TMI Blog2020 (1) TMI 491X X X X Extracts X X X X X X X X Extracts X X X X ..... rm lease agreement extending beyond a period of 12 years with Bank of Baroda. It was also observed that when the assessee was not sure of the period of tenancy, then how could it enter into a lease agreement with a nationalized bank for a period of 12 or more years. Heavy onus was casted upon assessee to prove that he was tenant on monthly basis as covered by exception provided u/s 27(iiib) and the lease was not a period exceeding 12 years to attract the provisions of Section 269UA(f). We find that except for letter from legal heirs of the deceased landlord which merely stated that the assessee has paid monthly rents, no other evidence could be adduced by the assessee to substantiate the fact that tenancy was on month to month basis despite being specifically directed by the Tribunal to do so. In such eventuality, the only documents that would be available to adjudge the assessee s claim would be in the shape of lease agreements entered into by the assessee with Bank of Baroda - despite assertions by the assessee that tenancy was on month to month basis and the same could be terminated by tendering 15 days notice, the assessee conveniently entered into long-term lease ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Years is common. It is accepted position that adjudication in any one year would equally apply to all the other years since impugned order is common order for all the years which has been passed by Ld. Commissioner of Income-Tax (Appeals)-10, Mumbai [CIT(A)] on 06/07/2018. This is third round of appeal before Tribunal. 2. The matter in the first round travelled up-to the level of Hon ble Supreme Court wherein the Hon ble Court remanded the matter to Tribunal to render definite finding of fact about the pre-requisites of Section 269UA(f)(i) read with explanation thereto. In the context of said section, it was also observed by Hon ble Court that for computing the period of twelve years, it was not necessary that initial terms of lease must be of twelve years, but if the lease provides for extension of lease and such lease has been extended by a further term or terms and the aggregate of such terms is not less than twelve years, it is deemed to be a transfer of immoveable property and such transferee is deemed to be owner of such immoveable property u/s 27(iiib). Therefore, the matter was remanded back to Tribunal which was adjudicated in the second round vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee or under the head Income From House Property as claimed by the Revenue. Since the facts involved in all these appeals are more or less common, for the sake of convenience, we will discuss the facts as involved in appeal being ITA no.6550/Mum. /1995, for assessment year 1991 92, which is taken as a lead appeal. 3. Brief facts are, the assessee a company is regularly filing its return of income and is assessed to tax. In the course of assessment proceedings for the assessment year 1991 92, the Assessing Officer while examining the Profit Loss account of the assessee noticed that the assessee has declared a loss of ₹ 11,52,199, under the head lease rentals . On verifying the details submitted by the assessee, the Assessing Officer found that in the relevant previous year, the assessee had received lease rentals as under: Description of property To whom let out Rent /Compensation When the property purchased Gr. Floor (Pt.) Kantilal House, 1 st Floor Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head Income From House Property . While coming to such conclusion, the learned Commissioner (Appeals) observed that the assessee had been the tenant of the said property for a long period exceeding 12 years, therefore, the assessee has to be treated as deemed owner of the property under section 27(iiib). He observed, leasing / letting out of properties is not the business of assessee. Therefore, the income derived from lease rentals has to be treated as Income From House Property . He observed, the contention of the assessee that letting out of the property to the bank is for the purpose of assessee s business is not a valid argument. Relying upon certain judicial precedents, the learned Commissioner (Appeals) finally concluded that lease rentals received by the assessee including the lease rentals received from Kantilal House is to be treated as Income From House Property . Being aggrieved of the aforesaid decision of the first appellate authority, assessee filed appeal before the Tribunal. 