PRIYADARSHINI PROPERTIES AND ESTATES P LTD, MUMBAI v. ITO 9(2)-4, MUMBAI

ITA 6317/MUM/2009 | 2004-2005
Pronouncement Date: 16-09-2011 | Result: Allowed

Appeal Details

RSA Number 631719914 RSA 2009
Assessee PAN AAACP3195Q
Bench Mumbai
Appeal Number ITA 6317/MUM/2009
Duration Of Justice 1 year(s) 9 month(s) 9 day(s)
Appellant PRIYADARSHINI PROPERTIES AND ESTATES P LTD, MUMBAI
Respondent ITO 9(2)-4, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 16-09-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 16-09-2011
Date Of Final Hearing 01-08-2011
Next Hearing Date 01-08-2011
Assessment Year 2004-2005
Appeal Filed On 07-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI R.V. EASWAR PRESIDENT AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 5877/MUM/2006 ITA NO. 3581/MUM/2007 ITA NO. 6317/MUM/2009 ITA NO. 3151/MUM/2010 (ASSESSMENT YEARS: 2002-03 TO 2005-06) M/S. PRIYADARSHINI PROPERTIES INCOME TAX OFFICER - 9(2)-4 AND ESTATES P. LTD. MUMBAI 601 PRAN KUTIR RAM GULLY VS. KANDIVALI (W) MUMBAI 400067 PAN - AAACP 3195 Q APPELLANT RESPONDENT APPELLANT BY: SHRI CHETAN A. KARIA RESPONDENT BY: SHRI ALEXANDER CHANDY DATE OF HEARING: 09.08.2011 DATE OF PRONOUNCEMENT: O R D E R PER B. RAMAKOTAIAH A.M. THESE ARE APPEALS BY THE ASSESSEE AGAINST THE ORDER S OF THE CIT(A) IX/XX MUMBAI IN VARIOUS ASSESSMENT YEARS ON THE IS SUE OF DETERMINING HOUSE PROPERTY INCOME BY CONSIDERING ANNUAL LETTING VALUE UNDER SECTION 23(1)(A) BY THE A.O. AS AGAINST THE LOSS DECLARED B Y ASSESSEE. SINCE THE ISSUES ARE COMMON IN ALL THE FOUR YEARS AND THE CIT (A) FOLLOWED THE LEAD ORDER IN A.Y. 2002-03 IN ALL OTHER ASSESSMENT YEARS THESE APPEALS ARE CONSIDERED TOGETHER AND DECIDED BY THIS COMMON ORDE R. 2. BRIEFLY STATED ASSESSEE IS A PRIVATE LIMITED COMPA NY AND IS IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. ASSESSEE ENTER ED INTO AN AGREEMENT DATED 02.05.1988 WITH TRUSTEES OF MADANLAL CHARITY MEMORIAL TRUST. THE TRUST IS THE OWNER OF A PLOT OF LAND AND STRUCTURE THEREON AT 151 NADIADWALLA COLONY OFF SWAMI VIVEKANAND ROAD MALA D WEST MUMBAI 400064. AS PER THE AGREEMENT THE ASSESSEE ACQUIRED IRRECOVERABLE TENANCY ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 2 RIGHTS ON THE LAND AND STRUCTURE AT THE MONTHLY REN T OF ` 500/- AND ` 1 70 000/- AS SECURITY DEPOSIT ON THE CONDITION THA T IT SHALL DEMOLISH THE EXISTING STRUCTURE AND SHALL PAY ` 30 000/- BEING THE COST OF STRUCTURE TO THE TRUST CONSTRUCT A NEW BUILDING ON THAT PLOT RE-AC COMMODATE THE 5 EXISTING TENANTS IN THE NEW BUILDING AND SHALL HAVE RIGHT TO LET OUT THE TENEMENTS IN NEW BUILDING TO ANY PERSONS OF ITS CHOICE. THE ASSE SSEE STARTED CONSTRUCTION OF BUILDING KNOWN AS SPECTRA APARTMENT CONSISTING O F 11 FLATS IN JULY 1988. THE COST OF CONSTRUCTION WAS SHOWN AT ` 73.11 LAKHS. THREE OF THE FIVE OLD TENANTS SURRENDERED THEIR TENANCY RIGHTS AND LEFT. THE ASSESSEE ACCOMMODATED THE REMAINING TWO TENANTS AND LET OUT THE REMAINING FLATS TO NEW TENANTS ON IRRECOVERABLE LEAVE & LICENSE BASIS AT MONTHLY RENT VARYING FROM ` 1 100/- TO ` 2 000/- AND EQUAL SUM PAYABLE MONTHLY TOWARDS MUNICIPAL TAXES. THE NEW TENANTS PAID A TOTAL SUM O F ` 73 50 000/- AS INTEREST FREE NON-REFUNDABLE DEPOSIT. THE ASSESSEE CONSIDERED THE TRANSACTION AS BUSINESS AND FILED LOSS RETURN. 3. THE AO CONSIDERING THAT ASSESSEE HAD TAKEN INTEREST FREE DEPOSIT FOR THE TENEMENTS BROUGHT INCOME FROM HOUSE PROPERTY. T HE CIT(A) IN AY 2002- 03 CONSIDERED ASSESSEES SUBMISSIONS AND UPHELD THE ACTION OF THE A.O. BY STATING AS UNDER: - 6. ON A CAREFUL CONSIDERATION OF THE ABOVE FACTS I T CAN BE SEEN THAT THE APPELLANT COMPANY IS THE OWNER OF THE BUILDING KNOWN AS SPECTRA APARTMENT MALAD (WEST) MUMBAI AS STATED IN AGREEMENT DATED 2.5.88. I AM IN AGREEMENT WITH THE VIEWS OF T HE AO THAT THIS IS AN IRRECOVERABLE ARRANGEMENT AS AGREED BY THE OWNER OF THE PLOT OF LAND I.E. TRUST AND THE ASSESSEE AND EVEN IF THE PR OPERTY IS TAKEN ON LEASE AND LET OUT THE LESSOR IS THE OWNER DURING LE ASE PERIOD AS HELD IN THE CASE OF S.G. MERCANTILE CORPORATION P. LTD. VS. CIT 83 ITR 700 (SC). ANOTHER MOST SIGNIFICANT PART OF THE TRANSACT ION IS THAT THE ASSESSEE INSTEAD OF GETTING RENT FROM ITS TENANTS H AS RECEIVED DEPOSITS OF RS.57 20 000/- FROM 8 TENANTS OF THE S PECTRA BUILDING. THE OCCUPANTS OF THE FLATS ARE ONLY PAYING MAINTENA NCE CHARGES TO THE ASSESSEE. HOWEVER THE ASSESSEE HAS NOT DISCLOS ED INCOME FROM HOUSE PROPERTY AND HAS TREATED THE ACTIVITIES AS B USINESS