Income Tax Appellate Tribunal - Kolkata
The Cardboard Material & Printing Co. ... vs Assessee on 18 March, 2016
I . T. A . N o. 1 1 0 1 / KO L . / 2 0 1 5
Assessment year: 2006-2007
Page 1 of 7
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'SMC' BENCH, KOLKATA
Before Shri P.M. Jagtap, Accountant Member
I.T .A. No. 1101/KOL/ 2015
Assessment Year: 2006-2007
The Cardbo ard Material & Printing Co. Private Limi ted,......... Appellant
7, Convent Road,
Kolkata-700 014
[PAN : AABCT 2274 P]
-Vs.-
Income Tax Officer,..................................................................Respondent
Ward-11(2 ), Kolkata,
P-7, Chowringhee Square,
Kolkata-700 069
Appearances by:
Shri P.J. Bhide, FCA, for the assessee
Shri Dinabandhu Naskar, Addl . C IT, for the Depart ment
Date of concluding th e hearing : February 11, 2016
Date of pronouncing the order : March 18, 2016
O R D E R
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-II, Kolkata dated 11.06.2015 and the solitary issue arising out of the same relates to the determination of the head of income under which the rental income received by the assessee is chargeable to tax.
2. The assessee in the present case is a Company. During the year under consideration, it had received rental income of Rs.96,000/- and after declaring the same as its business income and claiming various expenses aggregating to Rs.48,783/- under the said head, total income of Rs.48,217/- was declared by the assessee in the return of income filed for the year under consideration on 25.11.2006. During the course of assessment proceedings, the assessee was called upon by the Assessing Officer to explain as to why the rental income should not be assessed I . T. A . N o. 1 1 0 1 / KO L . / 2 0 1 5 Assessment year: 2006-2007 Page 2 of 7 under the head "Income from House Property". In reply, it was submitted by the assessee-company that it had taken the house property on lease from M/s. Martin Burns Limited for a period of 40 years and since the said lease period had already expired and there was a dispute about the extension of lease period, rent was being deposited with the Rent Controller. It was contended that the assessee-company thus was not the legal owner of the house property and the rental income could not be assessed in its hand under the head "Income from House Property". This stand of the assessee was not found acceptable by the Assessing Officer. According to him, the assessee was the owner of the property in view of the provisions of section 27(iiib) of the Act and the rental income, therefore, was chargeable to tax in its hand under the head "income from house property". Accordingly, he brought to tax the rental income in the hands of the assessee under the head "income from house property" after allowing deduction at the rate of 30% under section 24(a) of the Act instead of the expenses of Rs.48,783/- claimed by the assessee under the head 'business'.
3. The action of the Assessing Officer in treating the rental income as income from house property instead of business income was challenged by the assessee in an appeal filed before the ld. CIT(Appeals), who upheld the action of the Assessing Officer after discussing all the relevant facts of the case, submissions of the assessee and the relevant legal position, in his impugned order as under:-
"The facts of the case are unique and the property in question is No.7, Convent Road, Kolkat a - 700 014. The propert y h ad belonged to one Pet ro s Hyrapict C rete who apparently leased the pro perty to M/s. Martin Burns Ltd. for the period 1930 to 1980 with the power to sub- lease the same. During the period th e assessee became a sub-lessee of M/s. Mart in Burn Lt d. After M/s. Martin Burns Ltd's lease expired on 31.03 .1980 and when M/s. Martin Bum Ltd. sought to evict the assessee company from the premises, they failed due to lapse of th e lease with P.H. C rete. The suit brought by M/s. Martin Burns Lt d against the assessee was also rejected by the Dist. Judge, Alipore. Accordingly on 11.08.1980 the assessee questioned the aut hority of M/s. Martin Burns Ltd to seek rent from it. Apparentl y M/s. Martin Burns Lt d informed the assessee on 09.10.1980 that they are filing an I . T. A . N o. 1 1 0 1 / KO L . / 2 0 1 5 Assessment year: 2006-2007 Page 3 of 7 appeal against the o rder of th e Dist. Judge, Alipore and they are claiming th e right as a st atuto ry Tenant of P .H . Crete in respect of the premises in question. During the appellate proceedings the AR has not been able to show that the order of the Dist . Judge, Alipo re has been modified or overrul ed at any time during the past thirt y five years. The AR h as not been able to show th at the assessee company is paying any rent t o M/s. Mart in Burns Ltd.