6. The Tribunal in a common order passed for the assessment year 1990 91, 1991 92, 1992 93 and 1993 94, vide order dated 3rd November 2003, in ITA no.6549/Bom./19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s amounts to transfer in relation to immovable property referred to in sub clause (i) of clause (d) of section 269UA(f). The Hon'ble Supreme Court observed, explanation appended to sub clause (i) of section 269UA(f), clarifies that the lease which provides for extension of term by a further term or terms shall be deemed to be a lease if the agreed term for which such lease is to be granted and further term or terms is not less than 12 years. The Hon'ble Supreme Court observed if the agreed term of lease is not less than 12 years, it is deemed to be a transfer of immovable property and such transferee is deemed to be the owner of immovable property under section 27(iiib). Having held so, the Hon'ble Supreme Court observed that neither the Tribunal nor the Hon'ble Jurisdictional High Court have given a definite finding of fact about the pre requisite of section 269UA(f)(i) r/w Explanation except, observing that the assessee has been tenant for a long period and has let out the premises. The Hon'ble Supreme Court, therefore, restored the matter back to the file of the Tribunal for deciding afresh in accordance with law. Relevant observations of the Hon'ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such facts, the assessee sought to rely upon certain additional evidences and through a separate petition filed under rule 29 of the Income Tax (Appellate Tribunal) Rule, 1963, sought admission of the same. The learned Authorised Representative in this context referred to the photocopy of a certificate dated 7th January 1998, purportedly issued by Himmatlal Kantilal, claimed to be the landlord of the subject property, stating therein that the assessee had been occupying the premises prior to the year 1950 on month to month basis. The learned Authorised Representative also referred to the lease agreement entered with the Bank of Baroda on 29th March 1996 and specifically referred to clause (b) of the said agreement to impress upon the fact that the assessee is tenant of Kantilal House. The learned Authorised Representative submitted, though, the assessee might be occupying the property for a long period, but, it is only by virtue of oral agreement and there was no written agreement. Therefore, the owner at any time can issue notices to the assessee to vacate the premises. The assessee also referred to the rental receipt sought to be produced as additional evidence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 27(iiib), therefore, rental income derived from Kantilal House should be treated as business income of the assessee. 14. Learned Departmental Representative on the other supporting the view expressed by the learned Commissioner (Appeals) and the Tribunal submitted that the very fact that the assessee had been occupying the property prior to the year 1950 suggests that it is a long term lease. He submitted, the assessee has leased out the property to Bank of Baroda for a period exceeding 12 years which indicates that the assessee has got lease of the property for more than 12 years. He, therefore, submitted that the assessee is deemed owner of the property in terms of section 27(iiib) r/w section 269UA(f). In support of such contention, the learned Departmental Representative relied upon the following decisions: CIT v/s Podar Cement Pvt. Ltd. [1997] 226 ITR 625 (SC) Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC) 15. We have carefully and patiently considered the contentions of the parties and perused the material on record in the light of decisions relied upon. As could be seen from the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strate that the assessee is a tenant of the subject premises. Besides, the above, it is the contention of the assessee that the averments made in the affidavit filed before the High Court and Supreme Court to the effect that the assessee is a monthly tenant has not been controverted by the Department. Keeping in view the aforesaid facts, it needs to be decided whether the assessee is a monthly tenant as per exception provided under section 27(iiib) or it fulfills the condition of section 269UA(f)(i) along with its explanation. As noted earlier, the Assessing Officer while completing the assessment has accepted assessee s claim of business income as far as rent received from Kantilal House simply on the basis that the assessee is not the owner of the said property. As it appears, the Assessing Officer has neither examined the applicability of section 27(iiib) r/w section 26UA(f(i) nor has made any enquiry to find out whether the assessee can be treated as deemed owner of the property. The learned Commissioner (Appeals), as it appears, while coming to the conclusion that the assessee is deemed owner of the property at Kantila House has also not factually examined, what is the exact p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a written agreement requires high degree of evidence. The entire onus is on the assessee to prove that he is a tenant on monthly basis, more so, when the assessee has entered into long term lease agreement extending beyond period of 12 years with Bank of Baroda by letting out the premise. A question arises, when the assessee