ACTIVITIES. THE CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE A S FROM THE AGREEMENT IT IS CLEAR THAT THE ASSESSEE IS THE OWNE R OF THE PROPERTY AND ALL FLATS IN THE SPECTRA APARTMENTS HAVE BEEN L ET OUT ON RENTS TO THE TENANTS AND INSTEAD OF GETTING RENT FROM THE TE NANTS ASSESSEE HAS RECEIVED INTEREST FREE SECURITY DEPOSIT THEREFORE T HE ANNUAL LETTING VALUE ADOPTED AT RS.502330/- U/S. 23(1)(A) OF THE I .T. ACT BY THE ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 3 ASSESSING OFFICER IS CORRECT AS IN THE APPELLANTS CASE NOT RENT HAS BEEN DISCLOSED TO BE RECEIVED FROM THE TENANTS. THE APPELLANTS CASE IS CLEARLY COVERED BY THE HON'BLE ITAT DECISION IN THE CASE OF TIVOLI INVST AND TRADING CO. LTD. VS. ACIT WHERE IT IS HEL D THAT IF THERE IS NO RENT PAID AND IN LIEU OF RENT EXCESS DEPOSIT IS BEI NG MADE THE SAID DEPOSIT MAY BE CONSIDERED AS RENT. THUS CONSIDERING THE TOTALITY OF THE FACTS THE INCOME FROM HOUSE PROPERTY TAKEN BY T HE ASSESSING OFFICER IS HEREBY CONFIRMED. FOLLOWING THE ABOVE THE CIT(A) DISMISSED ASSESSEES CONTENTIONS AND THE APPEALS IN ALL THE ASSESSMENT YEARS. 4. ASSESSEE HAS RAISED GROUNDS WHICH ARE SIMILAR IN A LL THE YEARS. GROUNDS RAISED IN A.Y. 2002-03 ARE EXTRACTED FOR T HE SAKE OF CLARITY AS UNDER: - 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN HOLDING THAT THE APPELLANT IS OWNER OF MALAD PROPER TY AND INCOME FROM HOUSE PROPERTY IS ASSESSABLE IN THE HAN DS OF THE APPELLANT. 2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER OF AS SESSING THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DETERMINATION OF INCOME FROM HOUSE PROPE RTY AT RS.5 61 891/-. 4) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING DETERMINATION OF ANNUAL LETTING VALUE AT RS.8 02 830/-. 5) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT THE LEARNED ASSESSING OFFICER HAD P ASSED ASSESSMENT ORDER WITHOUT GIVING OPPORTUNITY TO APPE LLANT TO CONTROVERT THE EVIDENCE COLLECTED. 6) THE APPELLANT PRAYS THAT: 6.1 INCOME MAY BE DETERMINED AT BUSINESS LOSS OF RS .4 900/- AS RETURNED BY THE APPELLANT. 6.2 ALTERNATIVELY INCOME FROM HOUSE PROPERTY MAY B E DETERMINED OF RS.50 693/- AS COMPUTED BY THE APPELLANT. 6.3 ANY OTHER RELIEF YOUR HONOUR MAY DEEM FIT. 5. WE HAVE HEARD LEARNED COUNSEL AND THE LEARNED D.R. AND PERUSED THE PAPER BOOK FILED IN THIS REGARD. AT OUR INSTANCE TH E LEARNED COUNSEL ALSO PLACED ON RECORD A LIST OF FLAT OWNERS. THE ASSESSE E ALSO FILED A LETTER ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 4 REQUESTING FOR CONSENT FOR ASSESSING TO TAX THE BUS INESS INCOME IN A.Y. 1999-2000 WHICH ARE BEING DEALT WITH IN THE COURSE OF THE ORDER. 6. AS BRIEFLY STATED ABOVE ASSESSEE HAS CONSTRUCTED 1 1 APARTMENTS AND TWO APARTMENTS WERE ALLOTTED TO THE EARLIER TENANTS WITHOUT ANY RIGHT TO PURCHASE. OUT OF THE BALANCE NINE APARTMENTS EIGHT APARTMENTS HAVE BEEN GIVEN POSSESSION IN A.Y. 2002-03 & A.Y. 2003-04 AN D ALL NINE WERE GIVEN POSSESSION FROM A.Y. 2004-05. IT WAS THE SUBMISSION THAT ONE APARTMENT WAS STOCK-IN-TRADE IN THESE INTERVENING YEARS AS IT WAS NOT SOLD/ GIVEN ON LEASE. IN THIS REGARD ASSESSEE PLACED THE AGREEMENT S ENTERED INTO WITH THE TRUST AS WELL AS WITH THE TENANTS. THERE IS NO DISP UTE WITH REFERENCE TO ACQUISITION OF TENANCY RIGHTS FROM M/S. MADANLAL MU LRAJ MEMORIAL TRUST VIDE ARTICLES OF AGREEMENT DATED 2 ND MAY 1988 W.E.F. 1 ST APRIL 1988. VIDE THIS AGREEMENT ASSESSEE COMPANY WAS GIVEN PERMISSION TO DEMOLISH THE EXISTING STRUCTURE WHICH WAS OCCUPIED BY TENANTS AND TO CONS TRUCT A NEW BUILDING WITH A CONDITION TO READJUST OR RESETTLE THE EXISTI NG TENANTS IN THE NEW BUILDING. IT WAS ALSO ON RECORD THAT THE PROJECT WA S DELAYED DUE TO NON- COOPERATION FROM THE EXISTING TENANTS AND THE MATTE R WAS SETTLED IN FEBRUARY 1994. THREE ERSTWHILE TENANTS HAVE SURREND ERED THEIR TENANCY RIGHTS WHEREAS TWO TENANTS HAVE OPTED FOR CONTINUAT ION OF TENANCY IN THE NEW BUILDING. ASSESSEE COMPANY GOT THE BUILDING PLA N APPROVED BY THE BMC IN AUGUST 1994 FOR CONSTRUCTING A NEW BUILDING CONS ISTING OF GROUND + 5 UPPER FLOORS HAVING 11 FLATS. IT ALSO ACQUIRED TDR FOR FSI BENEFITS WITH 350 SQ.MTS. ACCORDING TO ASSESSEE THE PROJECT WAS COMPL ETED BUT OCCUPANCY CERTIFICATE WAS GIVEN IN FY 1998-99. 