The assessee thus is neither a tenant nor a sub-lessee of the property but is in occupation of the same in full po ssible view for the past few decades. Tech nically P.H. Cret e is not the landlord of the assessee and M/s. Martin Burns Lt d has al ready lost its st atus as a lessor and h as also lost its case seeking eviction. Nobody has ever heard anything from P.H . Crete. The assessee has it s own electricit y/water connection and is enjo ying the pro pert y as it s owner. The assessee has also let out the part of the propert y and has further declared Rent al Receipts of Rs.96 ,000/- in its own right in the Previous Year u nder consideration.
In the order of assessment, the A.D. h as held that the assessee is to be treated as the owner of the propert y in view o f the decision of the Supreme Court in C IT v. Poddar Cement Pvt . Ltd. (1997) 226 ITR 625 (SC) because the asessee is entitled t o receive income fro m the property in his own right. The AO h as also invoked the pro visions of section 27(iiib) of the Act to hold that the assessee h ad a lease of over 12 years and this right entitles it to be termed as an owner of the pro perty. Accordingly the AO brought the Rent al Income of Rs.98,000/- to tax under the head ' Inco me fro m House Propert y' and allowing deductio n thereon as per sectio n 24(a) of the Act . The A.O. also disallowed the sundry expenses claimed by the assessee against th is income.
In the appellate pro ceeding the assesse in its writt en submissio n h as still claimed itself to be a mo nthly tenant claiming that it depo sits the rent fo r the property with the Rent Controller. The assessee has claimed to be under no lease and therefo re it has claimed that section 27(iiib) of th e Act has no applicat ion.
The above facts clearly indicate th at t he assessee is enjo ying the propert y as its defacto owner for the past 40 years. There is no news of P.H. Cret e, the original owner of the pro perty, and the asessee has already won the suit filed by M/s. Martin Burns Lt d fo r eviction. Though t he assessee cl aims t o deposit rent with the Rent Cont roller, the fact remains that the assessee has the right of "adverse po ssession" against al l claimants. e.g. P.H. Crete is not known to exist , M/s. Martin Burns Ltd is not in possession of the property and the assessee does not ack nowledge M/s. Martin Burns Ltd as it s landlord/lesso r. The period of 40 odd years is also a factor to be considered during wh ich the assessee h as enjo yed the pro perty I . T. A . N o. 1 1 0 1 / KO L . / 2 0 1 5 Assessment year: 2006-2007 Page 4 of 7 as an owner and h as also earned rent. It has not been shown that the assessee had been allowed to further sub-lease the property by any of the previo us owner/lessor in t he past . This further strengthens the case against th e assessee. The assessee is also deemed to be the owner by virtue of its " adverse possession" of the propert y.
Every possession usually starts legally 'i.e, it was permissive, unless pro ved to the contrary but the legal possession may beco me adverse possessio n due to happening o f certain event s. The co ncept of adverse po ssession cont emplates a hostile possession, i.e. a possession wh ich is expressly or impliedly in denial of the true owner. Possession to be adverse is possession by a person who does not ack nowledge the other' s right and denies them. The adverse possession is o ne sense is based on the theory or presumption t hat the owner has abandoned the pro perty to the adverse possessor on th e acquiescence of the o wner to the hostile acts and cl aimed of the person in possessio n. In the case of S.M. Karim v. Mst . Bibi Sakina AIR 1964 se 1 254 the supreme co urt has laid down th at the adverse po ssession must be adequate in continuity, in publicit y and extent and a plea is required at the least to show when possessio n beco mes adverse.
