TMI Blog1982 (9) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... nd this property was treated as the property of the family of Shri Prem Nath of which he was the karta. He had three sons, Sarva Shri Rajeshwar Nath, Vishwa Nath and Jatinder Nath. His wife was Smt. Indra Devi. A family arrangement was entered into among the members of the family and the same was registered by a document dated2-8-1941. 50 per cent of the property was allotted to Smt. Indra Devi and the remaining moiety was allotted to Shri Prem Nath himself according to the family arrangement. Shri Prem Nath died intestate on15-6-1949leaving behind him his three sons and his widow Smt. Indra Devi. Subsequently, Smt. Indra Devi disclaimed all her rights and interest in the said property and she conveyed her undivided half share by a registered gift deed dated11-9-1957in favour of her three sons in equal shares. The result was that the three sons of Shri Prem Nath became joint owners of the entire property. They treated this property as the property belonging to the respective families. On1-3-1972there was an oral partial partition of the said property by the three families of three sons of Shri Prem Nath respectively. The property was divided in 12 equal parts and they were allotted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said agreement is relevant as much of argument was advanced on this, especially by the revenue: "4. Nothing contained herein was however, to be construed to confer upon the second party, or allottees of the space, any right, title or interest of any kind, whatsoever, into or over the said land or building or any part thereof." There are various clauses as to the manner in which the consideration was to be paid but as already indicated 70 per cent of the built-in-area was left for the benefit of the builders. Clause 10 again is relevant for our purpose and it reads as follows : "10. That the second party was to be free to transfer and dispose of flats, offices, showrooms and garages, covered or uncovered, pertaining to its 70 per cent share of the multi-storeyed building plus 3,000 sq. ft. transferable area on the second floor, and as hereinafter mentioned to any party and in any manner it thought fit without any interference from the vendors or any person claiming through any of them." Clause 14 may also be noticed: "14. That all persons to whom the second party was to transfer any specified area in the building were to be allotted the said areas under perpetual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the multi-storeyed building. The agreement itself has come into being after the full payment of the consideration for the flats by the allottees and after the completion of the building. Clause 5 of the said deed clearly mentions that after the completion of the building, possession shall be handed over by the seller and the builders to the allottees, who is described as a buyer. Clause 6 is very relevant : "6. Transfer of legal title --- The buyer upon delivery of possession will be entitled to the use and occupation of the said office, showroom/storage space/parking space without any hindrance, but subject always to the stipulation and restrictions contained herein, provided always that nothing contained in these shall ever be construed to confer upon the buyer any right, title or interest, grant, lease, demise or assignment in the land of the said office/showroom/storage space or over the said land or building or any part thereof; such conferment to take only subject to such conditions, as are herein contained or as may be imposed by any authority, and then also upon the execution of such deed or deeds as may be required to be executed in favour of the buyer/buyers. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement, which shall be the obligations of the limited company, Ashoka Estate (P.) Ltd., who became the owner of the land. By clause 31 all costs, charges and expenses in connection with the transfer of the title to the buyer or formation of the limited company, namely, Ashoka Estate (P.) Ltd., shall be borne by the buyer. The assessees being allottees, have taken possession of the flats after the payment of the full consideration. They have been in enjoyment of the property and have let out the property to lessees on monthly tenancy basis. 4. In the above background of the facts, the question as already stated is whether the income in respect of the flats taken over by the assessees should be assessed as 'income from house property' or as 'income from other sources'. The ITO took a very simple stand stating that the assessees are not the owners of the property, since there is no legal title vested in them and as such the rental income that they receive should be assessed under the head 'Income from other sources'. The AAC has taken a different view. According to him, the income is to be assessed under the head 'Income from house property'. The revenue is, therefore, in ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership is not necessary for the purpose of section 22. He relied on a number of decisions and the observations thereunder. His main reliance, however, was on the case of R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC). He also placed reliance on some of the passages from the Full Bench decision of the Delhi High Court, which was confirmed by the Supreme Court as above. Based on the decision of the Supreme Court. He argued that it is not necessary that there should be a legal title vested in the assessee and it is enough if there is dominion and control over the property as if the assessee is an owner. Based on the tenor of the documents, he contended that the document should be construed either as it lease or as a licence and in either of the two, the assessee can be treated as the owner for the purpose of section 22. Mr. Gupta further argued that since the assessee has an interest in the property, the income arising therefrom must be assessed under the head 'Income from house property'. He pointed out that by virtue of the agreement there is an interest in the property possessed by the assessee. 