TMI Blog1994 (2) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the said section has no applicability to the appellant. In order to appreciate the issue in its true perspective, it would be necessary to bring out the facts, which is so brought out in the following paragraphs. 2. The appellant had paid a total of Rs. 1,30,900 to Shree Nirmal Commercial (P.) Ltd. (henceforth referred to as SNCPL) between28-12-1965to29-6-1966. On25-10-1967, the company allotted 265 equity shares of Rs. 100 each and adjusted the amount lying in credit with it. On 8-11-1967, the appellant paid a further sum of Rs. 30,400 and on 13-1-1968 paid another Rs. 500 and on 16-1-1968, the company issued a further 5 equity shares of Rs. 100 each and adjusted the value of the shares from the account of the assessee with it. On31-3-1968, the company transferred from the account of the assessee Rs. 1,24,685 to an account styled 'Irrevocable Deposit', leaving a balance of Rs. 10,250 to the credit of the assessee. The above amounts so transferred to the irrevocable deposit account by the company, was towards the share of the assessee on the portion or space on the commercial building that was constructed by the company, which the company has licensed it to the shareholder. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tc. Clause 17 states that, "the certificates of shares to be issued to the shareholder shall clearly specify and indicate by an appropriate rubber stamp or other device that the shares comprised therein are held subject to the terms and conditions of this agreement". 6. SNCPL had taken on lease for 99 years plot Nos. 241 242 measuring 3416 sq. mts. Backbay Reclamation Estate Block III,Bombayon an initial lease of Rs. 11,57,673.60, which has been enhanced to Rs. 11,82,953.60 from1-5-1985. The commercial building comprising of a basement and 21 floors including the ground floor was constructed and the said building has been shown in the Balance Sheet of the said company as its fixed asset. The occupants of the said building are the shareholders of the company on an agreement as reproduced above, with the occupancy rights against the non-refundable deposit. The assessee, one of the shareholder of the company, by virtue of the right to sub-lease the flat to three parties, had earned a rental of Rs. 90,501. The assessee had paid the company Rs. 61.185 towards various charges that are to be borne by all of the occupant shareholders of the respective flats. The assessee had returned t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty known as Nirmal Flats. The assessee has claimed deduction of Rs. 61,185 being compensation paid to SNCPL out of rental income received from three tenants. The assessee was required to give the nature of payments made to Nirmal Commercial Ltd. The assessee has filed receipts of payments to SNCPL which show that company has regularly charged on monthly basis certain amount of compensation charges for the space and car parking sold to the assessee. It appears from the receipts that these are in the nature of repairs and maintenance charged by SNCPL from the owners of the flat. As per provisions of section 24(1)(i) the expenditure on repairs can be allowed only up to 1/6th of the annual value. In this case the assessee has received Rs. 90,501 from the tenants. Therefore, deduction for repairs will be restricted to 1/6th thereof, i.e., Rs. 15,803. 8. In appeal before CIT(A), the assessee had contended that, it is only a licensee and therefore, it can never be equated with or treated as the owner, because, the right of ownership is very different from other rights in relation to the property such as, right to license, occupance, mortgage, tenancy. It was also contended that SNCPL h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstruction cost was deductible for arriving at the profits. Income from floor space in a building allotted to shareholders having been made to identify, quantify or evaluate residuary rights of the assessee-company, compensation towards municipal taxes, maintenance, etc., received from shareholders constituted business income and not income from house property." 9. The CIT(A) observed that, the Bombay High Court had concluded that SNCPL is not the owner of the allotted floor area space and upheld the view of the Assessing Officer that, the assessee was the rightful owner of the flat and the assessment under the head "Income from house property", by applying the provisions of section 27(1)(iii) of the Act. He also observed that, the Bombay High Court had held that there was no legislative infirmity in section 27(iii) of the Act. 10. On the above controversies, the appellant's learned counsel Shri R. Santhanam submitted that section 27(iii) of the Act is intended to cover those situations where a company has a house building scheme and has under that scheme, had allotted shares to its shareholders and then had leased the flats to them. He contended that, the decision of the Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s when there is no specified scheme for construction of the building under a defined scheme, the section cannot be made applicable. 13. Since the controversy is with reference to section 27(iii) of the Act, the same is reproduced below for the sake of facility. Sub-clause (iii) of section 27, was inserted by the Finance Act, 1987 w.e.f1-4-1988which provided that the purpose of sections 22 to 26 : "A member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of the building or part thereof." 14. In the instant case, the accepted fact is that, the buildingNirmalTowerswas constructed with the moneys paid in instalments by the various shareholders. It is also accepted that, the assessee has been leased the space in the said building by virtue of he being a member of the company. It is an accepted fact that, the persons to whom space had been leased inNirmalTowersare shareholders of the company and there are no outsiders to whom the company had leased or allotted the space in the said bui ..... X X X X Extracts X X X X X X X X Extracts X X X X
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