I hold shop space under a fifty-year leave and licence and sub-licence it with services. The Assessing Officer says the fifty-year term makes me a deemed owner under section 27(iiib) and taxes the receipts as house property income. How do I answer that?
The Calcutta High Court allowed the assessee's appeal and answered both substantial questions in its favour, holding that the income from sub-licensing was business income and not income from house property. The Court reached that conclusion on the objects and the actual activity of the company, and held that the Tribunal had committed a manifest error of law in ignoring the company's objects and business activity and in misunderstanding the nature of a sub-licence transaction.
Decided by the High Court (Surya Prakash Kesarwani J and Rajarshi Bharadwaj J) on 2023-12-15, reported as ITA/168/2010 (Calcutta High Court, Special Jurisdiction (Income Tax), Original Side), assessment year 2005-06. It bears on section 22, section 27, section 27(iiib), section 28, section 24, section 24(a), section 269UA(f) of the Income Tax Act 1961, in House Property and How Tax Law Is Read matters.
This is the answer to the deemed-owner route the Department takes where the assessee is not the legal owner: instead of proving ownership it invokes section 27(iiib) read with section 269UA(f), which brings in a lease for a term of not less than twelve years. The Court did not accept that route on these facts, but its reasoning is on the head of income rather than on a close construction of section 269UA(f), so the case is best used as head-of-income authority with the deemed-owner question disposed of consequentially. Two practical points carry across: the composite consideration covered a long list of services set out in the sub-licence agreement, and the Department had accepted the business head in every year except the one under appeal and had accepted a Tribunal order to that effect for the following year, which the Court held it could not now contradict. Contrast Raj Dadarkar (SC), where the assessee was held to be a deemed owner under section 27(iiib) and taxed under section 22 because it could not establish that letting was its business.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The assessee, incorporated on 14 March 1972 as a subsidiary of East India Hotels Ltd. (later EIH Ltd.), took 5,665 sq. ft. of office space in the Oberoi Sheraton Hotel at Bombay from EIH under a leave and licence agreement dated 25 April 1972 for fifty years, the licence being irrevocable for that period under clause 2(xiv). Its memorandum contained, among the objects ancillary to the main objects, the acquisition of premises on licence suitable for housing shops, boutiques, stores, offices and showrooms for the purpose of making them available on lease and licence or sub-licence. The assessee sub-licensed the space from 28 September 1991 to 31 December 2022 for the business of gems, jewellery and gift articles at a fixed fee, and clause 27 of the sub-licence agreement obliged it to provide central air-conditioning during business hours, a central telephone operating service for incoming calls, central piped music, cleaning of common passages, lobbies and entrances, attention to electricity, water, sanitary fittings and plumbing in those common areas, watch and ward services for the shopping area, and advertising and sales promotional facilities. For assessment year 2005-06 it showed total contribution received from shops of Rs 13,90,260 against expenses of Rs 10,60,560 under the business head. The Assessing Officer, relying on Podar Cement and section 27(iiib), held that the irrevocable fifty-year right made the assessee a deemed owner and assessed the receipt as income from house property, computing it at Rs 9,73,182 after the section 24(a) deduction. The Commissioner (Appeals) allowed the assessee's appeal on 7 January 2008; the Tribunal allowed the Department's appeal; the assessee appealed under section 260A and the appeal was admitted on 4 October 2010 on two substantial questions, the first on the head of income and the second on whether the 1972 licence agreement constituted a transfer within section 269UA(f) making the assessee a deemed owner under section 27(iiib). For assessment year 2006-07 the Tribunal had, by order dated 26 July 2017 in ITA No. 1640/Kol/2014, held the same income to be business income, and that order was stated to have been accepted by the Department.
The appeal was allowed, both substantial questions of law were answered in favour of the assessee and against the Revenue, the Tribunal's order was set aside and the order of the Commissioner (Appeals) dated 7 January 2008 was affirmed, with a direction that any amount already deposited by the assessee towards the demand be refunded forthwith (paragraph 20). The income from contribution and sub-licensing is business income and not income from house property (paragraph 18).
The Court held that the Tribunal, in reaching its conclusion by reference to section 27(iiib) and the definition of transfer in section 269UA(f), had committed a manifest error of law in ignoring the object and business activity of the company and had misunderstood the nature of the sub-licence transaction (paragraph 12). It applied Raj Dadarkar for the proposition that letting income is normally house property income but can be business income where letting out the premises is itself the business of the assessee (paragraph 15), and set out at length the Supreme Court's reasoning in Chennai Properties, which adopted Karanpura Development Co. Ltd.'s test that the deciding factor is not ownership of the land or leases but the nature of the assessee's activity and its objects, while noting Sultan Brothers' caution that an objects clause entry is not determinative (paragraph 16); it also applied Rayala Corporation (paragraph 17). Applying those authorities, and relying on the Assessing Officer's own finding in the assessment order that during the previous year the assessee was engaged in dealing in real estate and that its income mainly consisted of contribution from shops, the Court held that because the object and the activity of the company was the business of renting, licensing and sub-licensing shops and it derived its income mainly from that activity, the income was business income (paragraph 18). Independently, the Court held that the Department having accepted the business head in every year since 1972 except the year under appeal, and having accepted the Tribunal's order for assessment year 2006-07 to the same effect, it could not take a contrary stand (paragraph 19).