8. Mr. T.R. Chadha, for another intervener, argued that all those cases which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me falls under one head or other, it is to be decided according to the common notion of practical men [see CIT v. National Storage (P.) Ltd. [1967] 66 ITR 596 (SC)]. Now if we stop here and look into the facts of the case, one can easily say from a practical point of view that what the assessees are getting is income from house property. The assessees got possession of the flats having paid full consideration for the same and are in enjoyment of the property. The property either he may enjoy himself or he may put to any use by which he earns income. In this case, he has let out the property on a monthly tenancy basis and is earning income. Anybody in the common parlance would immediately state that what the assessee is earning is really income from property. The property is fetching the income for him. It is admitted on both sides that it is not that the income which the assessee is deriving can be brought under the head 'Business'. There could be, therefore, no difficulty in straightaway bringing the income under the head 'Income from house property'. But then the difficulty that arises is on account of the language used in section 22. This leads us to the consideration of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 22, especially in the context of modern way of life in big cities in multi-storeyed flats. The argument on behalf of the assessees proceed on the basis that what the assessees have obtained under the agreement is absolute right of enjoyment and possession without any hindrance whatsoever. The rights according to them are transferable and heritable. There is only husk of title, if at all, that is left out and that would not make any difference for the purpose of treating the assessees as owners under section 22. We may now consider the decision of the Supreme Court in R.B. Jodha Mal Kuthiala which has considered the provisions of section 22 and especially the meaning of the word 'owner' occurring in section 22. The facts of the case are no doubt peculiar. This was in respect of a property inPakistan, which was declared as an evacuee property and it vested in the Custodian inPakistan. It is in that context the question arose whether the assessee can still be considered to be the owner of the property for the purpose of section 9 of the 1922 Act, which is equivalent to section 22 of the 1961 Act. The contention on behalf of the assessee was that the expression 'owner' m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asures enacted during the last about forty years after those observations were made. Suffice it to say that those observations are inapplicable to the case of the 'owner' under section 9 of the Act." 12. If only we have to apply the tests laid down by their Lordships of the Supreme Court to the facts of the case, we find really no difficulty in answering the question in favour of the assessees. From a bare perusal of the various terms and conditions of the two documents, we have referred to, what we find is that the assessees have got an absolute right of enjoyment and possession of the flats allotted to them. Since they are the owners of flats in multi-storeyed building, which require certain common facilities, some obligations are imposed, which appear to be restrictions on the use of the flats but, in effect, they are not in any way derogatory to the right of exclusive enjoyment by each of the flat owners. They are merely for the purpose of effective and efficient use of the building for the common benefit of all the flat owners. Such provisions are absolutely necessary to be made in the context of the present day living in multi-storeyed flats. This sort of living is of recen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. 13. The matter can also be looked into from a different approach on the basis of the documents placed before us. By virtue of an original oral understanding sometime in 1970 the builders have already started constructing the flats on the plot of land. They are given the right in respect of 70 per cent of the flats and that is the consideration which they have received for their work. They are entitled to use those flats in any manner whatsoever. They have constructed the flats with the moneys received from each of the flat owners, to whom they have allotted the flats. They have virtually constructed the flats on behalf of the allottees with their moneys. At the time of allotment the particular flat number is indicated and it is that flat that is allotted ultimately to the allottees after the receipt of the consideration fully by the builders. Possession is delivered to the allottees after the completion. Each of the flat is built for the benefit of the allottees. The moment the flats are completed and handed over to each of the allottees, they can be treated as the owners of those flats, but as already indicated subject to certain restrictions in view of the fact that the flat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. However, Mr. Kapila referred to us the decision of the Delhi High Court in the case of Addl. CIT v. Mercury General Corporation (P.) Ltd. [1982] 133 ITR 525 wherein the aforesaid decision of the Bombay High Court has been explained. Therefore, Mr. Kapila pointed out that the Bombay High Court decision should not be applied to the facts of the case. But we find that there is no inconsistency between the view expressed by the Bombay High Court in Mercury General Corpn. (sic). In fact this decision is altogether in a different context and the issue involved is different. 15. We may now refer to the decision of the Bombay High Court in the case of CIT v. Fazalbhoy Investment Co. (P.) Ltd. [1977] 109 ITR 802. There also the building was constructed by the builder out of the contribution made by the flat owners towards the cost of construction and when the construction was completed, the flat owners actually went into possession of their respective portions. No doubt in that case the builder was sought to be assessed. But from the reasoning which the Hon'ble High Court adopted, it indicates that the flat owners are considered to be the owners. 16. The Madras High Court had an occ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e owners in this case. We do not say that they are not the owners but still they have to be assessed under the head 'Income from house property'. All that we have tried to show is that the assessees can be equated as owners and as such their income should be assessed under the head 'Income from house property'. We may also mention here that the above decision followed the earlier decision of the Delhi High Court in CIT v. Col. H. H. Raja Sir Harinder Singh [1969] 73 ITR 433. 19. In 11 TLR 542, the transferor was held to be liable to tax in respect of the property transferred without a registered document. There also their Lordships held that the transferor was still the owner of the property and the transferee did not become the owner. That is a clear case of a transfer made but not registered. The situation and the facts are totally different. Once it was held that the transferor continued to be the owner and the transferee did not become the owner, the natural consequence would be that the transferor as owner would be liable to tax and not the transferee because he cannot be treated as the owner. 20. Similarly, all other cases, which have been cited by Shri Kapila, which only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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