Case Law Details
Nallamothu Vijaya Lakshmi Vs ITO (ITAT Visakhapatnam)
ITAT Visakhapatnam held that rent received from sub-letting the property is taxable under the head ‘income from other sources’ and not under the head ‘income from house property’.
Facts- It is alleged that without considering the fact that the assessee is not the owner of the property, the Assessing Officer (AO) made addition of Rs.1,75,000/- under the head “income from house property” based on the entries in the Form 26AS.
Aggrieved, the assessee preferred an appeal before the CIT(A). CIT(A) dismissed the appeal saying that the assessee has not filed appeal against intimation u/s 143(1) of Income Tax Act, 1961, but the assessee has filed rectification petition u/s 154 of the Act before the CPC. As per the rectification order u/s 154, CPC has rejected the application of the assessee for rectification of mistake., since, there is no mistake in the proceedings u/s 154. On being aggrieved, the assessee preferred appeal before the Tribunal.
Conclusion- Held that if the assessee is owner and thereby receives any income from house property, it should be taxed under the head “income from house property”. But in the case on hand, the assessee received rent only by sub letting the property, therefore, we are of the view that the assessee has rightly shown the rental income under the head “income from other sources”. We, therefore, direct the AO to delete the addition made under 143(1) intimation. Hence, the grounds raised by the assessee are allowed.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
This appeal is filed by the assessee against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in DIN & Order No.ITBA/NFAC/S/250/2022-23/1043740060(1) dated 05.07..2022 for the Assessment Year (A.Y.) 2017-18.
2. Brief facts of the case are that the assessee is an individual, filed her return of income, showing the rent received from sub letting the property under “income from other sources”. Without considering the fact that the assessee is not the owner of the property, the Assessing Officer (AO) made addition of Rs.1,75,000/- under the head “income from house property” based on the entries in the Form 26AS.
3. Aggrieved, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) after considering the facts and circumstances of the case, dismissed the appeal of the assessee saying that the assessee has not filed appeal against intimation u/s 143(1) of Income Tax Act, 1961 (in short “Act”), but the assessee has filed rectification petition u/s 154 of the Act before the CPC. As per the rectification order u/s 154, dated 15.06.2019, the CPC has rejected the application of the assessee for rectification of mistake., since, there is no mistake in the proceedings u/s 154. The Ld.CIT(A) further observed that if at all there is grievance for the assessee, the same would have arisen during the intimation u/s 143(1), but not at the stage of 154. Hence, the Ld.CIT(A) dismissed the appeal of the assessee.
4. On being aggrieved, the assessee preferred appeal before the Tribunal and raised the following grounds :
1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case.
2. The learned Commissioner of Income Tax (Appeals) ought to have decided the appeal on merits of the case and ought to held that the adjustment of Rs.1,75,000 was wrongly made in the intimation u/s 143(1) of the Act.
3. The learned Commissioner of Income Tax (Appeals) ought to have held that the assessing officer erred in taxing the rent of Rs.2,50,000 received on sub lease of property under the head “income from house property” as this income had already been admitted in the return of income under the head “income from other sources”.
4. Any other grounds may be urged at the time of hearing.
5. Ground No.1 and 4 are general in nature, which does not require specific adjudication.
6. Ground No.2 and 3 relate to taxability of rental income under “income from house property” or “income from other sources”. The Ld.AR contended that rental income of a person other than the owner cannot be charged to tax under the head “income from house property”. He further submitted that the rental income received by the tenant by sub letting a property can be charged to tax under the head “income from other sources” or “profits and gains from business or profession”. The Ld.AR further contended that the assessee has rightly shown rental income from leased property amounting to Rs.6,81,900/- and claimed deduction of Rs.3,220/-, being rent paid on leased property. He further contended that whatever the rent received by the assessee, by sub letting the property is offered as “income from other sources”. The Ld.CIT(A) has not considered this fact and dismissed the appeal filed by the assessee, saying that the assessee is not correct in filing the petition for rectification of this mistake u/s 154 of the Act. Hence, pleaded to set aside the order passed by the Ld.CIT(A) and allow the appeal of the assessee.
7. Per contra, the Ld.DR relied on the order of the Ld.CIT(A), pleaded to uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee.
8. We have heard both the parties and perused the material available on record. There is no dispute that the assessee took the property for lease and sublet the property, thereby, received rental income and offered the same as income from other sources. The contention of the revenue is that the assessee failed to show the rental income under the head “income from house property” based on entries in 26AS. We have gone through the section 22 of the Act, which deals with the rental income chargeable to tax under the head “income from house property”.
For the sake of clarity and convenience, we extract section 22 of the Act which reads as under :
Income from house property.
22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head “Income from house property”.
This provision clearly establishes that if the assessee is owner and thereby receives any income from house property, it should be taxed under the head “income from house property”. But in the case on hand, the assessee received rent only by sub letting the property, therefore, we are of the view that the assessee has rightly shown the rental income under the head “income from other sources”. We, therefore, direct the AO to delete the addition made under 143(1) intimation. Hence, the grounds raised by the assessee are allowed.
9. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 28th February, 2023.
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