7. THE FACTS INDICATE THAT ASSESSEE HAS ENTERED INTO T WO DIFFERENT SET OF AGREEMENTS. ONE SET OF AGREEMENTS WITH THE ERSTWHIL E TENANTS SMT. MUKTAGAURI SHANTILAL PATEL AND GURUNANAK SABHA INDI CATE THAT ASSESSEE CONTINUED THE TENANCY WITH A MONTHLY RENT OF ` 39.59 PER MONTH AS RENT. THE AGREEMENT DOES NOT ASSIGN ANY RIGHT TO DISPOSE OFF BUT ONLY RIGHT TO OCCUPY. SINCE THERE IS NO PASSING OF OWNERSHIP IN THE PROPE RTY ASSESSEE ADMITS THAT AS FAR AS THESE TWO TENANTS ARE CONCERNED ASSESSEE HAS LET OUT THE PROPERTY TO THEM ON WHICH STANDARD RENT IS RECEIVED AND ACCO RDINGLY HOUSE PROPERTY ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 5 INCOME HAS TO BE CONSIDERED ON TWO APARTMENTS GIVEN ON LEASE TO THE ERSTWHILE TENANTS. 8. HOWEVER WITH REFERENCE TO THE NINE APARTMENTS THE AGREEMENTS INDICATE THAT IT HAD ENTERED INTO AGREEMENT WITH NI NE NEW PERSONS ON IRRECOVERABLE PERMANENT LEAVE & LICENSE BASIS. IT WAS THE CONTENTION THAT ASSESSEE DOES NOT HAVE ANY RIGHTS AS THEY HAVE BEEN PASSED ON TO THE TENANTS. REFERRING TO THE AGREEMENT ENTERED INTO WI TH VARIOUS PARTIES IT WAS THE SUBMISSION THAT ASSESSEE VIDE CLAUSE 2 OF THE A GREEMENT ALLOWED THE SAID PREMISES TO BE OCCUPIED ON THE BASIS OF IRREVO CABLE PERMANENT LEAVE AND LICENSE BY THE OCCUPANTS. IN VIEW OF THIS THE OCCUPANTS HAVE GIVEN INTEREST FREE REFUNDABLE DEPOSITS. IT WAS THE CONTE NTION THAT ASSESSEE DID NOT GET FULL RIGHTS OF THE PROPERTY FROM THE TRUST DUE TO VARIOUS LEGAL COMPLICATIONS. ASSESSEE IN TURN COULD NOT SELL OR T RANSFER THE PROPERTY THEREFORE BY VIRTUE OF THIS IRREVOCABLE PERMANENT LEAVE AND LICENSE ALLOWED THE TENANTS TO OCCUPY THE PROPERTY AND AS ACCEPTED BY THE A.O. AND THE CIT(A) NO RENT OR MONTHLY CHARGES WERE COLLECTED BY THE COMPANY. VIDE CLAUSE 5 (XI) THE OCCUPANTS HAS GIVEN RIGHT TO LET SUB-LET OR GRANT OF LEAVE AND LICENSE OF THE SAID PREMISES FURTHER AND VIDE C LAUSE 13 IT WAS AGREED THAT IF OWNER PERMITTING TO TRANSFER BY WAY OF SALE OR LONG LEASE THE PROPERTY TO THE COMPANY THEN THE COMPANY SHALL TAKE STEPS TO SUBMIT THE SAID PROPERTY UNDER THE PROVISIONS OF MAHARASHTRA APARTM ENT OWNERSHIP ACT AND THE AMOUNT OF CONSIDERATION FOR SUCH OWNERSHIP/ ASSIGNMENT RIGHT SHALL BE THE AMOUNT OF THE SAID INTEREST FREE SECURITY DE POSIT PAID UNDER THE AGREEMENT. IT WAS FURTHER PROVIDED THAT IN NO EVENT EITHER OF THE PARTY SHALL BE ENTITLED TO VARY THE FIGURE AGREED OF THE SAID C ONSIDERATION AMOUNT AND THE OCCUPANTS SHALL HAVE THE RIGHT TITLE AND INTERE ST GRANTED UNDER THIS AGREEMENT AND THE SAID PREMISES AND REST OF THE POR TION OF THE PREMISES AND TERRACE SHALL BELONG TO THE COMPANY. 9. REFERRING TO VARIOUS CLAUSES IN THE AGREEMENT IT WA S THE SUBMISSION THAT ASSESSEE HAS GIVEN IRREVOCABLE PERMANENT LEAVE AND LICENSE AGREEMENT TO THE TENANTS AND BY VIRTUE OF THAT THE TENANTS BE CAME OWNERS AND RELIED ON THE PROVISIONS OF SECTION 27 SECTION 279UA CLAU SE (F) AND VARIOUS CASE ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 6 LAWS TO SUBMIT THAT THE OWNERSHIP HAS BEEN PASSED O N TO THE TENANTS AND SO THE COMPANY IS NOT THE OWNER OF THE PROPERTY. IT WA S THE CONTENTION THAT ASSESSEE CANNOT BE SUBJECTED TO INCOME FROM HOUSE P ROPERTY ON THE FLATS GIVEN TO THE TENANTS ON PERMANENT LEAVE AND LICENCE BASIS AND THEY BECAME THE DEEMED OWNERS AND ASSESSEE CANNOT BE SUBJECTED TO INCOME FROM HOUSE PROPERTY ON THE SAID APARTMENTS AS PER THE PROVISIO NS OF THE ACT. IT WAS FURTHER SUBMITTED THAT IN THE BOOKS OF ACCOUNT THE AMOUNT RECEIVED TOWARDS DEPOSIT FROM THE TENANTS WERE TAKEN AS ADVANCE FOR THE BUILDING AND THE ENTIRE COST OF CONSTRUCTION IS SHOWN AS WORK-IN-PRO GRESS. WHILE ADMITTING THAT ASSESSEE COMPANY COULD NOT OFFER ANY INCOME ON PROJECT COMPLETION METHOD THEY CONSENTED TO OFFER THE INCOME IN A.Y. 1999-2000 IF DIRECTIONS ARE GIVEN AND THEY ACCORDINGLY FILED A LETTER WITH ABOVE PROPOSAL. IT WAS THE SUBMISSION THAT IN CASE HOUSE PROPERTY INCOME IS TO BE ASSESSED ON THE TWO ERSTWHILE TENANTS ASSESSEE COMPANY HAS NO OBJECTIO N TO CONSIDER THE HOUSE PROPERTY INCOME SUBJECT TO ADOPTING STANDARD RENT AS INCOME AS THEY ARE PROTECTED TENANTS AND WITH REFERENCE TO OTHER PROPE RTIES THEY ARE NOT LIABLE FOR INCOME FROM HOUSE PROPERTY. IN THE EVENT IF THE CONTENTIONS ARE NOT ACCEPTED IT WAS THE SUBMISSION THAT ONLY STANDARD RENT/ MUNICIPAL VALUATION CAN BE ASSESSED THE DETAILS OF WHICH WER E FURNISHED TO THE A.O. ACCORDING TO THE MUNICIPAL VALUE IT DOES NOT EXCEED AN AMOUNT OF ` 15 693/-. 10. THE LEARNED D.R. HOWEVER RELIED ON THE ORDER OF T HE A.O. AND SUBMITTED THAT ASSESSEE NEVER OFFERED INCOME ON PRO JECT COMPLETION METHOD AND SINCE THE PROPERTIES WERE GIVEN ON LEAVE AND LI CENSE THEY ARE TO BE ASSESSED AS OWNER OF THE PROPERTY. 11. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE DOCU MENTS PLACED ON RECORD THERE IS NO DISPUTE WITH REFERENCE TO ACQUIR ING ONLY TENANCY RIGHTS FROM THE TRUST AND RIGHT TO CONSTRUCT A BUILDING AN D ALLOW TENANCY RIGHTS. ASSESSEE ACCORDINGLY DEMOLISHED THE EXISTING STRUCT URE SETTLING WITH THREE OF THE ERSTWHILE TENANTS AND GAVE ALTERNATE ACCOMMODAT ION TO THE TWO PROTECTED TENANTS AND ASSIGNED TENANCY RIGHTS TO OT HERS ON LEAVE AND LICENSE BASIS BY ACCEPTING SUBSTANTIAL AMOUNT AS DEPOSIT AN D ENTERED INTO IRREVOCABLE PERMANENT LEAVE AND LICENSE AGREEMENTS. THEREFORE AS FAR AS THE ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 7 TWO FLATS GIVEN TO THE PROTECTED TENANTS ASSESSEE IS OWNER OF THE BUILDING AND THE HOUSE PROPERTY INCOME HAS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE COMPANY FOR WHICH THERE IS NO OBJECTION FR OM THE ASSESSEE. THEREFORE TO THAT EXTENT OF ASSESSING TWO FLATS AS INCOME FROM HOUSE PROPERTY IS TO BE UPHELD SUBJECT TO ADOPTING ANNUA L LETTING VALUE ON THE BASIS OF THE STANDARD RENT OR ACTUAL RENT RECEIVED AS PER THE PROVISIONS OF LAW. WITH REFERENCE TO THE OTHER NINE APARTMENTS A S SEEN FROM THE CLAUSES OF THE AGREEMENT IT IS VERY CLEAR THAT ASSESSEE HAS GIVEN PERMANENT IRREVOCABLE LEAVE AND LICENSE TO OCCUPY THE PROPERT Y AND AS ADMITTED THE MUNICIPAL TAXES ARE BORNE BY THE TENANTS. EVEN THOU GH THE MUNICIPAL RENT WAS AGREED TO BE PAID AS PER AGREEMENTS BOTH THE A .O. AND THE CIT(A) AGREED THAT NO RENT WAS RECEIVED BUT THE DEPOSIT WA S ACCEPTED. IT WAS THE CONTENTION THAT THE DEPOSITS WERE ACCEPTED IN LIEU OF SALE CONSIDERATION AND NOT FOR THE POSSESSION OF THE APARTMENTS PENDING TR ANSFER OF THE RIGHTS FROM THE TRUST. AT OUR INSTANCE ASSESSEE HAS FURNISHED T HE LIST OF PRESENT FLAT OCCUPANTS WHICH ARE AS UNDER: - I. SMT. MUTKAGAURI SHANTILAL PATEL (OLD TENANT) II. GURUDWARA SABHA (OLD TENANT) III. SHRI VINOD KUMAR R. GUPTA & SMT. ANJU V. GUPTA IV. SHRI BHARATBHUSHAN GUPA & SMT. ROOPA GUPTA V. SHRI MANUBHAI C. GANGADIA & SMT. KAILASHBEN M. GANG ADIA VI. SHRI JAYESH A. SHAH & SMT. JYOTSNA J. SHAH VII. SHRI VITHALBHAI D. PATEL VIII. SHRI CHELABHAI D. PATEL IX. SHRI SUNILBHAI V. SHAH & SMT. ROOPALBEN S. SHAH X. SMT. ROOPALBEN S. SHAH & SHRI SUNIBHAI V. SHAH XI. SHRI RAMAVATR S. JHAWAR 12. IT WAS THE SUBMISSION THAT SUBSEQUENT TO THE REGULA RISATION SCHEME THE TENANTS HAVE PAID STAMP DUTY ON VARIOUS DATES A ND THE PROPERTIES WERE REGISTERED SUBSEQUENTLY. ASSESSEE HAS GIVEN CONSENT FOR DIRECTIONS TO ASSESS BUSINESS PROFITS ON PROJECT COMPLETION BASIS IN A.Y . 1999-2000. THE LETTER DATED NIL FILED ON 09.08.2011 BY THE ASSESSEE COMPA NY IS AS UNDER: - ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 8 RE: PRIYADARSHINI PROPERTIES P. LTD. ITA NO. 5377/M/06 3581/M/07 6317/M/09 & 3151/ M/10) A Y 2002-03 2003-04 2004-05 & 2005-06 SUB: CONSENT FOR ASSESSMENT ON DIRECTIONS IN A Y 1999- 2000 THE ABOVE APPEALS HAVE BEEN FILED BY THE ASSESSEE. THE ASSESSEE IS A DEVELOPER AND HAD DEVELOPED SPEC TRA APARTMENT AT MALAD. THE PROJECT WAS OF REDEVELOPMEN T OF EXISTING BUILDING WHICH HAD 5 TENANTS. THE LAND AND BUILDING BELONGED TO A TRUST AND THE APPELLANT WAS GRANTED DEVELOPMENT RIG HTS UNDER DOCUMENT WITH LAND OWNERS TITLED TENANCY AGREEMENT ADDITION THE ASSESSEE HAD A RIGHT TO REDEVELOP AND ALLOT FLATS. OUT OF 5 EXISTING TENANTS THREE SETTLED AND TWO TENANTS WERE ALLOTTE D PERMANENT ALTERNATIVE ACCOMMODATION IN THE NEW BUILDING. TOTA LLY 11 FLATS WERE CONSTRUCTED OUT OF WHICH 2 WERE ALLOTTED TO EXISTIN G TENANTS AND BALANCE WERE ALLOTTED FOR CONSIDERATION UNDER AGREE MENT. THE BUILDING WAS COMPLETED AND OCCUPATION CERTIFICATES WAS GRANTED BY THE BMC ON 20.07.1998. THE TITLE OF THE PROPERTY HA D TO BE PERFECTED BY OBTAINING CONVEYANCE OF THE PROPERTY FROM OWNERS BEING A TRUST WITH DUE APPROVALS. AT THE RELEVANT TIME THE ASSESS EE WAS HOPEFUL OF PERFECTING THE TITLE. THE ASSESSEE WAS FOLLOWING PR OJECT COMPLETION METHOD OF ACCOUNTING AND COST OF CONSTRUCTION WAS R EFLECTED AS WORK IN PROGRESS AND AMOUNTS RECEIVED FROM NEW ALLOTTEES WAS REFLECTED AS ADVANCE AGAINST FLATS IN BOOKS OF ACCOUNT. IN THE ASSESSMENT ORDER FOR A Y 2002-03 THE ASSES SING OFFICER TREATED THE ASSESSEE AS OWNER OF THE SAID PREMISES AND ASSESSED INCOME THERE FROM U/S. 22. SIMILAR ORDERS HAVE BEEN PASSED IN SUBSEQUENT ASSESSMENT ORDERS FOR A Y 2003-04 TO 200 5-06. THE ASSESSEE CONTENDS THAT IT IS A DEVELOPER AND I