The Assessing Officer has taxed notional rent on a property that stands in the name of a company, saying I have a beneficial interest in it. Can house property income be assessed on someone who is not the owner?
No. The Tribunal held that where the tenancy contract records a corporate entity as the owner and lessor, and the assessee is shown neither as owner nor as deemed owner within section 22 read with section 27, income from house property cannot be assessed in the assessee's hands, and notional rent cannot be assessed on a person who is neither the legal nor the deemed owner. The Revenue's appeal was dismissed.
Decided by the ITAT (Saktijit Dey, Vice President and Makarand Vasant Mahadeokar, Accountant Member) on 2026-02-20, reported as ITA No. 7891/Mum/2025 (ITAT Mumbai, D Bench), assessment year 2023-24. It bears on section 22, section 23, section 27, section 68 of the Income Tax Act 1961, in House Property and Cash Credits & Unexplained Money matters.
Ownership is the jurisdictional fact for section 22, and this is the answer to a notional-rent addition built on 'beneficial interest' alone. The Tribunal put the burden squarely on the Assessing Officer: he had brought no material to show that the corporate entity was a mere facade or that the property was held benami for the assessee. That is the shape of the defence and equally the shape of the Department's opening if it wants to succeed. The order also decides a second point that arises constantly on rent: an advance receipt of rent identifiable from the tenancy contract and bank statements is not an unexplained credit under section 68, its character is house property income, and a direction to avoid double taxation across the two years is proper. Both properties here were in Dubai, so the same reasoning covers foreign immovable property in the hands of a resident.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For assessment year 2023-24 the Assessing Officer made three additions. First, Rs 22,49,854 of rent received on an office premises at Lake Tower, Business Bay, Dubai, of which the assessee was co-owner with her husband, was treated as an unexplained credit under section 68; a tenancy contract dated 13 February 2023 for 15 February 2023 to 14 February 2024 at an annual rent of AED 230,000 and the bank statements showing receipt were on record, and the assessee's explanation was that part of the rent received represented advance pertaining to the following year and had been offered proportionately in the respective years. Second, credits of Rs 7,31,35,963 in foreign bank accounts. Third, notional rent of Rs 1,51,27,315 on Villa No. K-25, Palm Jumeirah, assessed on the footing that the assessee had a beneficial interest in the property, although the tenancy contract dated 15 October 2021 recorded Parkland Investments Limited as the owner and lessor and did not show the assessee as owner. The Commissioner (Appeals) deleted all three additions and the Revenue appealed.
The grounds raised by the Revenue were dismissed and the order of the Commissioner (Appeals) was upheld in its entirety (paragraph 28). Notional rent cannot be assessed in the hands of a person who is neither the legal nor the deemed owner (paragraph 26). The advance rent was correctly held to be identifiable as rent, not an unexplained credit under section 68, with the character of house property income, and the direction to avoid double taxation was in consonance with settled principles (paragraphs 22 and 23).
On the advance rent, the Tribunal found the Assessing Officer had not disputed the existence of the tenancy agreements or the character of the receipt as rent; the addition rested only on the premise that the entire receipt was taxable in the year under consideration, and the Commissioner (Appeals) had correctly appreciated that the source stood explained and the character of the income was house property income (paragraph 23). On the notional rent, the Tribunal relied on the tenancy contract which records the corporate entity as owner and lessor and does not show the assessee as owner, on the Commissioner (Appeals)'s clear finding that the assessee was neither the legal owner nor a deemed owner within the meaning of section 22 read with section 27, and on the absence of ownership as the reason why income from house property could not be assessed in her hands. It added that the Assessing Officer had brought no material to demonstrate that the corporate entity was a mere facade or that the property was held benami for the assessee, and that no contrary evidence had been placed before the Tribunal to dislodge the finding that the property is owned by Parkland Investments Limited (paragraph 26).
In these circumstances, we concur with the learned CIT(A) that notional rent cannot be assessed in the hands of a person who is neither the legal nor deemed owner.
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Handle my notice → Ask a CA on WhatsAppNo. The Tribunal held that where the tenancy contract records a corporate entity as the owner and lessor, and the assessee is shown neither as owner nor as deemed owner within section 22 read with section 27, income from house property cannot be assessed in the assessee's hands, and notional rent cannot be assessed on a person who is neither the legal nor the deemed owner. The Revenue's appeal was dismissed. This was decided by the ITAT (Saktijit Dey, Vice President and Makarand Vasant Mahadeokar, Accountant Member) and bears on section 22, section 23, section 27, section 68 of the Income Tax Act 1961. It is reported as ITA No. 7891/Mum/2025 (ITAT Mumbai, D Bench), assessment year 2023-24. Ownership is the jurisdictional fact for section 22, and this is the answer to a notional-rent addition built on 'beneficial interest' alone. The Tribunal put the burden squarely on the Assessing Officer: he had brought no material to show that the corporate entity was a mere facade or that the property was held benami for the assessee. That is the shape of the defence and equally the shape of the Department's opening if it wants to succeed. The order also decides a second point that arises constantly on rent: an advance receipt of rent identifiable from the tenancy contract and bank statements is not an unexplained credit under section 68, its character is house property income, and a direction to avoid double taxation across the two years is proper. Both properties here were in Dubai, so the same reasoning covers foreign immovable property in the hands of a resident. If it applies to you, the first step is this: Produce the title or tenancy document that names the owner; the finding here rested on a tenancy contract that recorded a company as owner and lessor and did not show the assessee as owner.
