ORDER
Sunil Kumar Yadav, J.M.
This appeal by the assessee is directed against the order of the Commissioner (Appeals) on a solitary ground that Commissioner (Appeals) has erred in not assessing the rental income as income from business and also in not allowing the deduction of the expenses incurred for earning interest income by the company.
2. We have heard the rival submissions and carefully perused the orders of the authorities below and documents placed on record. The facts borne out from the record are that the assessee has taken the premises on lease from Basantkumar Somani Memorial Trust on a lease rent of Rs. 750 per month and the same were further let out to Prime Securities Ltd. at the rate of Rs. 12,500 per month. The assessee has treated the rent received as income from business and claimed certain expenditure against that income. The assessing officer was not convinced with the claim of the assessee and the assessee was asked to explain regarding its agreement with Basantkumar Somani Memorial Trust and in response thereto, it was explained on behalf of the assessee that the said premises were leased out to the assessee in September, 1990 by Shri Basantkumar Somani Memorial Trust for a monthly rent of Rs. 750 per month. It was further explained that tenancy is as per the General Rules applicable to the tenant. From the material available on record, the assessing officer observed that the assessee was having the possession of the building on rent of Rs. 750 from the last 9 years and as such he is the owner thereof in view of the provision of section 27(iiib) of the Income Tax Act (hereinafter called as an Act) according to which a person who acquires any right (excluding any rights by way of lease from month to month or for a period not exceeding one year) in or with respect to a building or a part thereof, by virtue of any such transactions as is referred in clause (F) of section 269(!A) shall be deemed to be the owner of that building or part thereof. The assessing officer accordingly held that the assessee with the tenancy rights over the last 9 years, i.e., from September 1990 will be deemed owner of the building and is liable to be taxed under section 22 as income from house property, not as business income which the assessee has claimed. In support of his observations, the assessing officer has placed reliance upon the Judgment of the jurisdictional High Court in the case of CIT v. Arvindkumar Udhavji (1995) 213 ITR 551 (Bom.). The assessing officer accordingly disallowed the other expenses incurred by the assessee after holding that the assessee is entitled for deduction as per section 24 of the Act. Accordingly, 1/5th of the collected rent was allowed as deduction on account of repairs and maintenance.
3. Aggrieved, the assessee has preferred an appeal before the Commissioner (Appeals) with the submission that the assessing officer has wrongly placed reliance upon the Judgment of the jurisdictional High Court in the case of Arvindkumar Udhavji (supra) whereas this judgment was rendered in different context. A general principle cannot be laid down in these type of cases that every letting is only to earn income from house property, it depends upon the facts of each and every case. The Commissioner (Appeals) re-examined the issue in the light of the aforesaid judgment of the jurisdictional High Court, but, was not convinced with the explanation of the assessee and he accordingly confirm the action of the assessing officer.
4. Now, the assessee has preferred an appeal before the Tribunal with the. submissions that the assessee has taken the premises on rent in September 1990 from Shri Basantkumar Memorial Trust with the permission to sublet the portion of the said building to other tenants. The learned counsel for the assessee has invited our attention to the fact that since the premises was taken on rent from month to month basis, it falls within the exception clause of section 27(iiib) of the Income Tax Act and in the light of these facts, assessee cannot be called to be the deemed owner of the building. The learned counsel for the assessee further contended that whenever time period of lease is not fixed and the rent is to be paid month by month, it amount to a lease from month to month. In the case of lease from month to month, it cannot be terminated in the middle of the month. The lease automatically renews at the end of the month for a period of another month. It can only be terminated at the end of the month, not in between. Since the premises was leased out to the assessee from month to month, it does not fall within the clutches of sub-section (iiib) of section 27 of the Income Tax Act. In support of all these contentions, the learned counsel for the assessee has invited our attention to the lease deed executed between the assessee and Shri Basantkumar Somani Memorial Trust. Our attention was also invited to one of the leave and license agreement executed between the assessee and the sub-tenants with the submissions that assessee was engaged in the business of licencing premises to different tenants on monthly license fees. He has further contended that the assessee itself is a tenant in the property. He cannot be called to be the owner of the property, as such, income from house property cannot be determined as per section 22 of the Income Tax Act. In support of his plea, a reliance was placed upon the judgment of the Apex court in the case of S.G. Mercantile Corpn. (P.) Ltd. v. CIT (1972) 83 ITR 700 (SC) and CIT v. Podar Cements (P.) Ltd. (1997) 226 ITR 625 (SC).
5. The learned Departmental Representative on the other hand has contended that the assessee has obtained the premises on lease from Shri Basantkumar Somani Memorial Trust on monthly rent of Rs. 750 payable by the lessee to the lessor on or before 10th of each and every month of lease in advance. In this lease agreement, nowhere it has been mentioned that the lease was executed from month to month. The property was given on lease to the assessee without specifying specific time. Meaning thereby, it was a lease in perpetuity and the lessee was given all powers to make addition and alteration in the property and also to sublet it to other tenants. The learned Departmental Representative further pointed out that this leased premises was taken on lease on 3-9-1990 and till the impugned assessment year, no fresh lease was executed and by virtue of original lease deed, assessee was holding the possession. During the impugned assessment year, the premises was sub-letted to Prime Securities Ltd. against a monthly rent of Rs. 1,12,382 as besides it licensee has paid a sum of Rs. 13,48,596 as interest-free deposits which shall be repaid by the licensor to the licensee on termination of this lease and license. The learned Departmental Representative further contended that it is settled position of law that one should not go title of the documents, but, the entire document should be read in toto to understand the intention of the parties. Since the assessee has taken the premises on lease about 9 years back and it was further let out to other tenants against a hefty consideration, the assessee is deemed owner of the property by virtue of provision to section 27(iiib) of the Income Tax Act and as such, he is liable for income from house property to be determinable under section 22 of the Income Tax Act.