S NOT THE OWNER OF THE SAID PREMISES IN VIEW OF PROVISIONS OF S. 27. THE ASSESSEE HEREBY GIVES CONSENT TO ASSESSMENT OF BUSINESS INCOME FROM DEVELOPMENT OF SPECTRA APARTMENT IN A Y 1999-2000 THE YEAR IN WHICH OCCUPATION CERTIFICATE WAS ISSUED BY BMC AND THE PROJECT FROM DEVELOPMENT CAN BE SAID TO BE COMPLETE . YOURS FAITHFULLY FOR PRIYADARSHINI PROPERTIES P. LTD. SD/- DIRECTOR (ASHOK B VADALIA) ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 9 13. WHILE WE ARE NOT IN A POSITION TO GIVE ANY DIRECTIO N AS THE ISSUE OF COMPLETION OF PROJECT AND DETERMINATION OF PROFIT I S NOT SUBJECT MATTER OF APPEAL BEFORE US WE HOWEVER OF THE VIEW THAT THE MATTER REQUIRES RE- EXAMINATION BY THE A.O. EVEN THOUGH IT WAS SUBMITTE D THAT ASSESSEE HAS PLACED ALL THE DOCUMENTS AND AGREEMENTS BEFORE THE A.O. AND THE CIT(A) NEITHER THE A.O. NOR THE CIT(A) CONSIDERED THE SUBM ISSIONS BUT INVOKED PROVISIONS OF SECTION 22 AND 23(1)(A) DETERMINED TH E ANNUAL LETTING VALUE WITHOUT EXAMINING THE OWNERSHIP ISSUES. 14. SOME OF THE IMPORTANT CLAUSES ENTERED INTO BY THE A SSESSEE WITH THE NEW TENANTS ARE EXTRACTED HERE: - CLAUSE 2: IN PURSUANCE OF THE SAID AUTHORITY THE C OMPANY DOTH HEREBY AGREE TO ALLOW THE OCCUPANT TO OCCUPY FLAT N O. 101 ADMEASURING ____ SQ.FT. ON FIRST FLOOR IN THE BUILDING SPECTRA APARTMENT ON THE TERMS AND CONDITIONS AS SET OUT IN THIS AGREEMENT. THE SAID PREMISES ARE ALLOWED TO BE OCCU PIED ON THE BASIS OF IRREVOCABLE PERMANENT LEAVE AND LICENCE BY THE COMPANY TO THE OCCUPANT. CLAUSE 5: (VII) THE OCCUPANT SHALL HAVE RIGHT FOR ABSOLUTE TRANSFER /ASSIGNMENT FROM THE DATE HEREOF. THE OCCUPANT SHALL INFORM THE COMPANY OF ANY INCLUDING DEPOSIT PAID TO THE COMPANY UNDER THI S AGREEMENT TO ANY TRANSFEREE OR ASSIGNEE AS A WHOLE BY FURNISHING TO THE COMPANY COPY OF SUCH TRANSFER/ASS IGNMENT WITH FULL NAME AND ADDRESS OF TRANSFEREE/ASSIGNEE W ITHIN ONE MONTH FROM THE DATE OF EXECUTING SUCH TRANSFER/ASSI GNMENT AS THE CASE MAY BE. (XI) THE OCCUPANT SHALL HAVE RIGHT TO LET SUB-LET OR GR ANT ON LEAVE & LICENCE OF THE SAID PREMISES ENTIRELY ONLY AS THEY MAY THINK FIT AND PROPER WITHOUT PAYMENT OF ANY FURTHER OR OTHER AMOUNT TO THE COMPANY. HOWEVER COPY OF THE SAID WRITING SHALL BE SUBMITTED TO THE COMPANY WITHIN 48 HOURS OF SUCH RI GHT BEING GRANTED. CLAUSE 13: IT IS FURTHER AGREED THAT IF OWNER PERMI TTING TO TRANSFER BY WAY OF SALE OR LONG LEASE THE PROPERTY TO THE COMPA NY THEN THE COMPANY SHALL TAKE STEPS TO SUBMIT THE SAID PROPERT Y UNDER THE PROVISIONS OF THE MAHARASHTRA APARTMENT OWNERSHIP A CT OR TO MORE THAN TWO PERSONS AS JOINT HOLDERS OR OTHERWISE THEN THE OCCUPANT WILL HAVE ONLY RIGHT AS CONFERRED UPON AND GRANTED HEREU NDER. IT IS FURTHER AGREED THAT IF OWNERS PERMITTING TO TRANSFER THE OW NERSHIP TO SOCIETY OF THE OCCUPANTS OF THE COMPANY BUILDING OR TO SUBM IT THE SAID PROPERTY UNDER THE PROVISIONS OF THE MAHARASHTRA AP ARTMENTS ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 10 OWNERSHIP ACT OR TO MORE THAN TWO PERSONS AS JOINT HOLDERS OR GRANTED TO THE OCCUPANT IN RESPECT OF THE DEMISED P REMISES IN THE BUILDING AND SHALL BE CO-OWNER IN RESPECT OF THE SA ID PREMISES AS PER THE TERMS AND CONDITIONS OF THIS AGREEMENT ONLY AND THE AMOUNT OF CONSIDERATION FOR SUCH OWNERSHIP/ASSIGNMENT RIGHT S HALL BE THE AMOUNT OF THE SAID INTEREST FREE SECURITY DEPOSIT O F RS.6 00 000/- (RUPEES SIX LAKH ONLY) PAID UNDER THIS AGREEMENT TH E PROPORTIONATE AMOUNT PAYABLE TO THE OWNER STAMP REGISTRATION CO ST CHARGES AND EXPENSES AND IN ADDITION THEREOF A SUM OF RS.______ PER SQ.FT. OF FOR THE WHOLE AREA OF THE FLAT. THE SAID AMOUNT SHALL B E PAID ON EXECUTION OF ALL THE DOCUMENTS AND THE SAID SECURITY DEPOSIT AMOUNT SHALL STAND ADJUSTED TOWARDS THE CONSIDERATION UPON EXECU TION OF ALL THE DOCUMENTS MENTIONED HEREINABOVE. IN NO EVENT EITHER OF THE PARTIES SHALL BE ENTITLED TO VARY THE FIGURE AGREED OF THE SAID CONSIDERATION AMOUNT. IT IS FURTHER AGREED THAT IN SUCH EVENT THE OCCUPANT SHALL HAVE RIGHT TITLE AND INTEREST GRANTED UNDER THIS AG REEMENT AND THE SAID DEMISED PREMISES BEING FLAT NO. 101 AND AS PRO VIDED IN THIS AGREEMENT AND THE REST PORTION OF PREMISES AND TERR ACE SHALL BELONG TO THE COMPANY ALONE AS STATED HEREINABOVE. AS CAN BE SEEN FROM THE ABOVE CLAUSES ASSESSEE HAS ENTERED INTO AN IRREVOCABLE LEAVE AND LICENCE AND HAS GIVEN POSSESS ION TO THE OCCUPANT. NOT ONLY THAT THE OCCUPANT WAS GIVEN RIGHT FOR ABSOLUTE TRANSFER OR ASSIGNMENT AND ALSO RIGHT TO LET