Since the object of the assesse company and its activity is the business of renting/lisencing/sub-lisencing shops etc. and it derived income mainly from the aforesaid business activity, therefore, the income from contribution/sub-lisencing derived by the assesse is business income and not income from house property.
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Handle my notice → Ask a CA on WhatsAppThe Calcutta High Court allowed the assessee's appeal and answered both substantial questions in its favour, holding that the income from sub-licensing was business income and not income from house property. The Court reached that conclusion on the objects and the actual activity of the company, and held that the Tribunal had committed a manifest error of law in ignoring the company's objects and business activity and in misunderstanding the nature of a sub-licence transaction. This was decided by the High Court (Surya Prakash Kesarwani J and Rajarshi Bharadwaj J) and bears on section 22, section 27, section 27(iiib), section 28, section 24, section 24(a), section 269UA(f) of the Income Tax Act 1961. It is reported as ITA/168/2010 (Calcutta High Court, Special Jurisdiction (Income Tax), Original Side), assessment year 2005-06. This is the answer to the deemed-owner route the Department takes where the assessee is not the legal owner: instead of proving ownership it invokes section 27(iiib) read with section 269UA(f), which brings in a lease for a term of not less than twelve years. The Court did not accept that route on these facts, but its reasoning is on the head of income rather than on a close construction of section 269UA(f), so the case is best used as head-of-income authority with the deemed-owner question disposed of consequentially. Two practical points carry across: the composite consideration covered a long list of services set out in the sub-licence agreement, and the Department had accepted the business head in every year except the one under appeal and had accepted a Tribunal order to that effect for the following year, which the Court held it could not now contradict. Contrast Raj Dadarkar (SC), where the assessee was held to be a deemed owner under section 27(iiib) and taxed under section 22 because it could not establish that letting was its business. If it applies to you, the first step is this: Put the objects clause on record and show the activity actually carried on matches it; here the ancillary object was to acquire premises on licence for the purpose of making them available on lease, licence or sub-licence.
The assessee, incorporated on 14 March 1972 as a subsidiary of East India Hotels Ltd. (later EIH Ltd.), took 5,665 sq. ft. of office space in the Oberoi Sheraton Hotel at Bombay from EIH under a leave and licence agreement dated 25 April 1972 for fifty years, the licence being irrevocable for that period under clause 2(xiv). Its memorandum contained, among the objects ancillary to the main objects, the acquisition of premises on licence suitable for housing shops, boutiques, stores, offices and showrooms for the purpose of making them available on lease and licence or sub-licence. The assessee sub-licensed the space from 28 September 1991 to 31 December 2022 for the business of gems, jewellery and gift articles at a fixed fee, and clause 27 of the sub-licence agreement obliged it to provide central air-conditioning during business hours, a central telephone operating service for incoming calls, central piped music, cleaning of common passages, lobbies and entrances, attention to electricity, water, sanitary fittings and plumbing in those common areas, watch and ward services for the shopping area, and advertising and sales promotional facilities. For assessment year 2005-06 it showed total contribution received from shops of Rs 13,90,260 against expenses of Rs 10,60,560 under the business head. The Assessing Officer, relying on Podar Cement and section 27(iiib), held that the irrevocable fifty-year right made the assessee a deemed owner and assessed the receipt as income from house property, computing it at Rs 9,73,182 after the section 24(a) deduction. The Commissioner (Appeals) allowed the assessee's appeal on 7 January 2008; the Tribunal allowed the Department's appeal; the assessee appealed under section 260A and the appeal was admitted on 4 October 2010 on two substantial questions, the first on the head of income and the second on whether the 1972 licence agreement constituted a transfer within section 269UA(f) making the assessee a deemed owner under section 27(iiib). For assessment year 2006-07 the Tribunal had, by order dated 26 July 2017 in ITA No. 1640/Kol/2014, held the same income to be business income, and that order was stated to have been accepted by the Department. The matter was decided on 2023-12-15 by the High Court (Surya Prakash Kesarwani J and Rajarshi Bharadwaj J). On those facts the High Court held as follows. The appeal was allowed, both substantial questions of law were answered in favour of the assessee and against the Revenue, the Tribunal's order was set aside and the order of the Commissioner (Appeals) dated 7 January 2008 was affirmed, with a direction that any amount already deposited by the assessee towards the demand be refunded forthwith (paragraph 20). The income from contribution and sub-licensing is business income and not income from house property (paragraph 18).