6. Having carefully examined the orders of the lower authorities in the light of rival submissions and the material available on record, we find that admittedly the assessee has taken the premises on lease vide lease deed dated 3-9-1990 against monthly rent of Rs. 750 and since then, assessee has been enjoying the continuous uninterrupted possession. Through this lease deed assessee was permitted to sublet the tenanted premises to other sub-tenants. He was also permitted to divide the tenanted premises into a small cabins. By virtue of this lease deed, lessor would not be entitled to interfere and object to such multiple utilization of the said premises by the lessees either alone or along with the lessee of the adjoining tenanted premises or through the agents. It was also agreed that all creation of sub-lease/subletting/lease and license or other mode of the said premises or any part thereof including the cabins shall be binding on the lessor who shall not object to the same in any circumstances whatsoever, so long as it does not effect the stability of the building. Through other clause, assessee was also permitted to make additons, alterations and repairs to the tenanted premises under the supervision of a qualified architect and structural consultant without effecting the life of the building and lives and property of other lessee/occupants of the building. The monthly rent was stipulated at Rs. 750 per month payable by the lessee to the lessor on or before 10th of each and every month of lease in advance. From a careful perusal of this lease deed only one inference is drawn that assessee has acquired this property for a unlimited period with a right to sublet it to other tenants and to make addition and alteration in the property without effecting the stability of the building. Nowhere in this lease deed it had been mentioned that it was executed from month to month in favour of the assessee. Only the monthly rent was fixed at Rs. 750 payable by the lessee to the lessor on or before 10th of each and every month of lease in advance. By this sentence in the entire lease deed, the lease cannot be termed to be from month to month. A lease from month to month has a different meaning and in that case the lease starts from the first day of the month and ends on the last day of the month, thereafter, it further renews for another period of month and ends on the last day of the month. During the period of month, it cannot be terminated. It can only be terminated at the end of the month.
7. We have carefully gone through the provision of section 27(iiib) of the Act according to which, a person who acquires any right (excluding any rights by way of lease from month to month or a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transactions as is referred to in clause (f) of section 269UA shall be deemed to be the owner of the building or part thereof. We are, therefore, of the view that the Legislature has excluded the short-term of tenancies from the category of deemed owner of the tenanted premises. By introducing this provision, the intention of the Legislature is very clear that they intend to bring the tenants who have been enjoying the tenanted premises for a longer period and let out the properties to sub-tenants and to earn a rental income within the definition of deemed owner, having excluded those tenants who have occupied the tenanted premises for a shorter term, i.e., from month to month or for less than one year. But, in the instant case, having carefully examined the orders of the lower authorities, we find that the assessee has been enjoying the tenanted premises uninterruptedly for the last 9 years with the permission to sublet or to make addition or alteration in the tenanted premises without effecting the stability of the building. The assessee has sublet this premises by virtue of lease and license agreement for a period of 3 years initially commencing from 1-2-1995 with two further renewal options of three years and one year respectively, which shall be exercised at the sole discretion of the licensee, meaning thereby, it was known to every body that assessee is not a temporary tenant for a period of less than a year. He was rather a permanent tenant, i.e., lessee in perpetuity and kept on letting out the property for a period of more than 7 years in part and with that understanding the licensee has paid a sum of Rs. 13,48,596 as interest-free security deposit. Having read both these lease and license agreements, we are of the considered opinion that it is not a case where it can be held that assessee has taken the lease from month to month or for a period not exceeding one year or excluded from the clutches of sub-section (iiib) of section 27 of the Income Tax Act. We have also examined the judgments referred to by the assessee but no assistance can be drawn in favour of the assessee as they were rendered under different facts and circumstances and not applicable to the facts of the present case. We, therefore, hold that assessee acquires a permanent right in tenancy in the property with the permission to sublet and make an addition and alteration in the property, as such, he is deemed owner of the property as per provision of section 27(iiib) of the Income Tax Act.
8. Now the next question comes whether the rental income as an income from house property or is a business income. In the instant case, assessee has sub-letted this property only to one person against the fixed rent which according to the assessee was called to be a license-fee. From the perusal of the record, we do not find any iota of evidence on the basis which it can be said that assessee was engaged in the business of licensing the tenanted premises as there was only one tenant in the premises and assessee was not required to do any other activity except recovering rent. We, therefore, of the considered view that rental income earned by the assessee on subletting of the tenanted property is income from house property and not a business income and the assessee is only entitled to those deductions permissible under section 24(1)(i) of the Income Tax Act. We, therefore, do not find any infirmity in the order of the Commissioner (Appeals).
9. In the result, the appeal of the assessee is dismissed.