Enjoyment of Property with Ownership Rights necessary condition for ‘Deemed Owner’: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Mumbai bench has held that to treat a person as ‘deemed owner’ of the property for the purpose of Income Tax Act, it is a necessary condition to prove that such person is enjoying the property with ownership rights.

Assessee-Firm was be carrying on the activity of manufacturing of pesticides, formulations for agricultural use in a rented premise till the year 2004. Afterward, the assessee firm amended the object cause to include subletting of the premises and accordingly the business premises of the assessee was sublet to M/s. Movielabs Films Pvt. Ltd. while filing its return, the assessee declared the rental income as income from business and profession.

However, the Assessing Officer rejected the return and treated the income as income from House Property. According to him, as per the agreement with Movielabs Films P. Ltd., the assessee is the absolute owner and in possession of the premises, the rental income received from letting out the property has to be assessed as income from house property as the assessee is a deemed owner of the premises.

The issue before the Tribunal was that whether the assessee can be treated as owner or deemed owner of the subject property to consider the rental income received from subletting to Movielabs Films P. Ltd. as income from house property.

After considering the contentions from both the sides, the Tribunal noted that before treating the assessee as owner or deemed owner of the property for treating the income derived from subletting of the property as house property income, the Department must bring material on record to establish such fact.

“From the tenancy agreement submitted in the Paper Book, it appears that the assessee is in possession/occupation of the property as a monthly tenant. Therefore, it was incumbent upon the AO to bring material on record to establish that the assessee is enjoying property having ownership rights. For this purpose, it is also necessary to examine whether the provisions of Section 269UA(f)(i) is applicable to the present case or not. Since the aforesaid factual aspects have not been properly examined before treating the rental income as income from house property, I am inclined to restore the issue to the AO for de novo adjudication keeping in view the observations made hereinabove,” the Tribunal said.