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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
Per Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order dated 26.10.2018 of the CIT(Appeals)-7, Bengaluru for the assessment year 2013-14.
There is a delay of 150 days in filing the appeal before the Tribunal. By way of petition for condonation and affidavit, the delay is explained to be due to the fact that on receipt of the first appellate order, the AR of the assessee was contacted who advised to contact after three weeks for the remedy available. The assessee accordingly contact the AR and entrusted him to prepare the appeal papers. However, the AR was pre-occupied with other professional engagements and due to oversight the appeal was not
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filed within the period of limitation. Due to oversight and inadvertence of the AR, the delay of 150 days has occurred. Placing reliance on the Hon’ble Apex Court decision in the case of Mst. Katiji and Ors., 167 ITR 471 (SC), the ld. Counsel for the assessee prayed for condonation of delay and adjudication of the appeal. The ld. DR opposed condonation of delay. 3. We have considered the rival submissions. We are satisfied that there was good and sufficient reason for delay in filing the appeal before the Tribunal. Respectfully following the Apex Court judgment in Mst. Katiji & Ors. (supra), we condone the delay and admit the appeal. 4. The assessee is a registered partnership firm and is in the business of running and maintenance of malls and also deriving rental income out of the units held. It is carrying on the said business under the name and style M/s. Esteem Mall. It is filing its return of income regularly and paying taxes to the government. 5. For the impugned AY 2013-14 the assessee filed its return of income on 30/09/2014 declaring a total income of Rs. 39,40,256. The said return of income was processed under the provisions of section 143[1] of the Act. The case was selected for scrutiny and the AO passed the assessment order dated 30.3.2016 u/s. 143(3) of the Act determining income at Rs.56,65,980 on the solitary disallowance of Rs.17,25,717 being 30% of the sublet rent received at Rs.57,52,392 since the same would have been utilised under the hear ‘repairs & maintenance’ and claimed. 6. On appeal, the CIT(Appeals) observed that AO has disallowed standard deduction of Rs 17,25,717 considering the total receipt from subletting at Rs 57,52,392. But, the assessee has taken only Rs.13,24,488 as receipt from subletting which is included under the head 'Rental Income' in the account. In the computation of income, the assessee has reduced municipal taxes paid and 30% of standard deduction of rental income. According to the CIT(A), therefore, the disallowance by the AO was
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restricted to Rs 3,97,346 (30% of Rs 13,24,488) and municipality tax relating to the sub-Iet properties if any, subject to verification by the AO about this aspect of claim of municipality tax by the assessee in the computation as regards sub-let properties. Besides, the CIT(A) also observed that the income from sub-letting is taken at Rs 13,24,488 only by the assessee in its P&L account whereas the actual amount should have been Rs 57,52,392. Therefore, the AO was directed to take the income from subletting at Rs 57,52,392 for the year. Consequently, the income of the assessee was enhanced to that extent. Against this, the assessee is in appeal before us.
The main contention of the ld. Counsel for the assessee is that the assessee has received income from house property of sub-letting and collected rent of Rs.57,52,392 and paid rent to owner of property of Rs.44,27,904 and net income offered on this count as income from house property was Rs.13,24,488. The assessee claimed standard deduction @ 30% of it. However, the CIT(Appeals) was of the view that deduction to the extent of 30% of Rs.57,52,392 has to be disallowed as the assessee is not the owner of the house property and directed the AO to consider Rs.57,52,392 as income from sub-letting which is wrong. Reliance is placed on the parity of reasoning of the decision of the of the Hon’ble Supreme Court in the case of CIT v. Poddar Cements (P) Ltd., 226 ITR 625 (SC) wherein it was held as under:- "Hence, thought under the common law, "owner" means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc., in the context of section 22 of the Income-tax Act, 1961, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. The
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requirement of registration of the sale deed in the context of section 22 is not warranted." 8. In view of the above, as regards to the definition of "Owner", the ld. counsel for the assessee submitted that in this case the assessee is an owner for all practical purposes and since it has leased the properties from the respective owners and are held as Fixed Asset of the assessee, the assessee is to be construed to be the owner of the properties and hence the rent from subletting the properties is to be treated as Income under the head Income from House Property. The lower authorities have erred in not giving the assessee the benefit of standard deduction of 30% as per the provisions of section 24 [a] of the Act on the receipts by the assessee from sub-letting the property. Therefore, according to the ld. AR, the assessee is the owner of the property and income from sub-letting is to be assessed as income from house property only.
On the other hand, the ld. DR submitted that the assessee sub-let the property and earned income which should be income from other sources only.
We have heard both the parties and perused the material on record. In our opinion, the argument of the ld. Counsel for the assessee is that income from sub-letting of house property is to be assessed as income from house property is devoid of any merit. The assessee is not the legal owner of the property and the property is taken only on rental basis, for which it is has paid the rent to the owner of Rs.44,27,904 and earned income of Rs.13,24,488 and on this amount of Rs.13,24,488 the assessee is not entitled for standard deduction @ 30% in terms of section 24(a) of the Act. However, the CIT(Appeals) has considered Rs.57,52,392 as income from sub-letting which is not correct. The assessee has taken the net sub-letting rental income at Rs.13,24,488 to the Profit & Loss account and it is included in the income from house property as follows:-
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Income from house property Rent & Sublet Rent received 11,610,962.55 Less: Municipal taxes paid 577,340.00 11,033,622.55 Less: Standard Deduction u/s. 24(a) 3,310,087.00 Taxable income from house property 7,723,535.55
Hence, only the net sub-letting income included in the income from house property at Rs.13,24,488 is to be taken out from the income from house property and correspondingly deduction u/s. 24(a) of the Act has to be allowed in respect of income from house property only. The assessee is not entitled for deduction u/s. 24(a) in respect of sub-let income of Rs.13,24,488 on which assessee claimed deduction u/s. 24(a). This amount of Rs.13,24,488 has to be withdrawn as income from house property and considered as income from other sources only. With these observations, we direct the AO to recompute the income of the assessee from house property and also consider Rs.13,24,488 as income from other sources on account of sub-letting income.
In the result, the appeal by the assessee is partly allowed.
Pronounced in the open court on this 27th day of October, 2021.
Sd/- Sd/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore, Dated, the 27th October, 2021.
/Desai S Murthy /
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Copy to:
Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore.
By order
Assistant Registrar ITAT, Bangalore.