Law: Income Tax Act, 1961

Section: 22,56

Income-tax---Income from house property or income from other sources ---Assessee agreeing to purchase property---Part consideration paid to vendor---Vendor to hand over to assessee rent from property collected during currency of agreement---Sums received by assessee from vendor not rent as assessee not yet owner---Taxable as income from other sources---Indian Income Tax Act, 1961, Ss.22 & 56. On August 16, 1979, the assessee-company entered into an agreement to purchase certain property. The agreed consideration was Rs.30 lakhs, out of which, the agreement recited that a sum of Rs.25 lakhs had been received by the vendor. Under clause (4) of the agreement, the sum of Rs.5 lakhs was to be paid on the date of execution of the sale deed. Clauses (6) and (7) recited that during the currency of the agreement, the entire rents collected from the tenants of the property in question amounting to Rs.8,500 per month would be paid by the vendor to the assessee, that it would be open to the assessee to demand payment of the entire amount of the advances together with the outstanding sum after the expiry of three months notice in writing, that on failure by the vendor to return the entire amount before expiry of the notice period, the assessee would be entitled to receive interest at the rate of 12 per cent per annum on all out standings, so, however, that the rent of Rs.8,500 or portions thereof collected after that date should be adjusted. The question was whether the sum of Rs.1,02,000 received by the assessee could be treated as income from house property or as income from other sources: Held, that the sum in question could not be treated as income from house property because the assessee was not the owner of the house property which was the subject-matter of the agreement, as no sale-deed had been executed. The vendor continued to be the owner, and received rents, but when handed over to the assessee, the sums received by the assessee from the owner were not rent but were received under the terms of the agreement, and were, therefore, assessable under the head "income from other sources". CIT v. Trustees of H.E.H. The Nizams Miscellaneous Trust (1986) 160 ITR 253…

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