The Court held that the Tribunal, in reaching its conclusion by reference to section 27(iiib) and the definition of transfer in section 269UA(f), had committed a manifest error of law in ignoring the object and business activity of the company and had misunderstood the nature of the sub-licence transaction (paragraph 12). It applied Raj Dadarkar for the proposition that letting income is normally house property income but can be business income where letting out the premises is itself the business of the assessee (paragraph 15), and set out at length the Supreme Court's reasoning in Chennai Properties, which adopted Karanpura Development Co. Ltd.'s test that the deciding factor is not ownership of the land or leases but the nature of the assessee's activity and its objects, while noting Sultan Brothers' caution that an objects clause entry is not determinative (paragraph 16); it also applied Rayala Corporation (paragraph 17). Applying those authorities, and relying on the Assessing Officer's own finding in the assessment order that during the previous year the assessee was engaged in dealing in real estate and that its income mainly consisted of contribution from shops, the Court held that because the object and the activity of the company was the business of renting, licensing and sub-licensing shops and it derived its income mainly from that activity, the income was business income (paragraph 18). Independently, the Court held that the Department having accepted the business head in every year since 1972 except the year under appeal, and having accepted the Tribunal's order for assessment year 2006-07 to the same effect, it could not take a contrary stand (paragraph 19). In the words reproduced by the source cited on this page: "Since the object of the assesse company and its activity is the business of renting/lisencing/sub-lisencing shops etc. and it derived income mainly from the aforesaid business activity, therefore, the income from contribution/sub-lisencing derived by the assesse is business income and not income from house property." The decision followed or applied Chennai Properties and Investments Ltd. v. CIT [(2015) 373 ITR 673 (SC)] — applied; Rayala Corporation Private Limited v. ACIT [(2016) 386 ITR 500 (SC)] — applied; Raj Dadarkar & Associates v. ACIT [(2017) 14 SCC 476] — applied; CIT v. Podar Cement Pvt. Ltd. [(1997) 226 ITR 625 (SC)] — relied on by the Assessing Officer; held not to govern the head of income here.
It was decided by the High Court on 2023-12-15 and is reported as ITA/168/2010 (Calcutta High Court, Special Jurisdiction (Income Tax), Original Side), assessment year 2005-06. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 22, section 27, section 27(iiib), section 28, section 24, section 24(a), 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 appeal was allowed, both substantial questions of law were answered in favour of the assessee and against the Revenue, the Tribunal's order was set aside and the order of the Commissioner (Appeals) dated 7 January 2008 was affirmed, with a direction that any amount already deposited by the assessee towards the demand be refunded forthwith (paragraph 20). The income from contribution and sub-licensing is business income and not income from house property (paragraph 18). It arises in House Property and How Tax Law Is Read matters, on section 22, section 27, section 27(iiib), section 28, section 24, section 24(a), section 269UA(f) of the Income Tax Act 1961, and was decided by Surya Prakash Kesarwani J and Rajarshi Bharadwaj J. 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. Set out the services supplied with the space from the agreement itself, clause by clause, and show that the consideration is composite. Prove the Department's own treatment in earlier and later years, and produce any Tribunal order for another year that the Department accepted; the Court held the Revenue could not take a contrary stand. If the Department relies on Podar Cement and section 27(iiib), separate two questions: whether you are a deemed owner, and what head the income falls under. Losing the first does not decide the second. Meet the Department's 'no res judicata in tax matters' argument with the consistency point on facts, which is how it was met here.
Searched for later treatment; none was found. That is not the same as a source affirming it. A citator search on citedby:50918313 returns nothing. A second search for "Oberoi Building & Investment" returns 12 documents, all earlier orders in the same appeal (ITA 168/2010) or 2010-2011 proceedings between the same parties. No later decision cites the 15 December 2023 judgment on deemed ownership under s.27, and no Supreme Court matter was found. 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.
Several defects in the report. The area of the space is given as 5,665 sq. ft. at paragraphs 3 and 10 but as '5,60,065 sqft.' at paragraph 8. The impugned Tribunal order is dated 23.07.2010 at paragraphs 2 and 20 but 03.07.2010 at paragraph 4. Case names are misspelt throughout ('Royla Corporation' for Rayala, 'Rajdadarkar' for Raj Dadarkar, 'lisence' for licence). Substantively, although paragraph 20 answers both substantial questions in the assessee's favour, the Court's reasoning at paragraphs 12 to 19 is entirely on the head of income and on consistency; it does not separately construe section 269UA(f) or explain why a fifty-year irrevocable leave and licence is not a transfer within it, beyond holding that the Tribunal erred in ignoring the objects and misunderstanding the nature of the sub-licence. Paragraph 16 reproduces a long passage from Chennai Properties (SC); those are the Supreme Court's words, not this Court's. Paragraph 21 is a formal direction about certified copies. 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 appeal was allowed, both substantial questions of law were answered in favour of the assessee and against the Revenue, the Tribunal's order was set aside and the order of the Commissioner (Appeals) dated 7 January 2008 was affirmed, with a direction that any amount already deposited by the assessee towards the demand be refunded forthwith (paragraph 20). The income from contribution and sub-licensing is business income and not income from house property (paragraph 18).
TaxSphere, “Oberoi Building & Investment (P) Ltd v CIT-II, Kolkata”, https://taxnotice.vittsphere.com/caselaw/case/oberoi-building-investment-sub-licence-not-deemed-owner/ (validity last checked 2026-09-08)
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