Section 27(iiib)

Section 27(iiib) — the law in short

What the courts have decided on section 27(iiib), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Raj Dadarkar & Associates v ACIT Supreme CourtHelps department
  Our deed says sub-letting is our business. Does that make the licence fees business income?
  No. The Supreme Court held the objects clause in a partnership deed is not the conclusive factor in deciding the head of income; with no material showing organised commercial exploitation, the compensation and licence fees from the sub-licensed shops and stalls were assessable as income from house property.
• CIT v Podar Cement (P) Ltd Supreme CourtCuts both ways
  I have paid for the flat and I am in possession, but the conveyance was never registered. Am I the owner for s.22?
  Yes. For s.22 the Supreme Court read 'owner' as the person entitled to receive the income from the property in his own right, not the person holding a registered title. A buyer who has paid the whole consideration and is in possession is therefore assessable on the rent under the house property head even though no conveyance has been registered — which is why the assessee here, who had returned the rent under s.56 and argued it was not the owner, lost. The Court also held the deemed-ownership clauses inserted in s.27 by the Finance Act 1987 to be declaratory and retrospective.
• Oberoi Building & Investment (P) Ltd v CIT-II, Kolkata High CourtHelps taxpayerValidity unconfirmed
  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.
• ACIT v Rcube Projects Pvt Ltd ITATHelps taxpayerValidity unconfirmed
  My client holds commercial space at a metro station under a build-operate-transfer concession and sub-lets it. The officer says it is a deemed owner under section 27 and must offer the receipts as house property. Is that right?
  Not on this decision. The Tribunal held that section 53A of the Transfer of Property Act, on which the deeming provision draws, operates in relation to a transfer of immovable property by way of a registered document where possession has been taken in part performance of the contract, and that a build-operate-transfer concession has none of those characteristics — the building always belongs to the grantor and the concessionaire holds only a licence. There being no basis to treat the concessionaire as a deemed owner, the receipts were business income and not income from house property.
• ACIT, Central Circle-26 v Ashok Kumar ITATHelps taxpayerValidity unconfirmed
  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.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.