TMI Blog1989 (7) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... it should not be taken at nil ? The relevant facts are as under : The applicant, Madgul Udyog, is a registered partnership firm observing its accounting period ending on Dewali day each year. The assessee-firm is engaged in the business of construction of multi-storeyed buildings and sales of flats therein. In the course of its aforesaid business activities, the assessee-firm started construction of a multi-storeyed building at 19, Ballygunge Circular Road, Calcutta, during the previous year relevant to the assessment year 1975-76. In all, 24 units of flats were constructed by the assessee-firm in addition to three shops and car parking space in the ground floor. By the end of the previous year relevant to the assessment year 1979-80, 24 units and one shop in the ground floor, including car-parking space, had already been sold to different persons under separate agreements for sale entered into with each of them. The assessee-firm received consideration from the purchasers of flats from time to time in accordance with the agreed terms and on final payment, possession was handed over to the respective buyers as indicated hereinbelow : Previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome was made by the Income-tax Officer for the first time in the assessment order for the assessment year 1976-77 and the same principle was followed in subsequent years too. The Income-tax Officer mainly relied on the following decisions : (a) CIT v. Zorostrian Building Society Ltd. [1976] 102 ITR 499 (Bom). (b) CIT v. Union Land and Building Society (P.) Ltd. [1972] 83 ITR 794 (Bom). (c) CIT v. Bhurangya Coal Company [1958] 34 ITR 802 (SC). (d) CIT v. Ganga Properties Ltd. [1970] 77 ITR 637 (Cal). (e) East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 (SC). The Commissioner of Income-tax (Appeals), vide his order dated October 6, 1983, for the assessment years 1976-77 and 1977-78, deleted the assessment of notional income made by the Income-tax Officer as aforesaid. The Department appealed against the said order to the Tribunal. The Tribunal, by its order dated December 6, 1985, remanded the matter to the Income-tax Officer with a direction to re-examine the whole issue in the light of the terms of the agreements as well as the various High Court decisions, including the decision of the Calcutta High Court in the case of Ganga Propertie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng been sold in the relevant years in which the construction was completed and possession handed over and the assessee has already been assessed to tax on such business income although conveyance deeds had not been executed and registered, is of no assistance to the assessee. The questions arising in the instant assessment years need to be decided in the light of the facts obtaining here and any incompatible and inconsistent stand taken by the Department in the earlier years has no relevance. (vi) Section 53A of the Transfer of Property Act has been misinterpreted by the Commissioner of Income-tax (Appeals). The said section does not give any title to the transferee. It merely protects the possession of the transferee in terms of the contract. Execution and registration of deed of conveyance is not a formality but is a mandatory requirement of law for completion of a sale and transfer of title in favour of the purchaser. (vii) The Tribunal relied on the following decisions : (a) Sushil Ansal v. CIT [1986] 160 ITR 308 (Delhi) (b) CIT v. Ganga Properties [1970] 77 ITR 637 (Cal) (c) CIT v. Union Land and Building Society (P.) Ltd. [1972] 83 ITR 794 (Bom) ; (d) Kartar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the flats under section 22 of the Income-tax Act, 1961, on the ground that, unless the deeds of conveyance with the respective purchasers have been executed and registered, the assessee remains the owner for the purpose of assessment under section 22 of the Income-tax Act, 1961. He has relied on several decisions in support of his contentions to which we shall presently refer. He has contended that the decisions relied on by the Tribunal, and in particular, the decision of this court in Ganga Properties Ltd. [1970] 77 ITR 637, have no application to the facts of this case. According to him, Ganga Properties Ltd. [1970] 77 ITR 637, no longer holds the field in view of the decision of the Supreme Court in Jodha Mal Kuthiala [1971] 82 ITR 570. Mr. A. C. Moitra, learned counsel appearing on behalf of the Revenue, supported the order of the Tribunal. It was contended on behalf of the Revenue that the Indian law does not recognise beneficial ownership. There can be only one owner and where the properties are vested in a trustee, the owner must be the trustee. The title in respect of the immovable property can pass only when conveyance is executed and registered. Heavy reliance was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties and businesses as long as the 'Ordinance' was in force, then those unfortunate persons would have had to pay income-tax on the basis of the annual letting value of their properties and on the income, gains and profits of the businesses left by them in Pakistan though they did not get paisa out of those properties and businesses. Fortunately, no one in the past interpreted the law in the manner Mr. Mahajan wants us to interpret it. It is true