I do not own the property. I hold it on a lease running since 1989 and I sub-let it. The Assessing Officer says sub-letting income is income from other sources under section 56 and has denied me the thirty per cent under section 24(a). What is the answer?
The Commissioner (Appeals) held, and the Tribunal proceeded on the footing, that where the lease is for a term of not less than twelve years section 27(iiib) read with section 269UA(f) makes the lessee the deemed owner of the property for sections 22 to 26, so that the sub-letting receipt is income from house property and the section 24(a) deduction follows; the Tribunal recorded that conclusion in its own words at paragraph 19 without separately construing the section. The Tribunal held that the Revenue, having assessed the rent under the house property head, could not deny the statutory deduction unless it was proved on record that the original owner had also claimed the benefit, and the Revenue's appeal was dismissed.
Decided by the ITAT (Amit Shukla, Judicial Member and Dr. B. R. R. Kumar, Accountant Member) on 2021-07-01, reported as ITA No. 6105/Del/2017 (ITAT Delhi, A Bench), assessment year 2009-10. It bears on section 22, section 24, section 24(a), section 27, section 27(iiib), section 56, section 269UA(f) of the Income Tax Act 1961, in House Property and Deductions & Disallowances matters.
This is the everyday form of the deemed-owner question and it cuts both ways. Section 269UA(f)(i) defines transfer to include a lease for a term of not less than twelve years, and the Explanation aggregates the original term with any term for which the lease can be extended, so a shorter lease with renewal options can cross the line. That is what happened here: a tenancy from 1 December 1989, registered on 16 March 2000, extended to 31 March 2008 and again at the tenant's option to 31 March 2014, was treated as a lease of some twenty-five years. Practitioners should note the inconsistency risk the Tribunal itself flagged: if both the legal owner and the deemed-owner lessee claim the section 24(a) deduction on the same property, one of them is wrong, and the Tribunal directed verification on that footing. Section 27(iiib) also excludes rights acquired by way of a lease from month to month or for a period not exceeding one year.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee declared rental income of Rs 45,24,503 from property G-4, New Delhi South Extension, and claimed the thirty per cent deduction under section 24(a), amounting to Rs 13,57,351. The Assessing Officer found on verification that the assessee was not the owner of the property but had taken it on rent from one Abdul Hameed and had sub-let it to another tenant; holding that under section 56 income from sub-letting is income from other sources, he disallowed the section 24(a) deduction and added it back. Before the Commissioner (Appeals) the assessee relied on sections 22 and 27(iiib) read with section 269UA(f), filed an affidavit and a copy of an agreement dated 1 December 1989, and additional evidence was admitted and a remand report obtained. The Commissioner (Appeals) found that the property had been taken on lease on 1 December 1989, that the registered tenancy agreement of 16 March 2000 recorded that tenancy and extended it to 31 March 2008 with a further extension at the tenant's option to 31 March 2014, and that in assessment year 2009-10 the assessee had been in possession for nearly twenty years, taking the total duration to about twenty-five years; he held the assessee to be a deemed owner under section 27(iiib) read with section 269UA(f), relying on Raj Dadarkar, and allowed the section 24(a) deduction. The Revenue appealed.
The Revenue's appeal was dismissed (paragraph 20). The assessee is the deemed owner of the property and had offered the rent to tax; the Revenue, having assessed the rent under the head income from house property, cannot deny the statutory deduction under section 24(a) unless it is proved on record that the original owner has also claimed the benefit, and the Assessing Officer was directed to verify the claim of income from house property in the light of Raj Dadarkar and take a decision in accordance with law (paragraph 19).
The Tribunal went through the record and proceeded on the basis that the assessee was the deemed owner and had himself offered the rent to tax. Its reasoning is that the two positions taken by the Department cannot stand together: once the rent has been assessed under the head income from house property, the statutory deduction that goes with that head cannot be refused, the only qualification being where it is shown on record that the original owner has claimed the same benefit. The underlying construction, adopted from the Commissioner (Appeals) and set out at paragraph 18, is that section 27(iiib) makes a person who acquires rights in a building by virtue of a transaction referred to in section 269UA(f) a deemed owner, that section 269UA(f)(i) defines transfer to include a lease for a term of not less than twelve years with the Explanation aggregating extensions, and that a tenancy running from 1 December 1989 and extended to 31 March 2014 therefore satisfied the section (paragraph 18).
