TMI Blog1997 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... Nos. 9-10 of 1986 is a company and an assessee under the Act (hereinafter called the " assessee "). It owns four flats bearing Nos. 231, 232, 241 and 242 in a building called " Silver Arch " on Nepean Sea Road, Bombay. The builders of the said building are Malabar Industries Pvt. Ltd. Out of the four aforesaid flats, two were directly purchased by the respondent-company from the builders and the other two were purchased by its sister concern and subsequently by the assessee. The possession of the flats was taken after payment of consideration in full some time in August, 1973. It is common ground that all these flats have been let out to various persons. The rental income from these flats was included in the return for the assessment years in question, namely, 1975-76 and 1976-77. It was the case of the assessee that the rental income from the flats was assessable as " income from other sources " under section 56 of the Act inasmuch as the assessee-company was not the " legal owner " of the property in the flats. Such a claim was put forward before the Assessing Officer mainly on the ground that the title to the property (four flats) had not been conveyed to the co-operative socie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and held that the income from the flats could not be taxed as " income from house property " under section 22, but should be taxed as " income from other sources " under section 56 of the Act. The Tribunal, however, did not decide the other question, namely, whether the actual rental income should be taken into account for the computation or the chargeable rental value. We are not concerned with the latter question here. The Tribunal, when moved by the Revenue under section 256(1) of the Act, referred the case straightaway to this court under section 257 of the Act in view of the conflicting decisions between the High Courts. The question referred reads as follows : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income derived by the assessee-company from flats from the building known as ' Silver Arch ' of Bombay is taxable under the head ' Income from other sources ' under section 56 of the Income-tax Act and not income from ' house property ' under section 22 of the Income-tax Act, 1961 ? " Civil Appeal No. 4165 of 1994 : In this case the respondent-assessee, an individual, returned for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flats by way of rent. The said net income was arrived at after deducting the municipal taxes as well as the statutory deduction of one-sixth of the annual value on account of repairs as provided in section 24 of the Act. The Income-tax Officer while accepting the return denied the deduction for repairs claimed by the assessee on the ground that the income must be assessable under the head " Income from other sources " under section 56 of the Act. Aggrieved by that, the appellant preferred an appeal to the Appellate Assistant Commissioner who was convinced by the claim of the appellant, directed the Income-tax Officer to assess the income under the head " Income from house property " and to allow statutory relief on account of repairs. The Revenue preferred an appeal before the Tribunal. The Tribunal found as a fact that there was no sale deed as such in respect of the flats in favour of the assessee. There was only an agreement to sell coupled with the payment of the purchase price and the handing over of occupation or possession. The Tribunal further found that the super-structure of the multi-storeyed building including the flats vested originally with the company which had c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally expressing his point of view in view of the conflicting stand taken by the Revenue while making the assessments under challenge. Mr. Sharma, learned senior counsel, advanced the leading arguments and according to him, section 22 of the Act charges the income arising from house property and not the ownership of house property. Such income from house property can be real or notional. He also argued that income under the head " House property ", real or notional, cannot escape taxation whoever may be regarded as the owner, but certainly it cannot have two owners at the same time. According to learned counsel, the owner is the person who in his own right can use the house property or derive income from it. Only such owner has to be taxed under the head " Income from house property ". He alone has to be taxed under this head. If he cannot be taxed under this head, he cannot be taxed at all. In other words, he cannot be taxed under the head " Income from other sources " under section 56 of the Act. He also contended that income from house property cannot be taxed doubly, once in the hands of the legal owner under section 22 and again in the hands of the actual user and recipient o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention to the language of section 9(1) of the old Income-tax Act which corresponds to section 22 of the present Act and contended that the assessment does not depend on actual receipt of income from house property. He also submitted that the view taken by some of the High Courts that the owners of the flats even in the absence of any registered document of sale in their favour can be treated as owners in view of section 53A of the Transfer of Property Act is wholly wrong and unsustainable. That view, according to him, is contrary to the well settled position in law as laid down in several judgments of this court. Learned senior counsel submitted that the ownership is paramount title and it cannot be otherwise interpreted. Mr. Salve submitted that even if the interpretation suggested by him to section 22 results in double taxation, even then that has to be accepted as being the correct position in law. There is no equity in taxation law. In support of his arguments, he placed reliance on the following judgments of this court : 1. Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 58 Comp Cas 563 ; AIR 1985 SC 520 ; [1985] 2 SCC 167. 2. Narandas Karsondas v. S. A. Kamtam, AIR 1977 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. --- The annual value of 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, shall be chargeable to income-tax under the head ' Income from house property '. 27. ' Owner of house property ', ' annual charge ', etc., defined.--- For the purposes of sections 22 to 26---. . . . (iii) a member of a co-operative society to whom a building or part thereof is allotted or leased under a house building scheme of the society shall be deemed to be the owner of that building or part thereof. [before amendment] (iii) 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 that building or part thereof. (iiia) a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty by virtue of section 6(1) of the Pakistan (Administration of Evacuee Property) Ordinance, 1949. The contention of the Revenue in that was that notwithstanding the vesting of the house property in the Custodian, the legal ownership remained with the assessee therein and, therefore, section 9(1) of the old Act was attracted. This contention was repelled by this court. Hegde J., speaking for the Bench, observed at page 575 of 82 ITR : " The question is who is the ' owner ' referred to in this section ? Is it the person in whom the property vests or is it he who is entitled to some beneficial interest in the property ? It must be remembered that section 9 brings to tax the income from property and not the interest of a person in the property. A property cannot be owned by two persons, each one having independent and exclusive right over it. Hence, for the purpose of section 9, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his own right. " The learned judge observed that " it is true that equitable considerations are irrelevant in interpreting tax laws. But, those laws, like all other laws, have to be interpreted reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on any income under section 22 of the Act. The High Court of Patna in Sahay Properties and Investment Co. P. Ltd.'s case [1983] 144 ITR 357 has elaborately dealt with this case. As a matter of fact, civil appeals were preferred by special leave against the judgment of the Patna High Court in Civil Appeals Nos. 5874-76 of 1983. However, those appeals were dismissed as withdrawn on March 20, 1996, without deciding the issue. The brief facts in that case were, the assessee-company acquired certain immovable property in February, 1962. The assessee paid the entire consideration and was in actual physical possession of the entire properties contracted to be sold. The assessee was empowered by the vendor to use the properties in whatsoever manner the assessee liked and to receive and enjoy the entire usufructs thereof, with the only reservation that a formal deed of conveyance with registration in conformity with the Indian Registration Act would follow at the request of the assessee and once that request was made, it was incumbent upon the transferor to execute such a deed of conveyance and to get it registered. The assessee was assessed under section 22 in respect of the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different formulae, the position that now juristically emerges is this. The full rights of an owner as now recognised are : (a) The power of enjoyment (e.g., the determination of the use to which the res is to be put, the power to deal with produce as he pleases, the power to destroy) ; (b) possession which includes the right to exclude others ; (c) power to alienate inter vivos, or to charge as security ; (d) power to leave the res by will. One of the most important of these powers is the right to exclude others. The property right is essentially a guarantee of the exclusion of other persons from the use or handling of the thing ... But every owner does not possess all the rights set out above---a particular owner's powers may be restricted by law or by an agreement he has made with another' (refer to G. W. Paton on Jurisprudence, 4th edn., pp. 517-18). While dealing with the concept of possession and enumerating the illustrative cases and rules in this respect, Paton says at p. 577 in clause (x) : ' To acquire possession of a thing it is necessary to exercise such physical control over the thing as the thing is capable of, and to evince an intention to exclude othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on until the contrary is proved and so long as that is not done, to that extent a possessor is presumed to be the owner. Incidentally, although the Supreme Court in the case of Jodha Mal Kuthiala's case [1971] 82 ITR 570, 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 worthwile, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act ? The answer in our view is clearly in the negative. The reason is simple. The consideration money has been paid in full. The 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 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a deed registered at its sweet will it was not an owner within the meaning of section 22 of the Act. It may bear repetition to say that 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 in consonance with the juristic principle either at common law or in equity. In either case, it 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion, other than a right expressly provided by the terms of the contract. The proviso to the aforesaid section contemplates that nothing in that