By TIOL News Service

NEW DELHI, FEB 17, 2016: THE issue before the Bench is - Whether the rent or licence fee paid by the occupiers to the sub-licensees to whom the assessee had sublicensed the premises is taxable in the hands of assessee as income from property. NO is the answer.

Facts of the case

The assessee-company is running a five star hotel. The lawn on which the hotel is constructed belongs to NDMC and NDMC has executed a license deed in favour of the assessee granting licence for a period of 99 years for the running of the aforesaid hotel. Adjacent to the hotel, there is another building constructed on this very lawn, which is known as West Tower. This building is located in the same compound in which the Hotel building is located. This building is not used for hotel business of the assessee, but the apartments of this building were given on sub-licence basis to different parties for carrying on business as specified on the sub-licence agreements. The assessee is not charging any rent lease or licence fee from these parties instead, the assessee has received interest free security deposits in the year of original sub-licence, which receipt was shown by the assessee-company as unsecured loan in its balance sheet. The sub-licensee is entitled to transfer the said sub-licence to third party as well. However, at the time of transfer of the said sub-licence, certain transfer charges are payable to the assessee-company. Assessee is showing these transfer charges as its income and is offering the same for tax. The AO found that almost all the sub-licensees had transferred their sub-licenses and various other persons were, thus, occupying these premises. Those persons have entered into the agreement with the sub-licensees as per which they were paying rents to the sub-licensees. The rents/licence fees received by the sub-licensees on these transfers to the occupiers was shown as rental income and taxed at the hands of sub-licensees under the head 'income from house property'. AO took into consideration the rent/licence fee, which was paid by the occupiers to the sub-licensees to whom the assessee had sublicensed the premises. The AO on that basis calculated first care fee average and treated the same as annual letting value of the said West Tower and added the same under the head "income from house property". The CIT(A) deleted the addition.

Having heard the parties, the ITAT held that,

++ Tribunal in assessee's own case for A.Y. 2001-02 in ITA Nos.1519 & 1698/Del/2005 order dated 24th July, 2007 = 2008-TIOL-367-ITAT-DEL deleted the addition. High Court vide order reported in 197 Taxmann 230 (Del) upheld the order of Tribunal deleting the addition. It was held that the assessee could not be liable to pay any such tax fixing letting value on notional basis when, in fact, no such amount of rent/licence fee was received by the assessee. The Tribunal held that it is the NDMC, which is the "owner of the premises and remains to be the owner of the premises in question". It was held that in view of the provisions of section 27(iii) of the Act, it is the sub-licensee who would be "deemed owner" of those premises which the sub-licensees whereof transferred to the present occupiers and those occupiers are paying rent/licence fee to the sub-licensees. On that basis, the Tribunal set aside the addition made by the Assessing Officer and deleted this component of income holding that the same would not be chargeable to tax. Following the decision of jurisdictional high court, ground No.1 of the Revenue appeal is dismissed.

(See 2016-TIOL-279-ITAT-DEL)