itself is not sure of the period of tenancy as it is on monthly basis and the landlord can terminate it at any time on 15 days notice in terms of section 106 of T.P. Act, how the assessee can enter into an agreement with a nationalized bank for a long term lease for 12 or more years. Therefore, heavy onus is cast upon the assessee to prove the fact that he is a tenant on monthly basis, therefore, comes within the exception provided under section 27(iiib) and the lease is not for a period exceeding 12 years to attract the provisions of section 269UA(f). As the matter requires thorough inquiry and investigation to ascertain assessee s claim of tenancy on monthly basis and further, additional evidence on the basis of which the assessee has sought to demonstrate / establish his claim of monthly tenancy was not before the Departmental Authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igher degree of evidence. The entire onus was placed on assessee to prove the same by clinching evidences in the background of the fact that the assessee entered into long term lease agreement extending beyond a period of 12 years with Bank of Baroda . It was also observed that when the assessee was not sure of the period of tenancy then how could it enter into a lease agreement with a nationalized bank for a period of 12 or more years. Therefore, heavy onus was casted upon assessee to prove that he was tenant on monthly basis as covered by exception provided u/s 27(iiib) and the lease was not for a period exceeding 12 years so as to attract the provisions of Section 269UA(f). Accordingly, the matter was restored back to the file of Ld. AO to verify the assessee s claim of monthly tenancy. 4.1 Pursuant to the aforesaid directions, the matter was re-examined by Ld.AO vide order dated 08/12/2017 u/s 143(3) r.w.s. 254 of the Act. During set-aside proceedings, the assessee was required to furnish copies of lease agreement entered into with Bank of Baroda and to furnish detail of property assessment with Bombay Municipal Corporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to tax. 5. Aggrieved, the assessee assailed the stand of Ld. AO vide impugned order dated 06/07/2018 wherein first appellate authority, after appreciating the controversy, confirmed the stand of Ld. AO by observing as under: - 6.4.4 The undisputed facts that emerge from the above order of the Hon'ble Tribunal are that the appellant is in possession of the Kantilal House property since the year 1948 and continues to occupy the same premises till date, even after the death of the landlord. It is also evident that the appellant has entered into lease agreement with Bank of Baroda from 1st April-1962 and the lease continued with the Bank till the year 2004 when it vacated the premises. However, to get over the mischief of section 27(iiib) r.w.s. 269UA(f), the appellant has attempted to take shelter behind the provisions of section 106 and 107 of the Transfer of Property Act, by stating that there is no written agreement between the appellant and the landlord and the appellant is a tenant on monthly basis. To substantiate such claim the appellant has relied upon a photocopy of the certificate purportedly issued by the landlord Late Shri Himmatla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The 'Income from House Property' is an artificially defined income and the liability arises from the fact that the assessee is the owner of the property. The liability is irrespective of the fact whether the property has been let out, whether the owner has received rent etc. Section 27, in its certain clauses, enacts deeming provisions about ownership for the purposes of section 22 to 26 of the Act. The relevant clause (iiib) of section 27 reads as under: Owner of house property , annual charge , etc., defined. 27. For the purposes of sections 22 to 26 (i) *** (ii) *** (iiia) *** (iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof;] 6.4.8 The provisions of section 27(iii) were substituted by the Finance Act, 1987 (w.e.f. 01.04.1988) and the scope and effect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise legal owners are deemed to be the owners for the purposes of these provisions. Under the Transfer of Property Act, the transfer of ownership can be effected only by means of a registered instrument. However, in the recent times various other devices are sought to be employed for transferring one's ownership in property. As a result, there are situations in which the actual owner, say of an apartment in a multi-storeyed building, or a holder of a power of attorney is not the legal owner of a property. In some cases, pending resolution of disputes, the legal as well as the beneficial owners are assessed to tax in respect of the same income. As a measure of rationalisation, the Bill seeks to enlarge further the meaning of the expression owner of house property , given in cl. (iii) of s. 27 by providing that a person who comes to have control over