TMI Blog2007 (3) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... at appellant was entitled to sub-let the premises to any third party on terms and conditions to be settled by the appellant. 3. It is stated that appellant negotiated with M/s. Modi Rubber Ltd. to vacate the property and after great deal of negotiations M/s. Modi Rubber Ltd. agreed to pay enhanced rent of Rs. 25,000 per month with retrospective effect from 16-6-1999. Subsequently, lease rent from first June 2001 was enhanced from 25,000 P.M. to Rs. 1,25,000 P.M. with retrospective effect from 16th June, 1999. It is stated by the assessee that difference of rent of Rs. 1,00,000 P.M. (Rs. 1,25,000 minus Rs. 25,000) for the period 16th June, 1999 to 31st March, 2001 was offered to tax in assessment year 2002-03 on due basis. 4. The second floor of the aforesaid premises was let out by the appellant to M/s. Gujarat Guardian Ltd. on rent of Rs. 1,20,000 P.M. for 3 years with effect from 1st April, 1999. The appellant declared rental income of Rs. 17,40,000 as per details given below for assessment for the assessment year under consideration, under the head "Other sources":- "Therefore, the appellant declared the rental income amounting to Rs. 17,40,000 under the head "Income From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee as beneficial owner under section 22 of Income-tax Act or a deemed owner under section 27(iiib) of Income-tax Act. It was contended that assessee-appellant had rightly returned rental income under the head "Other sources" and question of enhancing that income on notional basis did not arise. As a corollary it was contended that expenditure claimed were wrongly disallowed. 9. The ld. CIT(A) held that a beneficial owner could be treated as owner of the property for the purposes of section 22 of the Income-tax Act. For this view, the ld. CIT (Appeals) placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625 and R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC). On a close perusal of lease deed executed by Prof. Harnam Singh, the ld. CIT (Appeals) concluded that assessee was a "beneficial owner" of the property and was entitled to enjoy the rental income from the property in his own right. She referred to and relied upon clauses 3, 6, 7, 8, 9 10 of the lease deed, which permitted the assessee to use the property, to make addition or alterations and give it on lease or sub-let. She also held that period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the property in any manner he likes. No such right was available to the assessee-appellant. Shri Vohra argued that decision of Hon'ble Supreme Court in the case of Podar Cement (P.) Ltd., Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775 and R.B. Jodha Mal Kuthiala's case were distinguishable. There the assessee had all the rights of an owner without transfer of title and therefore, assessee was held to be owner of the property. Here Prof. Harnam Singh, as lessor, was the owner and assessee had a right to exploit the property for a period of 9 years and few months on terms and conditions stipulated in the lease deed. He cannot be treated as owner or beneficial owner of the property. Shri Vohra also contended that assessee was wrongly held to be deemed owner of the property under section 27(iiib) of Income-tax Act. The period of lease here was for 9 years and 11 months and cannot be imagined to be for 12 years as provided under clause (f) of section 269UA. There was no question of estimating annual letting value as rental income was liable to be assessed under the head "Other sources". Shri Vohra also pressed his claim for allow ability of expenditure of Rs. 16,02,179 under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the case are held to be well taken and are accepted. 15. The other pertinent question is whether assessee could be treated to be the "beneficial owner of the house property" under section 22 of the Income-tax Act. Before proceeding to consider terms and conditions of the deed, it is necessary to have in mind principle laid down before their Lordships of Supreme Court in two recent decisions as follows:- (1) Podar Cement (P.) Ltd.'s case. (2) Mysore Minerals Ltd.'s case. 15.1 In the case of Podar Cement (P.) Ltd. the respondent, assessee claimed to be fulfledged owner of flat at Nepean Sea Road, Mumbai. Two of the flats were directly purchased by the assessee from builders and other two were purchased by sister concern and subsequently by the assessee from the sister concern. The possession of the flats was taken after payment of full consideration in August 1973. All the flats were let out by the assessee to various persons and rental income was included in the return under the head "Other sources" as assessee had claimed that it was not legal owner of the property. It was claimed that without legal ownership i.e., without transfer of property in the name of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or her assent) it is for the time being beneficially vested, and who has the occupation, or control, or usufruct, of it, e.g., a lessee is, during the term, the owner of the property demised. Yet another definition that has been given by Stroud is that: "'Owner' applies to every person in possession or receipt either of the whole, or of any part, of the rents or profits of any land or tenement; or in the occupation of such land or tenement, other than as a tenant from year to year or for any less term or as a