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TMI Blog2007 (3) TMI 309X X X X Extracts X X X X X X X X Extracts X X X X ..... deed provided that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "House property" when assessee disclosed rent as income under the head "Other sources". 7. The Assessing Officer also disallowed expenditure claimed by the assessee against the rental income. He allowed expenditure as are permissible under the head "House property". 8. The assessee challenged above assessment in appeal before the Commissioner of Income- tax (Appeals) and reiterated its submission that rental income has to be assessed under the head 'Other sources', as assessee-appellant was merely a lessee. As per registered lease deed dated 17-11-1998 Prof. Harnam Singh was the owner of the property and therefore, there was no question of taking assessee 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire appeal of the appellant was dismissed. 11. The assessee is aggrieved and has brought the issue in appeal before the Appellate Tribunal. Shri Ajay Vohra, ld. Counsel for the assessee vehemently contended that there is no sale deed in favour of the assessee and therefore, assessee cannot be termed "owner of the house property". He was merely a lessee. An owner must have all the rights of ownership. A beneficial owner is one who has dominion over the property and can exercise all rights of ownership with small defect in its title; say want of registered deed. The owner apart from letting out the property should be in a position to sell or transfer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 years and 11 months and 12 years has been filled up by the revenue authorities on imagination only. There is no material to support or hold that period of lease fixed between assessee and Prof. Harnam Singh was more than 9 years and 11 months. Thus without material and on imagination, the case cannot be taken to be covered under clause (f) of section 269UA of Income-tax Act. Having regard to clear facts on record, even ld. Departmental Representative did not support the view taken by the ld. Commissioner of Income-tax (Appeals). The assessee could not be treated to be deemed owner of the house property. The arguments of Shri Vohra on this aspect 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, ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extent a possessor is presumed to be the owner. Incidentally, although the Supreme Court in the case of Jodha Mal merely mentioned that Stroud's Judicial Dictionary had given several definitions and illustrations of ownership, it refrained from going into the details on account of the practical approach that was made in that case, to which we shall hereinafter refer and dilate upon. We think it worthwhile, the matter having been canvassed at length at the bar, to give a full illustration of the definitions of "ownership" as Stroud puts it. One such definition is that the "owner" or "proprietor" of a property is the person in whom (with his 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has been put in exclusive and absolute possession of the property. It has been empowered to deal with the income as it likes. It has been empowered to dispose of and even to alienate the property. Reference to section 54 or, for that matter, section 55 of the Transfer of Property Act by the Tribunal merely emphasises the fact that the legal title does not pass unless there is a deed of conveyance duly registered. The agreement is in writing and the value of the property is admittedly worth more than hundred rupees. Section 54 of the Transfer of Property Act would, therefore, exclude the conferment of absolute title by transfer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it was on account of these facts that juristic principles have now emerged saying that one of the most important of the powers of ownership is the right to exclude others from possession and the property right is essentially a guarantee of the exclusion of other persons from the use or handling of the thing. In that sense, therefore, the assessee itself became the owner of the property in question. In our view, any decision to the contrary would not be subservient to the intent and purpose of section 22 of the Act, with regard to which, as we have already stated, we can fairly look at the language used and the tax laws have to be interpreted 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that without there being conveyance, the transferor continues to be the owner is taken, still a question arises that the income has not been received by the owner and, therefore, whether the assessment of the transferee could be made by considering that there was diversion of income or the transferor has ceased to have any right in respect of the income received? This section debars the transferor from enforcing his right to the property. In the case of Hamda Ammal v. Avadiappa Pathar [1991] 1 SCC 715, it was held by the Apex Court that the document after its registration relates back to the date of execution of the sale-deed. Though 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 Karnata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the income is received by the transferee, the transferee would enjoy the income but the tax will be levied from the registered owner who mayor may not be in a position to make the payment of tax. Sixthly, there could be diversion of income by overriding title as was considered in the case of Savita Mohan Nagpal v. CIT (1984) 42 CTR (Raj.) 211 : (1985) 154 ITR 449 (Raj.) : TC 38R.752. Seventhly, if the property is in the name of a trust and the beneficiary is entitled to a specific share of the income, whether the other provisions of the Act can be said to be inoperative and, eighthly, there may be some similar other instances." We 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson who is entitled to receive income from the property in his own right." 17. In the case of Mysore Minerals Ltd. their Lordships have observed as under:- "Section 32 of the Income-tax Act, 1961, confers a benefit on the assessee. The provision should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by the Legislature to the assessee. It is also well settled that where there are two possible interpretations of a taxing provision the one which is favourable to the assessee should be preferred. Section 32 of the Act allows 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd. The actual deed of conveyance was not yet executed by the Housing Board in favour of the assessee. The assessee made a claim under section 32 of the Act in respect of depreciation of buildings used for the purpose of the business of the assessee. The claim was rejected by the Assessing Officer. This was upheld by the Tribunal and the High Court. On appeal to the Supreme Court: Held, reversion of the judgment of the High Court, that the finding of fact arrived at in the case at hand was that though a document of title was not executed by the Housing Board in favour of the assessee, the houses were allotted to the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e lessee shall be at liberty to use the said premises for itself and for its Directors, Officers or employees. 4. The owner declares that but for the rights of Modi Rubber Ltd. as tenant in the said property, there is no other encumbrance on the demised premises and the premises is free from any kind of attachment, judgment or decree and the owner agrees and undertakes that during the term of the Agreement the owner shall not alienate, surrender or otherwise dispose off the property or any part thereof without the prior consent of the lessee. The owner shall not enter into any further agreements or contracts with Modi 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 ratif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see on the conditions. that no financial liabilities shall be imposed on the owner and the financial liabilities if any arising on account of the compromise/settlement with the said M/s. Modi Rubber Ltd. shall be paid and discharged by the lessee/sub-lessee and the lessee shall keep the owner indemnified from all claims whatsoever that may be made by Modi Rubber Limited. (iii) To receive and/or recover the monthly rent from M/s. Modi Rubber Ltd. and institute suits or legal proceedings including Arbitration Proceedings against the said Modi Rubber Ltd., for purposes of resolving the disputes with that company 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. Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed owner where lease is for a period of less than 12 years. Nor such a lessee can be treated to be a beneficial owner. Such an interpretation would tantamount to acting agent the mandate of the Legislature. It would be illegal application of the statutory provision. Having already noted that lease with the assessee-appellant is for a period of less than 12 years, he can neither be treated as a beneficial owner nor a deemed owner. To hold otherwise, would be to disregard the agreed terms as well as statutory provisions of the Act. We, therefore, do not find any good reason to hold the assessee as an 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 assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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