Income from Property

Allegation against the Taxpayer/Company (owned by the Government of Pakistan and Government of Punjab), engaged in providing space in exhibition halls known as Expo Centre, was that the taxpayer had not declared his income under S. 15 of the Income Tax Ordinance, 2001 ('the Ordinance, 2001') as income from property on which tax withheld/paid was minimum tax liability of taxpayer

The Additional Commissioner Inland Revenue treated income of the taxpayer under S. 15 of the Ordinance, 2001 as income from property and apportioned expenses of the taxpayer between the two streams of income from property and event management services under S. 18 of the Ordinance, 2001 as income from business

Commissioner Inland Revenue (Appeals) accepted the appeal of the taxpayer

Validity

Perusal of subsection (2) of S.15 of the Ordinance, 2001 makes it clear that to be owner of land or building is a prerequisite for treating rental receipts as income from property

Therefore, the Additional Commissioner Inland Revenue was not justified in treating income of the taxpayer as income of property ; consequently, he was also not justified in apportioning expenses between the two streams of revenue namely letting out of space and providing of services

Thus, the order of the Additional Commissioner Inland Revenue being illegal and against the facts of the case was rightly vacated by the Commissioner Inland Revenue (Appeals)

Appellate Tribunal Inland Revenue upheld the order of the Commissioner Inland Revenue (Appeals)

Appeals, filed by the Departmental, was dismissed, in circumstances.

Officer Inland Revenue allocated the taxpayer/company expenses relatable to rental income which order was deleted by the Commissioner (Appeal) accepting claim of the taxpayer that properties were rented out in previous years incurring some negligible / immaterial charges not warranting any need to allocate the expenditure to the income

Department assailed order passed by the Commissioner (Appeal) before the Appellate Tribunal Inland Revenue ('Tribunal')

Validity

According to the Commissioner, allocation of expenses to property income was against the provisions of section of the Income Tax Ordinance, 2001 as well as R. 13 of the Income Tax Rules, 2002

There was no justification in the Assessing Officer's stance to allocate expenses from rented property

There was no tangible evidence before the Assessing Officer to show that the allocated expenses were specifically incurred from earning income

Tribunal maintained that expenses prorated by the OIR had no relevance with the earning of property income

Appeal filed by the Department was dismissed, in circumstances.

First Appellate Authority directed that addition made be accepted as rental income as a separate block of income instead of income from other sources despite the fact that the properties were not owned by the taxpayer

Revenue contended that rental income claimed by the taxpayer from immoveable property was treated as income from other sources assessable under S.39 of the Income Tax Ordinance, 2001 because these properties were admittedly not owned by the company but the ownership was in the name of a Director of the company

Taxpayer contended that rental income had been earned from the properties which were duly reflected in the balance sheet of the taxpayer; and it will be wrong to conclude that it was not rental income of the company but income from other sources

Validity

Taxpayer did not deny that all the properties were in the name of one of the Director of the company but argued that company/taxpayer had declared all the properties as its assets duly reflected in the balance sheet, the income from such properties should be treated as rental income of the Company and not income from other sources

Provisions of S.15(2) of the Income Tax Ordinance, 2001 provided for exclusive definition of rent which meant any amount received or receivable by owner of land or building

Income to be classified as rental income, the person receiving rent must be the owner of the land or building according to the provisions of law

Admittedly the taxpayer company was not the owner of the properties let out, the receipts from these properties would fall under `income front other source' of the taxpayer assessable under provision of S.39 of the Income Tax Ordinance, 2001.

Question discussed in said judgment was different from issue involved in appeal before High Court i.e. whether tax would be charged on total lease money of each plot received in advance in a year or same would be charged proportionately on each plot per year in respect of plot leased out by assessee

Supreme Court set aside impugned judgment and remanded case to High Court for its decision afresh in accordance with law.

Income from Property House property-Allowances-Ground rent-Arrears of ground rent of earlier years paid during accounting year, whether allowable-Interpretation of statutes-Whether Rules can control the main section-Indian Income-tax Act, 1922, S. 9(1)(iv).

Right to reside in properties vesting in Custodian-Trustees whether assessable on income from properties- Rent receivable by Custodian - Whether charge-Whether alienation at source-Income-tax Act, 1922, S. 9(1)(iv).

Whether deductible as "annual charge" - Stipulation for payment every month-Whether "annual" payment - Charge created voluntarily

Rules in Bijay Singh Dudhuria's case

Whether applicable to deductions under. S. 9(1)(iv)-Meaning of "annual charge" - "Charge" and "security" distinguished -Reference-New grounds-Construction of Act-Consideration of equity.