Rent from Sub-Letting Property Taxable as “Income from Other Sources”: ITAT [Read Order]

Rent - Sub-Letting Property - Taxable - Income from Other Sources - ITAT - Taxscan

The Income Tax Appellate Tribunal ( ITAT ) Visakhapatnam Bench, has recently, in an appeal filed before it, held that rent from sub-letting property is taxable as “income from other sources”.

The aforesaid observation was made by the Visakhapatnam ITAT, when an appeal was filed before it by the assessee, as against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi in DIN & Order No.ITBA/NFAC/S/250/2022- 23/1043740060(1), dated 05.07..2022 for the Assessment Year (A.Y.) 2017-18.

The brief facts of the case were that the assessee was an individual, who filed her return of income, showing the rent received from subletting the property under “income from other sources”. And without considering the fact that the assessee was not the owner of the property, the Assessing Officer (AO) made addition of Rs.1,75,000/- under the head “income from house property” based on the entries in the Form 26AS.

Aggrieved, the assessee preferred an appeal before the CIT(A), who after considering the facts and circumstances of the case, dismissed the appeal of the assessee saying that the assessee had not filed any appeal against the intimation under section 143(1) of Income Tax Act, 1961, but that the assessee had filed rectification petition under section 154 of the Income Tax Act before the CPC. And, as per the rectification order under section 154, dated 15.06.2019, the CPC had rejected the application of the assessee for rectification of mistake, since, there was no mistake in the proceedings u/s 154.

The CIT(A) further observed that if at all there was grievance for the assessee, the same would have arisen during the intimation u/s 143(1), but not at the stage of 154. And hence, the CIT(A) dismissed the appeal of the assessee, thus leaving the assessee aggrieved to prefer the instant appeal before the Visakhapatnam ITAT.

The grounds of the assessee’s appeal being that the order of the Commissioner of Income Tax (Appeals), is contrary to the facts and also to the law applicable to the facts of the case, that the Commissioner of Income Tax (Appeals) ought to have decided the appeal on merits of the case and ought to have held that the adjustment of Rs.1,75,000 was wrongly made in the intimation u/s 143(1) of the Act, and further that the Commissioner of Income Tax (Appeals) ought to have held that the assessing officer erred in taxing the rent of Rs.2,50,000 received on sub lease of property under the head “income from house property” as this income had already been admitted in the return of income under the head “income from other sources”, it was contended by Shri G.V.N.Hari, the AR for the assessee that the assessee had rightly shown rental income from leased property amounting to Rs.6,81,900/- as well as claimed deduction of Rs.3,220/-, being rent paid on leased property.

He further contended that whatever be, the rent received by the assessee by subletting the property is offered as “income from other sources”, and that the CIT(A) has not considered this fact and dismissed the appeal filed by the assessee, saying that the assessee is not correct in filing the petition for rectification of this mistake u/s 154 of the Act.

The AR thus pleaded to set aside the order passed by the CIT(A) and allow the appeal of the assessee, while on the other hand, Shri ON Hari Prasada Rao, the DR, relied on the order of the CIT(A), thus pleading to uphold the order of the CIT(A) and dismiss the appeal of the assessee.

Hearing the opposing contentions of either sides and perusing the materials available on record, the ITAT Panel consisting of Duvvuru RL Reddy, the Judicial Member observed:

“We have heard both the parties and perused the material available on record. There is no dispute that the assessee took the property for lease and sublet the property, thereby, received rental income and offered the same as income from other sources. The contention of the revenue is that the assessee failed to show the rental income under the head “income from house property” based on entries in 26AS. We have gone through the section 22 of the Act, which deals with the rental income chargeable to tax under the head “income from house property”.

“The provisions of section 22 of the Act clearly establishes that if the assessee is owner and thereby receives any income from house property, it should be taxed under the head “income from house property”. But in the case on hand, the assessee received rent only by subletting the property, therefore, we are of the view that the assessee has rightly shown the rental income under the head “income from other sources”, he added.

Thus, allowing the assessee’s appeal, the Visakhapatnam ITAT held:

“We, therefore, direct the AO to delete the addition made under 143(1) intimation. Hence, the grounds raised by the assessee are allowed.”

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