The assessee is the deemed owner of the property and also offered the rent to tax.
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Handle my notice → Ask a CA on WhatsAppThe Commissioner (Appeals) held, and the Tribunal proceeded on the footing, that where the lease is for a term of not less than twelve years section 27(iiib) read with section 269UA(f) makes the lessee the deemed owner of the property for sections 22 to 26, so that the sub-letting receipt is income from house property and the section 24(a) deduction follows; the Tribunal recorded that conclusion in its own words at paragraph 19 without separately construing the section. The Tribunal held that the Revenue, having assessed the rent under the house property head, could not deny the statutory deduction unless it was proved on record that the original owner had also claimed the benefit, and the Revenue's appeal was dismissed. This was decided by the ITAT (Amit Shukla, Judicial Member and Dr. B. R. R. Kumar, Accountant Member) and bears on section 22, section 24, section 24(a), section 27, section 27(iiib), section 56, section 269UA(f) of the Income Tax Act 1961. It is reported as ITA No. 6105/Del/2017 (ITAT Delhi, A Bench), assessment year 2009-10. This is the everyday form of the deemed-owner question and it cuts both ways. Section 269UA(f)(i) defines transfer to include a lease for a term of not less than twelve years, and the Explanation aggregates the original term with any term for which the lease can be extended, so a shorter lease with renewal options can cross the line. That is what happened here: a tenancy from 1 December 1989, registered on 16 March 2000, extended to 31 March 2008 and again at the tenant's option to 31 March 2014, was treated as a lease of some twenty-five years. Practitioners should note the inconsistency risk the Tribunal itself flagged: if both the legal owner and the deemed-owner lessee claim the section 24(a) deduction on the same property, one of them is wrong, and the Tribunal directed verification on that footing. Section 27(iiib) also excludes rights acquired by way of a lease from month to month or for a period not exceeding one year. If it applies to you, the first step is this: Work out the aggregate term including every extension the lease permits, and apply the Explanation to section 269UA(f)(i) before deciding whether you are a deemed owner.
The assessee declared rental income of Rs 45,24,503 from property G-4, New Delhi South Extension, and claimed the thirty per cent deduction under section 24(a), amounting to Rs 13,57,351. The Assessing Officer found on verification that the assessee was not the owner of the property but had taken it on rent from one Abdul Hameed and had sub-let it to another tenant; holding that under section 56 income from sub-letting is income from other sources, he disallowed the section 24(a) deduction and added it back. Before the Commissioner (Appeals) the assessee relied on sections 22 and 27(iiib) read with section 269UA(f), filed an affidavit and a copy of an agreement dated 1 December 1989, and additional evidence was admitted and a remand report obtained. The Commissioner (Appeals) found that the property had been taken on lease on 1 December 1989, that the registered tenancy agreement of 16 March 2000 recorded that tenancy and extended it to 31 March 2008 with a further extension at the tenant's option to 31 March 2014, and that in assessment year 2009-10 the assessee had been in possession for nearly twenty years, taking the total duration to about twenty-five years; he held the assessee to be a deemed owner under section 27(iiib) read with section 269UA(f), relying on Raj Dadarkar, and allowed the section 24(a) deduction. The Revenue appealed. The matter was decided on 2021-07-01 by the ITAT (Amit Shukla, Judicial Member and Dr. B. R. R. Kumar, Accountant Member). On those facts the ITAT held as follows. The Revenue's appeal was dismissed (paragraph 20). The assessee is the deemed owner of the property and had offered the rent to tax; the Revenue, having assessed the rent under the head income from house property, cannot deny the statutory deduction under section 24(a) unless it is proved on record that the original owner has also claimed the benefit, and the Assessing Officer was directed to verify the claim of income from house property in the light of Raj Dadarkar and take a decision in accordance with law (paragraph 19).