SUB-LET OR GRANT LEAVE AND L ICENCE OF THE SAID PREMISES. CLAUSE 13 ALSO INDICATES THAT IN CASE ASSESSEE ACQU IRES RIGHTS ON THE SAID PROPERTY THE SAME WILL BE GIVEN TO THE OCCUPANT AND THE INTEREST FREE SECURITY DEPOSIT RECEIVED/PAID UNDER THE AGREEMENT WILL BE T REATED AS SALE CONSIDERATION AND THE AMOUNT SHALL STAND ADJUSTED T O THE CONSIDERATION WHICH WAS FIXED AT THE TIME OF ENTERING INTO THIS L EAVE AND LICENCE AGREEMENT. THESE TERMS MAKE IT CLEAR THAT IT IS IND EED A PERMANENT SALE AGREEMENT HANDING OVER THE POSSESSION TO VARIOUS OC CUPANTS ON A PERMANENT BASIS AND THE RIGHTS ARE IRREVOCABLY HAND ED OVER. 15. AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE O F ASSOCIATED HOTELS OF INDIA LTD. VS. R.N. KAPOOR 1959-(SC2)-GJX -0120-SC THE LEAVE AND LICENSE AGREEMENT ENTERED BY THE ASSESSEE WITH TENA NTS ON AN IRREVOCABLE PERMANENT LEAVE AND LICENSE IS IN FACT A LEASE AGRE EMENT. THE HON'BLE SUPREME COURT BROUGHT OUT THE DISTINCTION BETWEEN L EASE AND LICENCE IN THE FOLLOWING WORDS: - THERE IS A MARKED DISTINCTION BETWEEN A LEASE AND A LICENCE. SECTION 105 OF THE TRANSFER OF PROPERTY ACT DEFINES A LEASE OF IMMOVABLE PROPERTY ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 11 AS A TRANSFER OF A RIGHT TO ENJOY SUCH PROPERTY MAD E FOR A CERTAIN TIME IN CONSIDERATION FOR A PRICE PAID OR PROMISED. UNDER S . 108 OF THE SAID ACT THE LESSEE IS ENTITLED TO BE PUT IN POSSESSION OF T HE PROPERTY. A LEASE IS THEREFORE A TRANSFER OF AN INTEREST IN LAND. THE IN TEREST TRANSFERRED IS CALLED THE LEASEHOLD INTEREST. THE LESSOR PARTS WIT H HIS RIGHT TO ENJOY THE PROPERTY DURING THE TERM OF THE LEASE AND IT FOLLO WS FROM IT THAT THE LESSEE GETS THAT RIGHT TO THE EXCLUSION OF THE LESSOR. WHE REAS S. 52 OF THE INDIAN EASEMENTS ACT DEFINES A LICENCE THUS: WHERE ONE PERSON GRANTS TO ANOTHER OR TO A DEFINI TE NUMBER OF OTHER PERSONS A RIGHT TO DO OR CONTINUE TO DO IN OR UPON THE IMMOVEABLE PROPERTY OF THE GRANTOR SOMETHING WHICH WOULD IN THE ABSENCE OF SUCH RIGHT BE UNLAWFUL AND SUCH RIGHT DOES NOT AM OUNT TO AN EASEMENT OR AN INTEREST IN THE PROPERTY THE RIGHT IS CALLED A LICENCE. UNDER THE AFORESAID SECTION IF A DOCUMENT GIVES ON LY A RIGHT TO USE THE PROPERTY IN A PARTICULAR WAY OR UNDER CERTAIN TERMS WHILE IT REMAINS IN POSSESSION AND CONTROL OF THE OWNER THEREOF IT WIL L BE A LICENCE. THE LEGAL POSSESSION THEREFORE CONTINUES TO BE WITH T HE OWNER OF THE PROPERTY BUT THE LICENSEE IS PERMITTED TO MAKE USE OF THE PREMISES FOR A PARTICULAR PURPOSE. BUT FOR THE PERMISSION HIS O CCUPATION WOULD BE UNLAWFUL. IT DOES NOT CREATE IN HIS FAVOUR ANY ESTA TE OR INTEREST IN THE PROPERTY. THERE IS THEREFORE A CLEAR DISTINCTION BETWEEN THE TWO CONCEPTS. THE DIVIDING LINE IS CLEAR THOUGH SOMETIM ES IT BECOMES VERY THIN OR EVEN BLURRED. AT ONE TIME IT WAS THOUGHT TH AT THE TEST OF EXCLUSIVE POSSESSION WAS INFALLIABLE AND IF A PERSO N WAS GIVEN EXCLUSIVE POSSESSION OF A PREMISES IT WOULD CONCLU SIVELY ESTABLISH THAT HE WAS A LESSEE. BUT THERE WAS A CHANGE AND TH E RECENT TREND OF JUDICIAL OPINION IS REFLECTED IN ERRINGTON V. ERRIN GTON [[1952] 1 ALL E.R. 149] WHEREIN LORD DENNING REVIEWING THE CASE IN LA W ON THE SUBJECT SUMMARIZES THE RESULT OF HIS DISCUSSION THUS AT P.1 55: THE RESULT OF ALL THESE CASES IS THAT ALTHOUGH A PERSON WHO IS LET INTO EXCLUSIVE POSSESSION IS PRIMA FACIE TO BE CONSIDE RED TO BE TENANT NEVERTHELESS HE WILL NOT BE HELD TO BE SO IF THE CI RCUMSTANCES NEGATIVE ANY INTENTION TO CREATE A TENANCY. THE COURT OF APPEAL AGAIN IN COBB V. LANE [[1952] 1 ALL E.R. 1199] CONSIDERED THE LEGAL POSITION AND LAID DOWN THAT TH E INTENTION OF THE PARTIES WAS THE REAL TEST FOR ASCERTAINING THE CHAR ACTER OF A DOCUMENT. AT P.1201 SOMERVELL L.J. STATED: .. THE SOLUTION THAT WOULD SEEM TO HAVE BEEN FOUN D IS AS ONE WOULD EXPECT THAT IT MUST DEPEND ON THE INTENTION OF THE PARTIES. DENNING L.J. SAID MUCH TO THE SAME EFFECT AT P. 1 202: THE QUESTION IN ALL THESE CASES IS ONE OF INTENTIO N: DID THE CIRCUMSTANCES AND THE CONDUCT OF THE PARTIES SHOW T HAT ALL THAT WAS INTENDED WAS THAT THE OCCUPIER SHOULD HAVE A PERSON AL PRIVILEGE WITH NO INTEREST IN THE LAND? THE FOLLOWING PROPOSITIONS MAY THEREFORE BE TAKEN AS WELL- ESTABLISHED: (1) TO ASCERTAIN WHETHER A DOCUMENT CR EATES A LICENCE OR ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 12 LEASE THE SUBSTANCE OF THE DOCUMENT MUST BE PREFER RED TO THE FORM; (2) THE REAL TEST IS THE INTENTION OF THE PARTIES WHETHER THEY INTENDED