For assessment year 2023-24 the Assessing Officer made three additions. First, Rs 22,49,854 of rent received on an office premises at Lake Tower, Business Bay, Dubai, of which the assessee was co-owner with her husband, was treated as an unexplained credit under section 68; a tenancy contract dated 13 February 2023 for 15 February 2023 to 14 February 2024 at an annual rent of AED 230,000 and the bank statements showing receipt were on record, and the assessee's explanation was that part of the rent received represented advance pertaining to the following year and had been offered proportionately in the respective years. Second, credits of Rs 7,31,35,963 in foreign bank accounts. Third, notional rent of Rs 1,51,27,315 on Villa No. K-25, Palm Jumeirah, assessed on the footing that the assessee had a beneficial interest in the property, although the tenancy contract dated 15 October 2021 recorded Parkland Investments Limited as the owner and lessor and did not show the assessee as owner. The Commissioner (Appeals) deleted all three additions and the Revenue appealed. The matter was decided on 2026-02-20 by the ITAT (Saktijit Dey, Vice President and Makarand Vasant Mahadeokar, Accountant Member). On those facts the ITAT held as follows. The grounds raised by the Revenue were dismissed and the order of the Commissioner (Appeals) was upheld in its entirety (paragraph 28). Notional rent cannot be assessed in the hands of a person who is neither the legal nor the deemed owner (paragraph 26). The advance rent was correctly held to be identifiable as rent, not an unexplained credit under section 68, with the character of house property income, and the direction to avoid double taxation was in consonance with settled principles (paragraphs 22 and 23).
On the advance rent, the Tribunal found the Assessing Officer had not disputed the existence of the tenancy agreements or the character of the receipt as rent; the addition rested only on the premise that the entire receipt was taxable in the year under consideration, and the Commissioner (Appeals) had correctly appreciated that the source stood explained and the character of the income was house property income (paragraph 23). On the notional rent, the Tribunal relied on the tenancy contract which records the corporate entity as owner and lessor and does not show the assessee as owner, on the Commissioner (Appeals)'s clear finding that the assessee was neither the legal owner nor a deemed owner within the meaning of section 22 read with section 27, and on the absence of ownership as the reason why income from house property could not be assessed in her hands. It added that the Assessing Officer had brought no material to demonstrate that the corporate entity was a mere facade or that the property was held benami for the assessee, and that no contrary evidence had been placed before the Tribunal to dislodge the finding that the property is owned by Parkland Investments Limited (paragraph 26). In the words reproduced by the source cited on this page: "In these circumstances, we concur with the learned CIT(A) that notional rent cannot be assessed in the hands of a person who is neither the legal nor deemed owner."
It was decided by the ITAT on 2026-02-20 and is reported as ITA No. 7891/Mum/2025 (ITAT Mumbai, D Bench), assessment year 2023-24. 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 23, section 27, section 68, 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 grounds raised by the Revenue were dismissed and the order of the Commissioner (Appeals) was upheld in its entirety (paragraph 28). Notional rent cannot be assessed in the hands of a person who is neither the legal nor the deemed owner (paragraph 26). The advance rent was correctly held to be identifiable as rent, not an unexplained credit under section 68, with the character of house property income, and the direction to avoid double taxation was in consonance with settled principles (paragraphs 22 and 23). It arises in House Property and Cash Credits & Unexplained Money matters, on section 22, section 23, section 27, section 68 of the Income Tax Act 1961, and was decided by Saktijit Dey, Vice President and Makarand Vasant Mahadeokar, 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. Where the Assessing Officer alleges beneficial ownership, ask him to identify the material showing the entity is a facade or that the property is held benami, and record that no such material is on file. Test the addition against section 27 clause by clause before conceding deemed ownership, particularly clauses (i), (iii), (iiia) and (iiib). For an advance rent addition under section 68, put the tenancy contract and the bank statements on record, show the proportionate offer of income across the years, and ask for a direction against double taxation.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator search (doc 195176862, confirmed as 'Dy. CIT, Central ... vs Manisha Kamal Khetan, Mumbai on 20 February, 2026') returns nothing. A second probe on the assessee's name returned three results. One is a later order, Ritu Deep Saraf v DCIT-1, Akola (ITAT Nagpur, 7 May 2026), but the decision it refers to is 'Kamal Khetan, ITA No. 2702/MUM/2025 dated 14.08.2025' - a different order in a different appeal, not this 20 February 2026 order. No decision applying, doubting or reversing the holding that notional rent cannot be assessed on a non-owner was located. Nothing overruling, doubting or distinguishing it was found, and no appeal to a High Court against it is disclosed on the record searched. 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.
The order runs to 28 numbered paragraphs; only paragraphs 21 to 23, 26 and 28 were retrieved and read, those being the paragraphs on the two house property issues, so the reasoning on the third issue (foreign bank account credits of Rs 7,31,35,963) is not reported here. The quoted sentence from paragraph 26 was re-verified through the phrase-fragment index after the print rendering was obtained. The order records the assessee as co-owner with her husband of the Lake Tower, Business Bay office premises (the advance rent issue); the notional rent issue concerns a different property, Villa No. K-25, Palm Jumeirah, whose tenancy contract dated 15 October 2021 records Parkland Investments Limited as owner and lessor. 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 grounds raised by the Revenue were dismissed and the order of the Commissioner (Appeals) was upheld in its entirety (paragraph 28). Notional rent cannot be assessed in the hands of a person who is neither the legal nor the deemed owner (paragraph 26). The advance rent was correctly held to be identifiable as rent, not an unexplained credit under section 68, with the character of house property income, and the direction to avoid double taxation was in consonance with settled principles (paragraphs 22 and 23).
TaxSphere, “DCIT, Central Circle-3(4) v Manisha Kamal Khetan”, https://taxnotice.vittsphere.com/caselaw/case/manisha-kamal-khetan-notional-rent-non-owner/ (validity last checked 2026-09-08)
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