section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof. If the view 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 income-tax 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 dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to another and if it is considered that it is only the registered owner or the society who can be assessed to tax, then the person who has enjoyed the income would escape liability to tax. Fifthly, if it is considered that the registered owner alone is liable to pay tax while the income is received by the transferee, the transferee would enjoy the income but the tax will be levied from the registered owner who may or 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 [1985] 154 ITR 449 (Raj), 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 a similar view. The contrary view taken by the other High Courts was mainly based on the fact that unless there is a registered deed conveying the property, the person in possession/enjoyment of the property cannot be considered a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the wording. An enactment of former days is thus to be read today, in the light of dynamic processing received over the years, with such modification of the current meaning of its language as will now give effect to the original legislative intention. The reality and effect of dynamic processing provides the gradual adjustment. It is constituted by judicial interpretation, year in and year out. It also comprises processing by executive officials '. " Applying the above principle also, the view taken by the High Courts of Patna, Punjab and Haryana, etc., can be supported. Assuming that there are two possible interpretations on section 22 of the Act, which is akin to a charging section, it is well settled, that the one which is favourable to the assessee has to be preferred. Even on that principle the view taken by the High Courts of Patna, Punjab and Haryana, etc., has to be preferred rather than the contrary view taken by the High Courts of Delhi and Andhra Pradesh. Accordingly, we hold that the views taken by the High Courts of Allahabad, Patna, Rajasthan, Punjab and Haryana are the correct views. The contrary view taken by the Delhi High Court is not correct. It may not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the so-called purchasers cannot become owners for the purpose of section 22 of the Act. As a matter of fact, the judgment of the Delhi High Court in Income-tax Reference No. 84 of 1977 in Sushil Ansal v. CIT [1986] 160 ITR 308, the appeal against which is C. A. No. 4549 of 1995, the learned judge has made the following observation : " Before we conclude, we may mention that, during the course of the hearing, we suggested to the standing counsel for the Department that the Central Board should consider various practical aspects of this problem and formulate guidelines which would be equitable to the various classes of persons concerned. Perhaps, as suggested by this court in CIT v. Hans Raj Gupta [1982] 137 ITR 195, the time has even come for legislative amendment, if necessary, possibly with retrospective effect. Serious consideration at the highest administrative level was warranted in view of the recurrent nature of the problem, its magnitude and the conflict of judicial decisions. However, after taking sufficiently long adjournments, counsel informed us that no decision could be taken by the Board and requested that we should decide the reference. We have, therefore, proceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Crawford's Statutory Construction, at page 107, paragraph 74, reads as follows : " 74. Declaratory statutes. --- Generally speaking, declaratory statutes can be divided into two classes : (1) those declaratory of the common law, and (2) those declaring the meaning of an existing statute. Obviously, those declaratory of the common law should be construed according to the common law. Those of the second class are to be construed as intended to lay down a rule for future cases and to act retrospectively. They closely resemble interpretation clauses, and their paramount purpose is to remove doubt as to the meaning of existing law, or to correct a construction considered erroneous by the Legislature." (emphasis supplied). In Francis Bennion's Statutory Interpretation (Second edition) 1992, page 105, the learned author says " Declaratory Acts---A declaratory Act or enactment declares what the law is on a particular point, often ' for the avoidance of doubt '. " In Justice G. P. Singh's (Sixth edition 1996) " Principles of Statutory Interpretation ", under the heading " declaratory statutes ", the learned author has summed up as follows : " Declaratory statutes : The presumpti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Act 18 of 1965, observed as follows : " The amending clause does not seek to explain any pre-existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived from section 115 of the Code of Civil Procedure, and the Legislature has by the amending Act not attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act." (emphasis supplied). From the circumstances narrated above and from the Memorandum explaining the Finance Bill, 1987, it is crystal clear that the amendment was intended to supply an obvious omission or to clear up doubts as to the meaning of the word " owner " in section 22 of the Act. We do not think that in the light of the clear exposition of the position of a declaratory/clarificatory Act, it is necessary to multiply the authorities on this point. We have, therefore, no hesitation to hold that the amendment introduced by the Finance Bill, 1987, was declaratory/clarificatory in nature so far as it relates to section 27(iii), (iii ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