TO CREATE A LEASE OR A LICENCE; (3) IF THE DOCUMENT CREATES AN INTEREST IN THE PROPERTY IT IS A LEASE; BUT IF IT ONLY PERMITS ANOTHER TO MAKE USE OF THE PROPERTY OF WHICH THE LEGAL POSSESSION CONTINU ES WITH THE OWNER IT IS A LICENCE; AND (4) IF UNDER THE DOCUMENT A PA RTY GETS EXCLUSIVE POSSESSION OF THE PROPERTY PRIMA FACIE HE IS CONS IDERED TO BE A TENANT; BUT CIRCUMSTANCES MAY BE ESTABLISHED WHICH NEGATIVE THE INTENTION TO CREATE A LEASE. JUDGE BY THE SAID TEST S IT IS NOT POSSIBLE TO HOLD THAT THE DOCUMENT IS ONE OF LICENCE. CERTAI NLY IT DOES NOT CONFER ONLY A BARE PERSONAL PRIVILEGE ON THE RESPON DENT TO MAKE USE OF THE ROOMS. IT PUTS HIM IN EXCLUSIVE POSSESSION O F THEM UNTRAMMELLED BY THE CONTROL AND FREE FROM THE DIREC TIONS OF THE APPELLANTS. THE COVENANTS ARE THOSE THAT ARE USUALL Y FOUND OR EXPECTED TO BE INCLUDED IN A LEASE DEED. THE RIGHT OF THE RESPONDENT TO TRANSFER HIS INTEREST UNDER THE DOCUMENT ALTHOU GH WITH THE CONSENT OF THE APPELLANTS IS DESTRUCTIVE OF ANY THEORY OF LICENCE. THE SOLITARY CIRCUMSTANCE THAT THE ROOMS LET OUT IN THE PRESENT CASE ARE SITUATED IN A BUILDING WHEREIN A HOTEL IS RUN CANNOT MAKE ANY D IFFERENCE IN THE CHARACTER OF THE HOLDING. THE INTENTION OF THE PART IES IS CLEARLY MANIFEST AND THE CLEVER PHRASEOLOGY USED OR THE IN GENUITY OF THE DOCUMENT-WRIER HARDLY CONCEALS THE REAL INTENT. 16. THUS THE AGREEMENT ENTERED BY THE ASSESSEE EVEN THO UGH TERMED AS LEAVE AND LICENSE AGREEMENT IS IN FACT A LEASE AGRE EMENT IN ITS FORM AND SUBSTANCE. FURTHER THE PROVISIONS OF SECTION 27 R.W .S. 269UA(F) DEEM THE TENANTS AS OWNERS OF THE PROPERTY. PROVISIONS OF SE CTION 27 AND 269UA RELEVANT ARE AS UNDER: - OWNER OF HOUSE PROPERTY ANNUAL CHARGE ETC. DEFINED. 27. FOR THE PURPOSES OF SECTIONS 22 TO 26 (I) ; (II) ; (III) ; (IIIA) ; (IIIB) A PERSON WHO ACQUIRES ANY RIGHTS (EXCLUDING ANY RIGHTS BY WAY OF A LEASE FROM MONTH TO MONTH OR FOR A PERIOD NOT EXCEEDING ONE YEAR) IN OR WITH RESPECT TO ANY BUILDING OR PAR T THEREOF BY VIRTUE OF ANY SUCH TRANSACTION AS IS REFERRED TO IN CLAUSE (F) OF SECTION 269UA SHALL BE DEEMED TO BE THE OWNER OF T HAT BUILDING OR PART THEREOF;] (IV) [***] (V) [***] (VI) . ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 13 269UA . .. (F) TRANSFER (I) IN RELATION TO ANY IMMOVABLE PROPERTY REFERRED TO IN SUB- CLAUSE (I) OF CLAUSE (D) MEANS TRANSFER OF SUCH PR OPERTY BY WAY OF SALE OR EXCHANGE OR LEASE FOR A TERM OF NOT LESS THAN TWELVE YEARS AND INCLUDES ALLOWING THE POSSESSION OF SUCH PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANC E OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A O F THE TRANSFER OF PROPERTY ACT 1882 (4 OF 1882). EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE A LEASE WHICH PROVIDES FOR THE EXTENSION OF THE TERM THEREO F BY A FURTHER TERM OR TERMS SHALL BE DEEMED TO BE A LEASE FOR A T ERM OF NOT LESS THAN TWELVE YEARS IF THE AGGREGATE OF THE TER M FOR WHICH SUCH LEASE IS TO BE GRANTED AND THE FURTHER TERM OR TERMS FOR WHICH IT CAN BE SO EXTENDED IS NOT LESS THAN TWELVE YEARS ; (II) IN RELATION TO ANY IMMOVABLE PROPERTY OF THE NATURE REFERRED TO IN SUB-CLAUSE (II) OF CLAUSE (D) MEANS THE DOIN G OF ANYTHING (WHETHER BY WAY OF ADMITTING AS A MEMBER OF OR BY W AY OF TRANSFER OF SHARES IN A CO-OPERATIVE SOCIETY OR COM PANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREE MENT OR ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER) WHIC H HAS THE EFFECT OF TRANSFERRING OR ENABLING THE ENJOYME NT OF SUCH PROPERTY. 17. APPLYING THE ABOVE PROVISIONS TO THE FACTS OF THIS CASE AS THE ASSESSEE HAS GIVEN AN IRREVOCABLE PERMANENT LEAVE A ND LICENCE TO THE TENANTS BY VIRTUE OF SECTION 27 R.W. CLAUSE (F) TO SECTION 269UA THE TENANTS HAVE BECOME THE DEEMED OWNERS OF THE PREMISES. THE INCOME FROM HOUSE PROPERTY IS TAXABLE IN THE HANDS OF OWNER OF PROPER TY. THIS IS EVIDENT FROM SECTION 22 WHICH IS EXTRACTED FOR IMMEDIATE REFEREN CE: 22. THE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BUIL DINGS OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OWNER OTHER T HAN SUCH PORTIONS OF SUCH PROPERTY AS HE MAY OCCUPY FOR THE PURPOSES OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM THE PR OFITS OF WHICH ARE CHARGEABLE TO INCOME-TAX SHALL BE CHARGEABLE TO IN COME-TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE TAXABILITY OF INCOME FROM HOUSE PROPERTY IS NOT RESTRICTED TO THE ACTUAL RENT RECEIVED BUT TAX MAY BE LEVIED ON PROPERTY ON THE POTENTIAL