tenant at will'". (Stroud's Judicial Dictionary, 3rd Edn., Vol. 3 p. 2060). Thus the juristic principle from the viewpoint of each one is to determine the true connotation of the term "owner" within the meaning of section 22 of the Act in its practical sense, leaving the husk of the legal title beyond the domain of ownership for the purpose of this statutory provision. The reason is obvious. After "all," who is to be taxed or assessed to be taxed more accurately a person in receipt of money having actual control over the property with no person having better right to defeat his claim of possession or a person in legal parlance who may remain a remainder man, say, at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. That, however, would not take away the right of the assessee to remain in possession of the property, to realise and receive the rents and profits therefrom and to appropriate the entire income for its own use. The so-called vendor is not permitted in law to dispossess or to question the title of the assessee (the so-called vendee). It was for this very practical purpose that the doctrine of the equity or part-performance was introduced in the Transfer of Property Act, 1882, by inserting section 53A therein. The section specifically allows the doctrine of part-performance to be applied to the agreements which, though required to be registered, are not registered and to transfers not completed in the manner prescribed therefor by any law. The section is, therefore, applicable to cases where the transfer is not completed in a manner required by law unless such a non-compliance with the procedure results in the transfer being void. There is, however, a distinction between an agreement void as such and an agreement void in the absence of something which the vendor could do and had expressly or impliedly contracted to do, and where a vendor agrees to sell his share of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpreted reasonably and in consonance with justice. So far we have dealt with the case in this respect on juristic principles as if it were a matter of first impression. We have, therefore, now to refer to the case law on the subject". Ultimately, the learned Judges held that the assessee in that case will fall under the true meaning of the term "owner" as used in section 22 of the Act and, therefore, liable to tax from income out of the house property as owner thereof. This judgment of the Patna High Court was followed by the same High Court in the judgment in Krishna Lal Ajmani's case. 14. The Rajasthan High Court in Maharani Yogeshwari Kumari's case again considered the same question and after referring to various judgments held as follows: "Section 22 of the Income-tax Act has created a charge on the income in respect of annual value of the property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax under the head "Income from house property". The question, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h under the IT law, the benefit of ownership is unknown, but still if the income is assessed in the hands of the transferor who has not received the income from the property whether such a transferor can be made liable to make the payment of tax. Various decisions given by the different High Courts have taken different views. The view of the Calcutta, Bombay, Delhi and Allahabad High Courts as mentioned above is on one hand, whereas the view of the Andhra Pradesh High Court in the case of CIT v. Nawab Mir Barkat Ali Khan (1974) Tax LR 90 and the Karnataka High Court in the case of Ramkumar Mills (P.) Ltd v. CIT [1989] 180 ITR 464 (Kar.): TC 40R.340 is different. So far as the view taken by the Apex Court in the case of Osman Ali Khan v. CWT (1986) 57 CTR (SC) 89 : (1986) 162 ITR 888 (SC) is concerned that was in the context of the WT Act where the language of the section was different. Section 53A debars a transferor from exercising the rights of an owner after he has received full consideration and handed over possession under the contract. The transferor in a case where he has executed the document and received consideration and even handed over possession of the property, cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e do not think that it is necessary to set out extracts from the judgments of other High Courts taking similar view. 15. The contrary view taken by the other High Courts was mainly based on the facts that unless there is a registered deed conveying the property, the person in possession/enjoyment of the property cannot be considered as legal owner and, therefore, he cannot be called upon to pay the tax under section 22 of the Act. 16. The law laid down by this Court in Jodha Mal's case, according to us, has been rightly understood by the High Courts of Punjab Haryana, Patna, Rajasthan, etc. The requirement of registration of the sale-deed in the context of the section 22 is not warranted. The above summing up is factually based on the judgments of this Court as well as English decisions. 24. