I-T - When assessee was only a licensee, not having exclusive rights over a property, vide unregistered document, it cannot claim to be owner of property for purpose of Sec 22: HC
By TIOL News Service
NEW DELHI, FEB 19, 2018: THE issue is - Whether when the assessee was only a licensee, not having exclusive rights over a property, through an unregistered document, it can still claim to be the owner of the property for the purpose of Sec 22 read with Sec 27. NO is the verdict.
Facts of the case:
The Assessee-company had filed its return for the relevant AY. In the course of the assessment, the AO noted that the Assessee had entered into a license agreement with one M/s Asian Hotels Ltd. and acquired right to use three shops including corridor in a shopping plaza. The said license was for five years and the Assessee was liable to pay license fee per month which was also renewable for additional period of not exceeding five years at a time. The Assessee was also required to deposit interest free security deposit with the licensor for proper maintenance and compliance of the terms and conditions of the license agreement. According to the said agreement, the licensor, i.e. M/s Asian Hotels Ltd., had right to terminate the license on failure of the Assessee to pay license fee on time and forfeit security deposit on such termination and the Assessee was not entitled to raise any dispute with this regard. Further, the agreement also stated that security deposit was to be refunded by licensor to the Assessee on expiry of the period of license and vacation of the shops in good and proper condition. On failure to such refund within 30 days from the date of expiry of license and vacation of the shops, the licensor was liable to pay interest @ 2% p.a. higher than the prevailing bank lending rate. The Assessee was also permitted to assign/transfer its right under this license with the written consent of the licensor on such terms and condition as the licensor may notify from time to time in respect with increase in the amount of the consideration.
the HC held that,
++ the term "owner" has been defined in sec 27. Clause (iii)(b) relates to a person, who has acquired any right, excluding right by way of month to month lease or a lease for a period not exceeding 1 year, in respect of a building or part thereof, by virtue of a transaction referred to in clause (f) to sec 269UA;
++ the Assessee accepts that sub-clauses (i) and (ii) of clause (f) to sec 269UA are not applicable and the Assessee does not satisfy the conditions stipulated therein. The Assessee contended that the license agreement was renewed from time to time is not a ground or reason to hold that the Assessee had acquired ownership rights. The license agreement dated 14.01.1986 placed on record does not support the said contention. The new license agreements have not been placed on record. It is equally possible that the license agreement may not have been renewed. The license agreement is not a registered document. The Assessee does not even claim that the license agreement is a lease deed. Even otherwise, an unregistered document or an oral lease only creates month to month tenancy and not a lease for a period exceeding one year. Conditions of clause (iii)(b) to Section 27, would not be therefore satisfied;
++ it has to be held that the Assessee was not an owner as defined in sec 27. Consequently, the sub-license fee received by the Assessee is not chargeable to tax under the head "income from house property". It is not the case of the Assessee that the said income was chargeable to tax under the head salary, profits and gains of business or profession, or capital gains. Thus, the said income has to be assessed under the residuary head "income from other sources";
++ the Apex Court in Podar Cement Private Limited had interpreted the term "owner" as defined in sec 27 for the purpose of sec 22. The Assessees therein had acquired rights in flats in commercial buildings upon payment of entire sale consideration, but did not have registered sale deeds in their favour. Their claim was predicated on sec 53A of the Transfer of Property Act. Accepting the plea of the Assessee and relying on clause (iiia) of sec 27, it was held that amendment made vide Finance Act, 1987 enacting clause (iiia) was declaratory and principle of contemporaneous exposition was applied;
++ the questions of law have to be answered in favour of the Revenue and against the appellant-assessee. The appeals are accordingly dismissed, affirming the finding of the Tribunal, without any order as to costs.
(See 2018-TIOL-311-HC-DEL-IT)
