Section 27

Section 27 — the law in short

What the courts have decided on section 27, 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.
• R.B. Jodha Mal Kuthiala v CIT Supreme CourtHelps department
  The title to a property is still in my name but somebody else has taken over all the rights and the rent — am I still the owner for income from house property?
  No. The Supreme Court held that the 'owner' for house property purposes is the person who can exercise the rights of an owner in his own right, not on behalf of another. A firm whose Lahore hotel had vested in the Pakistan Custodian of Evacuee Property was not the owner: the Custodian had every power of an owner except appropriating the proceeds, so he was the owner in the eye of the law, and the assessee's residual interest was not ownership for the charging section. The firm could not therefore claim the interest as a house property loss.
• Shivani Madan v PCIT High CourtHelps taxpayerNo later treatment found
  My husband and I are both on the sale deed. Must half the annual value be taxed on me?
  No. The Delhi High Court held that merely signing the instrument of conveyance raises no presumption that the income is to be assessed in that person's hands; taxability must reflect who actually obtained the benefit of the property, so an equal share cannot be assumed where the deed is silent.
• Oberoi Building & Investment (P) Ltd v CIT-II, Kolkata High CourtHelps taxpayerNo later treatment found
  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.
• CIT v Ajit Thomas High CourtHelps taxpayer
  I settled a house on my wife years ago. The Assessing Officer says section 27(i) makes me its deemed owner, so I own more than one residential house and cannot have section 54F. Does section 27 reach outside the house property head?
  No. The Madras High Court held that section 27(i) is a deeming provision applicable only for sections 22 to 26, in computing the annual value of property, and that the deeming fiction cannot be extended to deny an exemption under section 54F, which applies as an independent provision. The Revenue's appeal was dismissed at the admission stage.
• DCIT, Central Circle-3(4) v Manisha Kamal Khetan ITATHelps taxpayerNo later treatment found
  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.
• ACIT v Rcube Projects Pvt Ltd ITATHelps taxpayerNo later treatment found
  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 taxpayerNo later treatment found
  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.