The Commissioner Of Income Tax Salem v. M/S.a.v.k.constructions Pvt. Ltd. C

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 21.6.2007 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.664 of 2007 The Commissioner of Income TaxSalem...Appellant /AppellantVsM/s.A.V.K.Constructions Pvt. Ltd.C-4, Brindavan Road, AVK NagarSalem – 636 004. ..Respondent /Respondent M/s.A.V.K.Constructions Pvt. Ltd.C-4, Brindavan Road, AVK NagarSalem – 636 004. Appeal under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal SMC-III "D" Bench, Chennaidated 11.11.2005 made in I.T.A.No. 225/Mds/2005 for the assessment year1998-99.(Against ITA NO.9/04-05 dated 24.11.2004 on the file of the commissioner of income tax (Appeals) Salem against PAN /GIR NO 1DCAOO43on the file of the Assistant Commissioner of Income Tax Company cicle,Salem) For Appellant : Mr.N.Muralikumaran Sr.Standing Counsel (IT)JUDGMENT (Delivered by P.D.DINAKARAN,J.) This appeal is directed against the order of the Income Tax AppellateTribunal, SMC-III "D" Bench, Chennai dated 11.11.2005 made in I.T.A.No.225/Mds/2005 for the assessment year 1998-99, raising the followingsubstantial question of law:"If the intention of a person is to exploit the property as suchand derive therefrom by subleasing the property would such incomebe treated as income from property or not?" 2. The Revenue is the appellant. The relevant assessment year is1998-99. The assessee took on lease a property and sublet a portion of thesame. The Assessing Officer, by assessment order dated 30.1.2004 treatedthe income derived therefrom as "income from house property". Being https://hcservices.ecourts.gov.in/hcservices/ aggrieved, the assessee preferred an appeal before the Commissioner ofIncome Tax (Appeals), who, by order dated 24.11.2004, allowed the appealdirecting the Assessing Officer to treat the said income as "businessincome" and the same was, on appeal, confirmed by the Tribunal by orderdated 11.11.2005. Hence, the present appeal raising the substantialquestion of law referred to above. 3. The issue involved in this appeal is, whether the lessee of aproperty can be construed as an owner of the property merely because thelessee has sublet the property. 4.1. The computation of income from house property is dealt withunder Sections 22 to 27 of the Income Tax Act (for brevity "the Act"). 4.2. The "income from house property" is defined as under in Section22 of the Act:Section:22. Income from house property.-The annual value ofproperty consisting of any buildings or lands appurtenant theretoof which the assessee is the owner, other than such portions ofsuch property as he may occupy for the purposes of any business orprofession carried on by him the profits of which are chargeable toincome-tax, shall be chargeable to income-tax under the head"Income from house property". (emphasis supplied) 5. Section 27 of the Act defines the "owner of house property" ashereunder:Section:27. "Owner of house property", "annual charge" etc.,defined.--For the purposes of sections 22 to 26-- (i) an individual who transfers otherwise than for adequateconsideration any house property to his or her spouse, not being atransfer in connection with an agreement to live apart, or to aminor child not being a married daughter, shall be deemed to be theowner of the house property so transferred; (ii) the holder of an impartible estate shall be deemed to be theindividual owner of all the properties comprised in the estate; (iii) a member of a co-operative society, company or otherassociation of persons to whom a building or part thereof isallotted or leased under a house building scheme of the society,company or association, as the case may be, shall be deemed to bethe owner of that building or part thereof; (i) an individual who transfers otherwise than for adequateconsideration any house property to his or her spouse, not being atransfer in connection with an agreement to live apart, or to aminor child not being a married daughter, shall be deemed to be theowner of the house property so transferred; (ii) the holder of an impartible estate shall be deemed to be theindividual owner of all the properties comprised in the estate; (iii) a member of a co-operative society, company or otherassociation of persons to whom a building or part thereof isallotted or leased under a house building scheme of the society,company or association, as the case may be, shall be deemed to bethe owner of that building or part thereof; (iiia) a person who is allowed to take or retain possession of anybuilding or part thereof in part performance of a contract of thenature referred to in section 53A of the Transfer of Property Act,1882 (4 of 1882), shall be deemed to be the owner of that building or part thereof ; (iiib) a person who acquires any rights (excluding any rights byway of a lease from month to month or for a period not exceedingone year) in or with respect to any building or part thereof, byvirtue of any such transaction as is referred to in clause (f) ofsection 269UA, shall be deemed to be the owner of that building orpart thereof ; (iv) "annual charge" means a charge to secure an annual liability,but does not include any tax in respect of property or income fromproperty imposed by a local authority, or the Central or a StateGovernment; (v) "capital charge" means a charge to secure the discharge of aliability of a capital nature; (vi) taxes levied by a local authority in respect of any propertyshall be deemed to include service taxes levied by the localauthority in respect of the property. (emphasis supplied) 6. In the instant case, concededly, the lease agreement dated1.4.1996 entered into between the assessee and Mr.S.K.Karunanidhi was fora period of 11 months with an option to the lessee to retain thepossession thereof for a further period of two years on a monthly rent ofRs.10,000/- payable in each month in advance on or before 5[th] day thereof.Therefore, as per Section 27(iiib), the assessee, by virtue of its rightby way of a lease from month to month or for a period not exceeding oneyear, as referred to above, is excluded from the definition of owner ofthe house property. If that be so, the case of the assessee is notattracted by Sections 22 to 26 of the Act. In the result, finding no substantial question of law, this appeal isdismissed. No costs. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar sasi To: 1.The Assistant Registrar,Income Tax Appellate TribunalMadras Bench SMC-III(D), Chennai. 2.The Commissioner of IncomeTax (Appeals), Salem. 3.The Commissioner of Income Tax, Salem. 4.The Assistant Commissioner of Income Tax, Company Circle Salem. 1 cc to M/s N.Muralikumaran Advocate SR.NO.37074 SMV(co)RD 3.7.07 Tax Case (Appeal) No.664 of 2007