that equitable considerations are irrelevant in interpreting tax laws. But those laws, like all other laws, have to be interpreted reasonably and in consonance with justice. At pages 576 and 577 of the Reports, the Supreme Court referred to an old judgment of this court in Official Assignee's case [1937] 5 ITR 233 and observed at page 577 as under : For determining the person liable to pay tax, the test laid down by the court was to find out the person entitled to that income. An attempt was made by Mr. Mahajan to distinguish this case on the ground that under the corresponding English statute, the liability to tax in respect of income from property is not laid on the owner of the property. It is true that section 82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n attempt to assess the company. Heavy reliance was placed on the decision of the Patna High Court in Addl. CIT v. Sahay Properties and Investment Co. (P.) Ltd. [1983] 144 ITR 357, wherein the Patna High Court was concerned with a case of company which 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 of the Income-tax Act, 1961, in respect of the income from the property but the Tribunal held that the assessee was not the owner of the property and was not liable to be assessed as such. There, the Patna High Court held that the focus of section 22 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he buyers of the flats have already been assessed to tax in the case of the assessee-firm. In Addl. CIT v. U. P. State Agro Industrial Corporation Ltd.[1981] 127 ITR 97, the Allahabad High Court applied the principles laid down by the Supreme Court in Jodha Mal's case [1971] 82 ITR 570 and held that the assessee was entitled to claim depreciation in respect of assets even though the conveyance deeds had not been executed and registered in its favour. The court noted that the company was already in possession of the property and was in a position to realise the income from the property and appropriate the same for itself. The court, therefore, held that even though the ultimate title in the property had not yet vested in it, the assessee was nothing but the owner of the property and was entitled to claim depreciation. In P. Joseph Swaminathan [1984] 145 ITR 198, the Madras High Court held that, under the scheme of the Income-tax Act, 1961, the basis of liability for income from property is the ownership of the property by the assessee concerned. The Act does not, however, pin down the assessing authorities to the registered owner of the house property as decisive of the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Revenue relied on a decision of the Supreme Court in CIT v. Bhurangya Coal Co. [1958] 34 ITR 802. This does not touch the controversy involved in this case. Similarly, the decision of the Supreme Court in East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 deals with an altogether different controversy. The question in that case was whether the income from stalls and shops in the market built by the assesseecompany was assessable as business income or income from house property. The Supreme Court held that since the rental income was directly assessable under the head Income from house property , which was specific head, the assessment could not be done treating it as business income. The decision of the Delhi High Court in Sushil Ansal's case [1986] 160 ITR 308, referred to by the Tribunal, does not also support the Revenue's case. The observations at page 314 of the Reports, which we have already extracted earlier, clearly show that the decision supports the case of the assessee. The decision of the Delhi High Court in Kartar Singh (S.) v. CIT [1969] 73 ITR 438, relied on by the Tribunal, is clearly distinguishable on facts. That w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and does not produce any income, the Income-tax Officer was entitled to assess the notional income. While any restrictions in a will on the letting of the property may reduce the letting value, it cannot be said that, because of the restrictions, there cannot be any annual income which can be deemed to arise from the property. In our view, the facts of that case are also clearly distinguishable and this decision has no application to the instant case. The Supreme Court, in Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888, dealt with the meaning of the expression belonging to as appearing in section 2(m) of the Wealth-tax Act, 1967. Although Mr. Moitra, for the Revenue, has relied heavily on this decision, in our view, this decision has no relevance to the present controversy. This has been made clear by the Supreme Court. The Supreme Court observed (at p. 893) : . . . It is not necessary, in our opinion, for the purpose of this case, to be tied down to the controversy whether in India there is any concept of legal ownership apart from equitable ownership or not or whether, under sections 9 and 10 of the Indian Income-tax Act, 1922, and sections 22 to 24 of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or renewal for a further period of seven years. The assessee constructed a two-storeyed building on the land and, by a deed of assignment, sub-leased the same to another person. The assessee-company, as it appears, did not divest itself of all right, title and interest in the property. The right of reversion of the assessee was still there and it remained