Nahalchand Laloochand (P) Ltd. Vs. DCIT (ITAT Mumbai)
The issue under consideration is whether assessee is considered as monthly tenant or deemed owner of the premises u/s.27(iiib) read with Section 269UA(f)(i) of the Act and accordingly whether rental income is taxable u/s.22 as ‘income from house property’ or not?
ITAT states that, 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). ITAT 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 longterm lease agreement for aggregate period exceeding 12 years and that too with a Nationalized Bank, who require approval of regulatory authorities to open /operate the branches. Further, the setting up of branch would entail heavy infrastructure cost for the Bank. In the said background, it is difficult to acquiesce to the fact that Bank would agree to enter into such long-term lease agreement for as many as 12 years despite being fully aware of the fact that the tenancy was on ‘month to month’ basis and the premise could be got vacated by landlord by giving a very short notice. The same would not be possible unless there is assurance of high degree of successful performance of the lease agreement.
Hence, the entire facts and circumstances do not convince ITAT to accept the argument that the tenancy was on ‘month to month’ basis and the assessee was covered in the exceptions contained in Sec. 27(iiib). ITAT rely on the decision of Hon’ble Supreme Court rendered in CIT V/s Durga Prasad More (82 ITR 540) wherein it was observed that the authorities were entitled to took into the surrounding circumstances to find out the realities of the recitals made in the documents. Keeping in view the entirety of facts and circumstances, we hold that the tenancy was not on ‘month to month’ basis as asserted by the assessee but it was for aggregate period exceeding 12 years in terms of Sec. 269UA(f)(i). Accordingly, for the purpose of Sec. 27(iiib) r.w.s. 269UA(f)(i), the assessee was deemed owner of the property and therefore, the stated income was rightly brought to tax by revenue authorities as Income from House Property. Resultantly, the appeal filed by the assessee is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
1. The grievance of the assessee in all the aforesaid appeals for several Assessment Years is common. It is accepted position that adjudication in any one year would equally apply to all the other years since impugned order is common order for all the years which has been passed by Ld. Commissioner of Income-Tax (Appeals)-10, Mumbai [CIT(A)] on 06/07/2018. This is third round of appeal before Tribunal.
2. The matter in the first round travelled up-to the level of Hon’ble Supreme Court wherein the Hon’ble Court remanded the matter to Tribunal to render definite finding of fact about the pre-requisites of Section 269UA(f)(i) read with explanation thereto. In the context of said section, it was also observed by Hon’ble Court 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 and in the circumstances of the case, and in law, the Ld. CIT(A) erred in rejecting the appellant’s contention that the rental income of Rs.6,29,047/-received by the appellant from sub-letting of the “Kantilal House” premises to Bank of Baroda, is not taxable either u/s.22 or u/s.56 of the Act.
2. On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in holding that the appellant is a deemed owner of the aforesaid premises u/s.27(iiib) read with Section 269UA(f)(i) of the Act, and is not a ‘monthly tenant’ as claimed by the appellant; and consequently, the Ld. CIT(A) erred in holding that the aforesaid rental income is taxable u/s.22 of the Act as ‘income from house property’. In view of above, the appellant respectfully prays that the Ld. AO be directed not to assess the aforesaid rental income, the same being not chargeable to tax.
3. At the outset, the facts as well as controversy, as crystallized by the Tribunal in second round, vide order dated 28/10/2016 could be extracted in the following manner: –
These bunch of appeals filed by the assessee and one by the Department arise out of separate orders of the learned Commissioner (Appeals), Mumbai, pertaining to assessment years 1990–91, 1991–92, 1992–93, 1994–95, 1998–99, 2000–01, 2001–02, 2002–03 and 2003–04.
2. The core common issue arising for consideration in the aforesaid appeals is, whether the lease rental received by the assessee from a house property named as “Kantilal House” at Opera House Road, Mumbai, is to be assessed under the head “Income From Business” as claimed by the assessee or under the head “Income From House Property” as claimed by the Revenue. Since the facts involved in all these appeals are more or less common, for the sake of convenience, we will discuss the facts as involved in appeal being ITA no.6550/Mum. /1995, for assessment year 1991–92, which is taken as a lead appeal.
3. Brief facts are, the assessee a company is regularly filing its return of income and is assessed to tax. In the course of assessment proceedings for the assessment year 1991–92, the Assessing Officer while examining the Profit & Loss account of the assessee noticed that the assessee has declared a loss of Rs. 11,52,199, under the head “lease rentals”. On verifying the details submitted by the assessee, the Assessing Officer found that in the relevant previous year, the assessee had received lease rentals as under:–