the property by virtue of such transactions as are referred to in cl. (f) of s. 269UA will also be deemed to be the owner of the property. The amendment also seeks to enlarge the applicability of this clause to a member of company or other AOP. Corresponding amendments have also been proposed in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sq. ft. for a term of 12 years commencing from 1st April; 1962 and expiring on 31s1 July 1974. It is further evident after the expiry of the said agreement, the assessee entered into another agreement with Bank of Baroda on 30th March 1973, leasing out not only the part of the ground floor earlier leased out to them but also leased out additional space and such lease agreement with Bank of Baroda continued from time to time as is evident from lease agreement dated 29th March 1996. The Relevant clauses of the lease agreement dated 29th March 1996 for ground floor is extracted hereunder for convenience: WHEREAS: (a) One Mr. Himatlal Kantilal (hereinafter for convenience and brevity sake referred to as the OWNERS ) is the sole and absolute owner and well and sufficiently entitled to and/or otherwise seized and possessed of all that place or parcel of land bearing Ca Dastral Survey No.1496 of Girgaon Division in the Registration District and Sub-District of Bombay City and Bombay Suburban and assessed by Bombay Municipal Corporation (BMC) under D-Ward, No.515 Street No. 14 together with the buildings standing thereon one of them known as Kantilal H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occupation with the subsequent consent of the Lessors of the demised premises after the expiry of the said licence period granted under the Licence Agreement dated 29th January 1964 i.e. from 1st August 1974, till 31st July, 1976 at and for the licence fee reserved and on the same terms and conditions as was agreed upon in the said Licence Agreement. (f) The lessors have by and under an Indenture of Sub-Lease dated 20th November,1976 duly entered into between the Lessors herein, therein referred to as the Sub-Lessors on the one hand and the Lessees herein, therein referred to as the Bank on the other hand, the Lessors had given to the Lessees portion of their premises on the ground floor admeasuring about 2,578 sq.ft. and on the mezzanine floor admeasuring about 520 sq. ft. aggregating to 3,098 sq.ft. on lease for a period of 8 years commencing from 1st August,1976 and expiring by efflux of time on 31st July, 1984 at and for the monthly lease rent reserved and on the terms and conditions as more particularly stated therein. (g) As there was some doubt about the area demised to the Lessees and therefore it was mutually agreed to take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever in place of clause (c) to (i) reproduced above, it has only two clauses the clause (c) clause (d) as under: (c) From and out of the said various tenanted premises the Lessor have by and under an Agreement dated 1st June, 1984,1964, duly entered into between the Lessors herein, therein also referred to as the Lessors on the one hand and the Lessees herein, therein also referred to as the Lessees , the Lessors had granted to the Lessees portion of their premises on the first floor of the said building admeasuring 1,795 sq. ft. on lease for a period of 10 years commencing from 1st June,1984 and expiring by efflux of time on 31st May,1994, at and for the monthly lease rent reserved and on the terms and conditions as more particularly stated therein; (d) As aforesaid the Lease period granted under the said Indenture of Lease dated under the said Indenture of Lease dated 1st June, 1984 expired on 31st May,1994 and the Lessors have now agreed to extend the Lease of the demised premises at the revised lease rent for a period of 9 years and all months commencing from the 1slJune,1994, and expiring by efflux of time on 30th April,2004 at and fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d agreement / indentures on the ground that these documents are net traceable now. It may be recalled here that the Hon'ble Tribunal while restoring the matter to the AO has categorically held that a heavy burden is cast upon the assessee to prove the fact of monthly tenancy by producinq clinchinq evidence, considering the fact that it continues to occupation of the property since the year 1948. , therefore it was incumbent on the appellant to produce these documents to prove that there was no long term agreement with the owner. However, the appellant could not produce these documents for verification of facts. When the facts lay within the special knowledge of the appellant which it failed to establish, a statutory presumption can be drawn against it in view of s. 105 of the Evidence Act. All the evidence and material relating to the lease were within the special knowledge of the appellant, the onus to produce the same as per s. 106 the Evidence Act was upon the appellant The law has cast initial onus on the appellant and the appellant has failed to discharge its burden. 