In the case of assessee, the assessee denies its liability to pay rent to its Lesso r M/s. Martin Burns Lt d fro m 11.8 .1980. The lessor, by that t ime, h ad lost it s case for eviction of the assessee and there is no proof that it is still pursuing the case. The assessee is openly in possession and h as al l the trappings of an owner in his own right. Further under the Indian Limit ation Act 1963 the period of limitatio n for filling suit by a landlord to recover possessio n from a tenant is 12 years. The section 27 o f the Indian Limit ation Act lays down th at 'At the determination of the period hereby limited to any person for instituting a suit for po ssession of any property shall be extinguished' . Therefore there is a l egal quietus to the dispute also. Under th e circumst ances, it has to be held that the assessee is the 'owner' of the propert y in all sense of th e term and both under the Income Tax Act 1961 (section 27(iiib) and as a holder of adverse possession" .
Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
4. The ld. counsel for the assessee submitted that the 40 years' lease period had already expired in 1980 and the assessee, therefore, cannot be treated as a deemed owner of the property even as per the provisions of I . T. A . N o. 1 1 0 1 / KO L . / 2 0 1 5 Assessment year: 2006-2007 Page 5 of 7 section 27(iiib) read with section 269UB(f) which are not applicable in the case of the assessee.
5. The ld. D.R., on the other hand, submitted that the assessee is fully enjoying the possession of the property and he is the owner of the said property as clearly made out by the ld. CIT(Appeals) after discussing the relevant facts of the case as well as the legal position. He contended that section 27(iiib) read with section 269UA(f) is clearly applicable in the case of the assessee and he has been rightly treated as a deemed owner of the property by the authorities below.
5. I have considered the rival submissions and also perused the relevant material available on record. The term "owner of house property" for the purposes of section 22 to 26 is defined in section 27 and as per clause (iiib) of the said section, which has been invoked by the authorities below in the present case, 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 part 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 that building or part thereof. Clause (f) of section 269UA defines "transfer" in relation to any immovable property referred to in sub-clause (i) of clause (d) to mean transfer of such property 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 performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882.
6. As per the relevant facts as narrated by the ld. CIT(Appeals) in his impugned order, the property in question belonged to one Petros Hyrapict Crete, who leased the same to M/s. Martin Burns Limited for the period 1930 to 1980 with the power to sub-lease the same. The assessee became the sub-lessee of M/s. Martin Burns Limited and when M/s.
I . T. A . N o. 1 1 0 1 / KO L . / 2 0 1 5 Assessment year: 2006-2007 Page 6 of 7 Martin Burns Limited sought to evict the assessee-company from the premises after the expiry of lease on 31.03.1980, they failed to do the same due to lapse of the lease with Petros Hyrapict Crete The suit brought by M/s. Martin Burns Limited against the assessee was also rejected by the District Judge, Alipore and accordingly the assessee even questioned the authority of M/s. Martin Burns Limited to seek rent from it. The assessee-company, however, continued to remain in possession of the property. The provisions of section 116 of the Transfer of Property Act, 1882 deal with the effect of "holding over", which means to retain possession as tenant of property leased, after the end of the term. A distinction is drawn between a tenant continuing in possession after the determination of the lease, without the consent of the landlord, and a tenant doing so with the landlord's consent. The former situation as is obtained in the present case is called a tenant by sufferance, who is no better than a mere trespasser and keeping in view this legal position, I am of the view that the assessee-company in the present case, who is no better than a mere trespasser, can not be treated as a deemed owner in view of the provisions of section 27(iiib) read with section 269UA(f), which are clearly not applicable. In that view of the matter, I set aside the impugned order of the ld. CIT(Appeals) on this issue and direct the Assessing Officer to assess the rental income in question in the hands of the assessee as business income instead of income from house property.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on March 18, 2016.
Sd/-
(P.M. Jagtap) Accountant Member Kolkata, the 18 t h day of March, 2016 Copies to : (1) The Cardbo ard Material & Printing Co. Private Limi ted, 7, Convent Road, Kolkata-700 014 I . T. A . N o. 1 1 0 1 / KO L . / 2 0 1 5 Assessment year: 2006-2007 Page 7 of 7 (2) Income Tax Officer, Ward-11(2 ), Kolkata, P-7, Chowringhee Square, Kolkata-700 069 (3) Commissioner of Inco me-t ax (Appeals)-II, Kolkata (4) Commissioner of Income Tax, Kolkata (5) The Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.