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas (1968) 3 SCR 623, while considering the nature of amendment to section 29(2) of the Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: "The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain deductions, one of them being depreciation of buildings, etc. owned by the assessee and used for the purposes of the business or profession. The terms "own", "ownership" and "owned" are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used. CIT v. Podar Cement Pvt. Ltd [1997] 226 ITR 625 (SC), is a case under the Income-tax Act and has to be taken as a trend-setter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term "owned" as occurring in section 32(1) of the Act. The term owned as occurring in section 32(1) of the Income-tax Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. "Building owned by the assessee", the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Housing Board, part payment received and possession delivered so as to confer domination over the property on the assessee whereafter the assessee had in its own right allotted the quarters to the staff and they were being actually used by the staff of the assessee. The assessee was entitled to depreciation in respect of the seven houses in respect of which the assessee had not obtained a deed of conveyance from the vendor although it had taken possession and made part payment of the consideration. Decision of Karnataka High Court reversed." 18. It will be clear from above that question involved before their Lordship was little different from question involved before us. In above cases, as is clear from the italics portion of decisions, the assessee was in possession of property and was exercising complete domain over the property with an absolute power of disposal in its own right. There possession was also protected under section 53A of the Transfer of Property Act. For certain reasons, transfer deed in favour of assessee was not registered. The question arose whether in above circumstances, assessee can be treated to be the owner under section 22 of the Income-tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... di Rubber Limited and shall not extend the period of the current lease beyond the current period and all further correspondence and dealings with Modi Rubber Ltd. shall be only through the lessee herein. 5. That the water and electricity expenses would be borne by the lessee as per bills raised by the authorities. 6. That the lessee shall be at liberty to sub-let the premises in whole or in part(s) in favour of any third party and on terms and conditions to be settled by the lessee and the lessor hereby grants unconditional permission for such sub-letting(s) and ratifies and agrees to ratify all such actions/documents that may be executed by the lessee in this behalf as if the same had been executed by the owner. 7. That the lessee shall be entitled to make additions, alterations and modifications as may be required by the lessee as per its requirements and to carry out ducting and constructions of cooling towers, lifts etc., at its own cost. The lessee shall be entitled to remove and take back all such structure/s at the time of expiry of this agreement or at the option to leave the same behind without any payment in respect thereof. 8. That the repairs in the demised prem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any relating to the rent and/or the period of the current lease (which according to the owner is due to expire on 14th June, 2004 and according to Modi Rubber Ltd. is due to expire thereafter) and for securing the rent and/or the vacant possession of the premises and to settle/compromise the dispute on such terms as the lessee may determine. Cost of all legal proceedings shall, however, be borne by the lessee and/or its sub-lessee and the same shall not be recoverable from the owner. (iv) To secure vacant possession of the said premises in whole or in part from the said M/s. Modi Rubber Ltd. pursuant to and in terms of an agreement/settlement/compromise that may be arrived at with the said Modi Rubber Ltd. and to occupy the said premises/part thereof pursuant to and in terms of this agreement as a tenant for the period stipulated herein and on the terms and conditions stated here." The facts involved in the present case are quite different. Admittedly, Prof. Harnam Singh is the owner of the property. He has not transferred all his rights to the assessee-appellant, though some rights are transferred to the assessee including right to realize rent. Rights exercised by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner or deemed owner of house property under section 22 of the Income-tax Act. Income realized from sub-lessee in occupation of the premises is income of the assessee. There is no dispute on this. The assessee's contention that above income is to be assessed under the head "Other sources" as he is not owner of the premises, is well taken and is required to be accepted. There is no question of estimating annual letting value of the property. It is to be assessed as per agreement between the parties under the head "Other sources". The revenue authorities were not justified in assessing rental income under the head "House property". On facts of the case, we direct the Assessing Officer to take assessee's rental income under the head "Other sources". The assessee would also be entitled to consequential relieves under the law. This ground of appeal of the assessee is accepted. 20. The other ground relating to certain expenses claimed by the assessee against rental income under the head "Other sources" was disallowed as income was taken under the head "House property". We have already held that rental income is to be assessed under the head "Other sources". Consequently we direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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