The Tribunal went through the record and proceeded on the basis that the assessee was the deemed owner and had himself offered the rent to tax. Its reasoning is that the two positions taken by the Department cannot stand together: once the rent has been assessed under the head income from house property, the statutory deduction that goes with that head cannot be refused, the only qualification being where it is shown on record that the original owner has claimed the same benefit. The underlying construction, adopted from the Commissioner (Appeals) and set out at paragraph 18, is that section 27(iiib) makes a person who acquires rights in a building by virtue of a transaction referred to in section 269UA(f) a deemed owner, that section 269UA(f)(i) defines transfer to include a lease for a term of not less than twelve years with the Explanation aggregating extensions, and that a tenancy running from 1 December 1989 and extended to 31 March 2014 therefore satisfied the section (paragraph 18). In the words reproduced by the source cited on this page: "The assessee is the deemed owner of the property and also offered the rent to tax." The decision followed or applied Raj Dadarkar & Associates v. ACIT (cited in the order as '81 Taxman 193') — relied on by the Commissioner (Appeals) and by the Tribunal in directing verification.
It was decided by the ITAT on 2021-07-01 and is reported as ITA No. 6105/Del/2017 (ITAT Delhi, A Bench), assessment year 2009-10. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 22, section 24, section 24(a), section 27, section 27(iiib), section 56, section 269UA(f), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Revenue's appeal was dismissed (paragraph 20). The assessee is the deemed owner of the property and had offered the rent to tax; the Revenue, having assessed the rent under the head income from house property, cannot deny the statutory deduction under section 24(a) unless it is proved on record that the original owner has also claimed the benefit, and the Assessing Officer was directed to verify the claim of income from house property in the light of Raj Dadarkar and take a decision in accordance with law (paragraph 19). It arises in House Property and Deductions & Disallowances matters, on section 22, section 24, section 24(a), section 27, section 27(iiib), section 56, section 269UA(f) of the Income Tax Act 1961, and was decided by Amit Shukla, Judicial Member and Dr. B. R. R. Kumar, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Produce the registered lease deed and every extension document; here the registered tenancy agreement and the extension instruments carried the day, and an unregistered document was challenged by the Assessing Officer in the remand report. If the Department assesses the receipt under section 22 it cannot simultaneously refuse section 24(a); take that as an independent ground. Be ready for the Department to check whether the legal owner has claimed the same deduction on the same property, which is the verification the Tribunal directed. Where the arrangement is a mere licence rather than a lease, expect the opposite result, and see the Calcutta High Court's decision in Oberoi Building & Investment.
Validity check could not be completed. Validity check could not be completed; later treatment was not searched. The Tribunal's own operative paragraph both dismisses the Revenue's appeal and remits the claim for verification, so the order should be cited for the section 24(a) proposition rather than as a final adjudication of the deemed-owner question on these facts. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two cautions. First, the order and the parties refer throughout to 'section 27(iii)(b)'; the statutory designation is section 27(iiib). Second, and more important, almost all of the analysis reproduced in the order is quoted material and not the Tribunal speaking: paragraph 12 reproduces the assessment order, paragraph 13 the assessee's written submission before the Commissioner (Appeals), and paragraph 18 the substantial observations of the Commissioner (Appeals), including the reliance on Raj Dadarkar. The Tribunal's own words are confined to paragraph 19, which is short and which both affirms the deduction and directs the Assessing Officer to verify the claim of income from house property in the light of Raj Dadarkar and take a decision in accordance with law; that verification direction sits awkwardly with the dismissal of the Revenue's appeal at paragraph 20. The order also decides an unrelated addition of Rs 3,30,00,000 as unexplained expenditure. The order runs to 20 numbered paragraphs. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was dismissed (paragraph 20). The assessee is the deemed owner of the property and had offered the rent to tax; the Revenue, having assessed the rent under the head income from house property, cannot deny the statutory deduction under section 24(a) unless it is proved on record that the original owner has also claimed the benefit, and the Assessing Officer was directed to verify the claim of income from house property in the light of Raj Dadarkar and take a decision in accordance with law (paragraph 19).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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