, the same was not out of the purview of Rent Control Act as exclusion was available in case of property let out to banks or public sector undertakings or any corporation established by or under any state/central Act or foreign mission, international agencies, multinational companies and private/public limited companies having paid up share capital of Rs.1 crore or more. It has been submitted that since the property was covered under Rent Control Act, the standard Rent determined or determinable under Rent Control Act or actual rent received whichever is higher has to be taken as annual value. We are however unable to accept the arguments advanced. The provisions of Rent Control Act can be applied only in case of bonafide letting out of properties and not in case of colourable transactions which are only an arrangement to reduce tax liability. In this case the company had let out the property to the daughter of the director who controlled the company and is responsible for taking all decisions Instead of letting out the property at market rate which is very high, the director had let out property to her daughter at a very low rent, obviously to reduce tax liabilities. Therefore, in our view, the provisions of Rent Control Act can not be applied to such arrangements. Accordingly we hold that annual value in relation to part of the property let out to Ms. Snehal Jalan will be the fair rent in the market based on comparable cases. In this case the AO has already made enquiries that similar property being flat No.11C in the same society let out in the year 2005 had fetched a rent of Rs.150 per sq.ft. and another property being flat 18/B-2 let out in the year 2004 had fetched rent of Rs.100 per sq.ft. Thus average fair rent comes to Rs.125 per sq.ft.. The fair adopted by AO is also Rs.125 per sq.ft.. We, therefore, uphold the order of AO assessing the annual value in relation to the portion let out to Ms. Snehal Jalan. As regards the portion let out to Ms. Rekha Jalan, we have already held that rental income has to be assessed as business income and therefore, the same will be out of the purview of the provisions relating to assessment under the head “income from house property”.
ITAT, MUMBAI BENCH “G”
ITA No. 5031/Mum/2011
Assessment Year: 2007-08
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Respected sir/madom
I have one property, rooftop of the same property let out to bharti airtel for installation of tower for monthly rent 35000/- p.m., please advise me to claim income in relevant head and also give related case law.
Thanks