with the assessee-company and such right was not transferred by the sublease. It was a case of a lease of the superstructure and not a sale denuding the transfer of all rights of ownership in respect of the superstructure. In view of the peculiar facts, it was observed by this court that the principles laid down by the Supreme Court in R. B. Jodha Mal Kuthiala [1971] 82 ITR 570 had no application to the case of the assessee. It is an admitted fact that the assessee-firm, in the instant case, has transferred all the right, title and interest in the flats sold by it. It has also been assessed to income-tax in respect of business profit arising from the sale. In the instant case, the assessee has only an obligation to register the deeds of conveyance in favour of the purchasers of flats as and when such purchasers come forward to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning 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 end or extinction of the period of occupation after, again say, a thousand years ? The answer to this question in favour of the assessee would not merely be doing palpable injustice but would cause absurd inconvenience and would make the Legislature to be dubbed as being party to a nonsensical legislation. One cannot reasonably and logically visualise as to when a person in actual physical control of the property realising the entire income and usufruct of the property for his own use and not for the use of any other person, having the absolute power of disposal of the income so received, should be held not liable to tax merely because a vestige of legal ownership or a husk of title in the long run may yet clothe anot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm on the same income over again. The right to occupy and let out the property is with the purchasers. The stamp duty has to be paid by the purchasers. If the purchasers do not want to incur the expenditure by way of payment of stamp duty required for registration, the assessee cannot be penalised through assessment on notional basis. The Income-tax Act also provides for direct assessment of income in the hands of beneficiaries who are the purchasers of the flats in this case. Such direct assessment in the hands of the buyers has already been made. For the purposes of section 9 of the 1922 Act, corresponding to section 22 of the 1961 Act, 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. It is true that equitable considerations are irrelevant in interpreting tax laws. But those laws, like all other laws, have to be interpreted reasonably and in consonance with justice. As the Supreme Court laid down in Jodha Mal Kuthiala's case [1971] 82 ITR 570, the meaning to be given to the word owner must not be such as to make that provision capable of being made an instrument of oppression. It must be in consonance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned with the provisions of section 23(1)(a). We need not consider the amendment in section 23(1)(b) by the said Amendment Act inasmuch as the assessee-firm has not let out the property and has neither received nor is entitled to receive any rent in respect of the flats so sold by it. Section 23(1)(a) which is relevant for our purpose reads as under 23. Annual value how determined.-(1) For the purposes of section 22, the annual value of any property shall be deemed to be-(a) the sum for which the property might reasonably be expected to be let from year to year. Section 168 of the Calcutta Municipal Act, 1951, which corresponds to section 23(1)(a) of the Income-tax Act, 1961, reads as under : 168 The amount of consolidated rate, how to be fixed. - (i) For the purpose of assessment of the consolidated rate, the annual value of any land or building shall be deemed to be the gross annual rent at which the land or building might, at the time of assessment, be reasonably be expected to be let from year to year, less in the case of a building, an allowance of 10% for the cost of repairs and for all other expenses necessary to maintain the building in a state to command s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the Revenue has relied upon the decision of the Supreme Court in Liquidator of Mahamudabad Properties (P.) Ltd. v. CIT [1980] 124 ITR 31. There, the Supreme Court was dealing with two matters-one relating to the determination of annual value in respect of property in uninhabitable condition and the second whether vacancy was available when the property was not let at any time during the relevant previous year. None of these two controversies arose in this case. Furthermore, learned counsel for the Revenue has not explained as to how the decision of this court in Prabhabati Bansali's case [1983] 141 ITR 419 is not applicable to the facts of this case. In our opinion, the annual value cannot exceed the municipal valuation fixed by the Corporation of Calcutta. For the reasons aforesaid, the first question is answered in the negative and in favour of the assessee. In view of our answer to the first question in the manner aforesaid, the second question does not call for any answer. We, therefore, decline to answer the second question. On the oral prayer of Mr. Mukherjee, appearing for the Commissioner, we grant leave to appeal to the Supreme Court under section 261 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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