Section 26 — Income of co-owners of house property — Cannot be assessed as income of an association of persons (AOP) in spite of the fact that a return was filed in the legal status of AOP.

Section 26 — Income of co-owners of house property — Cannot be assessed as income of an association of persons (AOP) in spite of the fact that a return was filed in the legal status of AOP.

A particular house property was co-owned by five persons. A return of income was filed by the association of persons (AOP) of these five persons declaring NIL income and claiming that income is to be assessed in the hands of the respective coowners of the building as share of each co-owners is predetermined. The assessment of AOP was subsequently reopened since the AO observed that the assessee had not paid any municipal taxes but had claimed the same in computation of house property. Before the ITAT, the assessee argued that in view of clear provisions of section 26, there was no question of first ascertaining the property income in the hands of the AOP and then ascertaining the share in the hands of each co-owner. He further argued that the entire exercise of filing of return of AOP was an entirely infructuous exercise and had no income tax implications at all. The DR argued that since the assessee had not taken up this plea of nontaxability while filing the original return, the same cannot be taken up before the Tribunal.

Held:

(1) Since the plea of non-taxability of income is a purely legal ground which does not require any further investigation of facts, there is no bar on dealing with the said plea.

(2) Further, there is a merit in the argument that the very act of filing return of income by the AOP as far as co-ownership of house property is concerned has no income tax implications. This is because the income from house property is to be taxed as per sections 22 to 26. There is no support for the proposition that annual value of the property is to be determined in the course of the AOP itself. So far as the income from house property is concerned, the Act does not envisage that annual value of the co-owned property, upon being determined in the assessment of the AOP, is to be divided amongst the co-owners in predetermined ratio.