Rental Income of Co-Owners to Be Assessed as AOP Income if No Defined Share is Allotted to Them | HC

Case Details: Y. S. & Co-owners vs. Income-tax Officer - [2024] 167 taxmann.com 585 (Punjab & Haryana)

Judiciary and Counsel Details

• Sanjeev Prakash Sharma & Sanjay Vashisth, JJ.
• Akshay Bhan, Sr. Adv., Shantanu Bansal & Yugank Goyal, Advs. for the Appellant.
• Urvashi Dhugga, Sr. Standing Counsel & Ms Samdisha Kaur, Adv. for the Respondent.

Facts of the Case

The assessee and other co-owners purchased a property in their names, having specified shares jointly in the property. After that, godowns and plinths were constructed and rented out to the Government Agencies.

The Assessing Officer (AO) noted that the rental receipts from these agencies were issued jointly, and the rent was also deposited in one bank account. Thus, the income tax authority initiated proceedings to assess the rent received by co-owners as income of AOP (Association of Persons).

On appeal, the CIT(A) also passed an order holding that income received from Government Agencies had to be assessed in the hands of the co-owners in terms of section 26 as the constructed godowns fall within the definition of ”building”. Further, the Tribunal held that the income received by the assessee was to be assessed as income of the AOP, and the matter reached before the High Court of Punjab & Haryana.

High Court Held

The High Court held that the government companies paid the rent jointly in the hands of co-owners, treating them as a single landlord. The amount was also deposited in a single account. Loans were also raised for the construction of the godowns in the name of Co-owners.

The order passed by the CIT(A) treated the income received individually on the specified shares as the income received individually on the specified shares, which was solely based on the sale deed regarding the purchase of land. There was no defined share of the rental income, and AOP jointly received the income. There was no division in the law, and all were co-landlords of each rented-out property.

Merely if the members of an AOP have been assessed individually, the revenue would not be barred to assess such income in the hands of AOP if the income relates to AOP. Accordingly, it was factually not disputed that the action was to be taken against the assessee as an AOP, and the High Court upheld the decision of the Tribunal.

List of Cases Reviewed

• ITO v. Ch. Atchaiah (1996) 218 ITR 239 (Para 10)Followed.

List of Cases Referred to

• ITO v. Ch. Atchaiah [1996] 84 Taxman 630/218 ITR 239 (SC) (para 10).