Income from house property: Deemed owner: Section 27 of Income-tax Act, 1961: Assessee giving its building on sub-licence basis without charging any lease rent or licence fee but received interest free security deposits: Sub-licencees transferred their rights in favour of others and charged rent: Sub-licensees are deemed owners u/s.27(iii) and would be liable to be assessed u/s.22: AO directed not to charge annual letting value of said building under head ‘Income from house property’ in assesse<

The assessee-company was running a five-star hotel. The lawn on which the hotel was constructed belonged to NDMC which had executed a licence deed in favour of the assessee granting it licence for a period of 99 years for running of the aforesaid hotel. Adjacent to the hotel, there was another building constructed on that very lawn. Admittedly, that building was not used for hotel business of the assessee, but the apartments of that building were given on sub-licence basis to different parties for carrying on business as specified in the sub-licence agreements. The sub-licences were given for a period of 9 years and 11 months, which were renewable at the request of the sub-licensees. The assessee was not charging any lease rent or licence fee from those parties, instead it had received interest-free security deposits in the year of original sub-licence, which receipts were shown by it as unsecured loans in its balance sheet. The sub-licence deeds, which were executed by the assessee with the sublicensees, permitted the sub-licensees to transfer the same to any other person on payment of transfer charges to the assessee-company. Almost all the sub-licensees had transferred their sub-licences and, thus, various other persons were occupying those premises. The said persons were paying rents to the sub-licensees, which amount had been taxed in the hands of sub-licensees under the head ‘income from house property’. The Assessing Officer, calculated the annual letting value of the said property on the basis of rent/licence fee paid by the occupiers to the sub-licensees and added same to the assessee’s income under the head ‘Income from house property’. The Tribunal accepted the submissions of the assessee that in view of the provisions of section 27(iii) it was the sub-licensee who would be ‘deemed owner’ of those premises who would be assessable and not the assessee. The Tribunal set aside the addition.

On appeal by the Revenue the Delhi High Court upheld the decision of the Tribunal and held as under:

“The approach of the Tribunal in deciding the aforesaid issue was perfectly justified. There was no reason to interfere with the same. The Tribunal was justified in directing the Assessing Officer not to charge the annual letting value of the said buildings under the head ‘Income from house property’.”