6.4.15 Now that the appellant has placed reliance on clause (b) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid that there cannot be a sublease without a lease, the claim of the appellant that it was a monthly tenant for the said premises, cannot be accepted. 6.4.17 As regards the reliance placed by the appellant on upon a photocopy of the certificate purportedly issued by the landlord Late Shri Himmatlal Kantilal on 7th January 1998 certifying that the appellant is occupying the premises on monthly basis, it is my view that since Shri Himmatlal Kantilal, is now deceased, it can not be examined and for verification of the certificate contemporaneous supporting documents and in the absence of any supporting documents, the certificate so issued can not be accepted on its face value. In this regard I place on the decision of the Hon'ble Supreme Court of India in the case of Commissioner of Income Tax vs. Durga Prasad More (1971): 82 ITR 0540 (SC) wherein it has been held that It is true that an apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real. In a case of *he present kind a party who relies on a recital in a deed has to establish the truth of those recitals, other-wise it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id clause 2, the Bank is also under obligation to pay any and all increases in Municipal taxes, cesses including repair cesses or any other impositions of whatsoever nature, charged or levied or imposed upon the Lessors by on and after the date of execution of this Indenture. However, under the aforesaid subclause (iii) of the aforesaid clause 2 the appellant is under obligation to sign and affirm such appeal and/or revision and such other applications and other papers as may be required by the Lessees , if the Lessees decided to prefer Appeal and/or rev is ion against imposition of Municipal taxes, rates assessments on the demised premises. It is relevant to note here that the owner has no role to play in this regard. The Relevant clauses of the lease agreement dated 29th March 1996 are extracted hereunder for convenience: NOW THIS INDENTURE WITNESSETH and it is hereby agreed and declared between the parties hereto as follows:- 1. **** 2. The Lessees to the intent that the obligations may continue through out the term hereby created both hereby covenant with the Lessors as follows. (i) *** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property in his own right. 6.4.22 Accordingly, even on the principles laid down in the decision of the Hon'ble Supreme Court in the case of CIT vs. Podar Cement Private Limited (Supra), the income from the above properties is to be assessed under the head Income from House Property in the hands of the appellant. 6.4.23 As regards the contention of the AR that rental income is not assessable u/s 56 of the Act as income from other sources in view of the jurisdictional High Court's decision in CIT vs. T.P. Sidhwa (133 ITR 840) (Bom), wherein it is held that the rental income from house property cannot be assessed u/s 22 where the assessee is not the owner; nor can it be assessed under the residual head merely because the same could not be brought to tax u/s 22 as the heads are mutually exclusive, it is my view that this issue is academic now in view of my clearing finding that by virtue of provisions of section 27(iiib), r.w. clause (f) of section 269UA, the appellant should be treated as deemed owner of the property and that the rental income from Kantilal House premises is properly assessable u/s 22 of the Act as Income from House Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 269UA(f). We find that except for letter from legal heirs of the deceased landlord which merely stated that the assessee has paid monthly rents, no other evidence could be adduced by the assessee to substantiate the fact that tenancy was on month to month basis despite being specifically directed by the Tribunal to do so. In such eventuality, the only documents that would be available to adjudge the assessee s claim would be in the shape of lease agreements entered into by the assessee with Bank of Baroda. From the perusal of the same, it is observed that despite assertions by the assessee that tenancy was on month to month basis and the same could be terminated by tendering 15 days notice, the assessee conveniently entered into long-term lease agreement for aggregate period exceeding 12 years and that too with a Nationalized Bank, who require approval of regulatory authorities to open /operate the branches. Further, the setting up of branch would entail heavy infrastructure cost for the Bank. In the said background, it is difficult to acquiesce to the fact that Bank would agree to enter into such long-term lease agreement for as many as 12 years despite being fully aw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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