OF THE PROPERTY TO EARN INCOME. THE LEGISLATURE WHILE INTR ODUCING THE CONCEPT OF DEEMED OWNER DID NOT ENVISAGE TAXING OF INCOME IN T HE HANDS OF LEGAL OWNER ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 14 UNDER THE HEAD INCOME FROM HOUSE PROPERTY WHEN SU CH INCOME WAS TAXED IN THE HANDS OF THE REAL OWNER. THIS IS EVIDENT FRO M PARAGRAPH 23.4 OF THE CIRCULAR NO. 495 DATED 22.09.1997 EXPLAINING THE PR OVISIONS OF FINANCE ACT 1987 167 ITR 73 WHICH IS EXTRACTED AS UNDER: - 23.4 THE AMENDING ACT HAS SHIFTED THE LIABILITY TO A TAXATION FROM THE LEGAL OWNER TO THE REAL OWNER IN RESPECT OF SOM E TRANSFERS BY INTRODUCING DEEMING PROVISIONS. THE QUESTION OF TAX ING THE LEGAL OWNER E.G. A BUILDER OF MULTI-STOREYED FLATS UNDE R THE HEAD INCOME FROM HOUSE PROPERTY WOULD CONSEQUENTLY NOT ARISE . THE ABOVE CBDT CIRCULAR EXPLAINS THE PROVISIONS OF SECTION 27. THE ENACTMENT OF LEGAL FICTION IS BINDING ON THE DEPART MENT. FURTHER THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. NA NDANAM CONSTRUCTIONS 222 ITR 737 CONSIDERED THIS VERY ISSUE AND HELD THA T THE LEGAL OWNER COULD NOT BE ASSESSED IN VIEW OF THE LEGAL FICTION CREATE D UNDER SECTION 22 AND ONLY THE REAL OWNER OR THE DEEMED OWNER COULD BE ASSESSE D TO TAX AS PER THE PROVISIONS OF SECTION 27. IN THE SAID CASE THE BUI LDER HAD CONSTRUCTED THE PROPERTY AND HAD GIVEN POSSESSION OF THE PROPERTIES TO THE BUYERS. THE INCOME TAX OFFICER ASSESSING THE BUILDER SOUGHT TO TAX THE BUILDER UNDER THE HEAD INCOME FROM HOUSE PROPERTY WITH RESPECT TO F LATS CONSTRUCTED AND DELIVERED TO THE BUYERS FOR WHICH REGISTRATION WAS PENDING. THE HON'BLE ITAT HELD THAT WHEN THE BUYERS WERE DEEMED AS OWNERS BY VIRTUE OF SECTION 27 THE BUILDER COULD NOT BE ONCE AGAIN ASSESSED WITH R ESPECT TO THE SAME PROPERTIES UNDER THE HEAD INCOME FROM HOUSE PROPER TY AS OWNERS. THE HON'BLE ITAT ACCORDINGLY DELETED THE ADDITION. IN T HE HON'BLE ANDHRA PRADESH HIGH COURT RELYING ON THE DECISION OF THE H ON'BLE SUPREME COURT IN THE CASE OF JODHA MAL KUTHIALA VS. CIT 82 ITR 570 H ELD THAT OWNER IN THE CONTEXT OF INCOME TAX WAS TO BE UNDERSTOOD AS SINGL E OWNER AND THERE COULD NOT BE TWO OWNERS I.E. THE LEGAL OWNER AND THE REA L OWNER. INCOME FROM HOUSE PROPERTY COULD ONLY BE ASSESSED ONCE EITHER IN THE HANDS OF OWNER OR IN THE HANDS OF DEEMED OWNER. ACCORDINGLY ANY INCO ME FROM PROPERTY COULD ONLY BE ASSESSED TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY ONLY IN THE ONE OF THE HANDS OF LEGAL OR DEEMED OWNER. 18. SINCE THESE ASPECTS HAVE NOT BEEN EXAMINED BY THE A .O. AT ALL AS THERE WAS NO DISCUSSION IN THE ORDERS AND THE AGREE MENTS ENTERED BY THE ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 15 ASSESSEE WERE NOT EXAMINED IN CORRECT PERSPECTIVE IN THE INTEREST OF JUSTICE WE ARE OF THE OPINION THAT THE MATTER REQUIRES RE-E XAMINATION BY THE A.O. AFRESH. HE IS DIRECTED TO KEEP THE ABOVE PROVISIONS OF LAW IN MIND AND EXAMINE THE FACTS. IN CASE ASSESSEE OFFERS INCOME O N COMPLETION OF THE PROJECT EITHER IN A.Y. 1999-2000 AS CONTENDED BEFOR E US OR IN A SUBSEQUENT ASSESSMENT YEAR THE A.O. CAN TAKEN THESE FACTS INT O CONSIDERATION. IT WAS SUBMITTED THAT THOSE TENANTS HAVE PAID THE STAMP DU TY FOR REGISTRATION AND THE PROPERTIES ARE BEING CONVEYED. A.O. IS DIRECTED TO EXAMINE THESE AND NECESSARY DECISION CAN BE TAKEN IN THE RESPECTIVE A SSESSMENT YEARS. THE A.O. IS ALSO DIRECTED TO EXAMINE WHETHER THE TENANT S HAVE OFFERED ANY INCOME FROM HOUSE PROPERTY IN THEIR HANDS SO THAT T HERE IS NO DOUBLE TAXATION OF THE SAME INCOMES IN THE HANDS OF THE LE GAL OWNER AND DEEMED OWNER. WITH THESE DIRECTIONS THE ASSESSMENTS IN TH ESE YEARS STAND RESTORED TO THE FILE OF THE A.O. WE SET ASIDE THE ORDERS OF THE A.O. AS WELL AS THE CIT(A) IN RESPECTIVE YEARS WITH A DIRECTION TO REDO THE AS SESSMENTS AFTER NECESSARY EXAMINATION AND ACCORDING TO THE PROVISIONS OF LAW . 19. IN THE RESULT APPEALS ARE CONSIDERED ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 2011. (R.V. EASWAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: SEPTEMBER 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IX MUMBAI 4. THE CIT IX MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P. ITA NO. 5877 3581 6317 & 3151/MUM/2006 M/S. PRIYADARSHINI PROPERTIES AND ESTATES P. LTD. 16 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 02.09.11 SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR 07.09.11 SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER