TMI Blog1989 (6) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... oration for the sale of the property for a consideration of Rs. 4,20,000. In part performance of the agreement, the assessee delivered vacant possession of the property to Lakshmi Commercial Corporation giving the, firm all rights, title and interest which the assessee had in the property including the right to collect the rent from the property. The assessee could not execute the sale deed so as to bring about the transfer of property in favour of Lakshmi Commercial Corporation. The question raised by the assessee before the Income-tax Officer was that the income from the said property was not chargeable to tax in the hands of the assessee. The assessee also Invoked the provisions of section 53A of the Transfer of Property Act and contended that in part performance of the contract for sale, possession of the property had been handed over to Lakshmi Commercial Corporation and the assessee retained no right to receive any income from the property and, therefore, the income from that house property was not chargeable to tax under the Act. The claim of the assessee was negatived by the Incometax Officer. He held that, in the eye of law, the assessee was the owner of the property and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the vendee for the purposes of the Wealth-tax Act the property continues to belong to the vendor if registered instrument of sale has not been executed. It is true that the Supreme Court observed that they were confining the interpretation to the provisions of section 2(m) of the Wealth-tax Act, particularly having regard to the words "belonging to" used in the said provision. But, in our opinion, the reasoning and the basis, on which the Supreme Court held that in such circumstances the property continues to belong to the vendor equally holds good for the purpose of interpretation of section 22 of the Income-tax Act. That provision reads "22. Income from house property. -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'." The above section clearly provides that the annual value of property consisting of any buildings or lands appurtenant thereto of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a property pursuant to an agreement to sell after paying full consideration but without there being a registered sale deed, was liable to tax under the provisions of the Act. The Punjab High Court held that as the assessee had occupied the property after the execution of the agreement of sale in his favour, he was in a position to earn income from the property sold to him and further he had paid the entire consideration to the vendor at the time of the execution of the agreement and no payment was required to be made or made at the time of actual registration of the document and, therefore, the income from such property, even during the period prior to the execution of sale deed, was liable to tax at his hands. This decision does support the contention of the assessee for the reason that if the purchaser who was put in, possession of the property could be regarded as owner liable to tax under section 22 of the Act, it follows that the seller could not be regarded as owner. The decision of the Patna High Court in Addl. CIT v. Sahay Properties and Investment Co. P. Ltd. [1983] 144 ITR 357 is also similar to the decision in Kala Rani's case [1981] 130 ITR 321 (P H). The vendee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and decisions of other High Courts taking a similar view were impliedly overruled by Kuthiala's case [1971] 82 ITR 570 (SC). The relevant portion of that judgment reads (pp. 513, 514, 517) "It was, however, strongly urged by Mr. Kolah that these decisions of the Calcutta High Court, Bombay High Court and the Delhi High Court should be regarded as impliedly overruled by a later decision of the Supreme Court in the case of R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570. In this case, the Supreme Court had occasion to consider the provisions of the Pakistan (Administration of Evacuee Property) Ordinance, 1949 ... The Supreme Court has analysed with meticulous care the provisions of the Evacuee Ordinance and has considered the effect thereof. It is pointed out that the Ordinance starts by saying that it is an Ordinance to provide for the administration of evacuee property and not management of evacuee property. The expression 'administration', in relation to an estate, in law means management and settling of that estate. It is a power to deal with the estate. The evacuee could not take possession of his property. He could not lease that property. He could not sell that property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us is in the affirmative." (underlining by us) The Delhi High Court, whose decision in Kuthiala's case [1968] 69 ITR 598 (Delhi), [FB] was upheld by the Supreme Court [1971] 82 ITR 570, itself had the occasion to consider the question with reference to the provisions of section 9 of the Indian Income-tax Act, 1922 (the corresponding section of/the Income-tax Act, 1961, being section 22) in CIT v. D. L. F. Housing Construction P. Ltd. [1981] 128. ITR 773. This was, however, a case where the seller remained in possession, even after execution of the sale deed and the buyer was not earning any income from the property. But on principle, it makes no difference. Relying on Kuthiala's case [1971] 82 ITR 570 (SC), the assessee contended that he was not in position to get the income from the property and, therefore, not liable to pay tax. The contention was negatived. The relevant portion of the judgment reads, (at pp. 782, 783): "In our considered opinion, the decisions given in the case of Jodhamal Kuthiala [1968] 69 ITR 598 (Delhi) [FB] on appeal [1971] 82 ITR 570 (SC) do not, in any manner, come to the aid of the assessee. There, by the operation of a statute in Pakistan, the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4] Tax LR 90. The Andhra Pradesh High Court held that so long as the sale deed had no been executed, the liability to pay tax on income from property does not cease ; the position of such person is "owner" within the meaning of section 9 of the Indian Income-tax Act, 1922, and the corresponding section, namely, section 22 of the Income-tax Act, 1961. The relevant portion of the judgment reads (at page 95) : " We are, therefore, satisfied that the agreement to sell does not create any beneficial ownership according to Indian law in the purchaser. Nor does it create any equitable ownership in him it is the vendor who continues to be the owner of the properties agreed to be sold until a lawfully registered sale deed is executed by him. The word `owner' in section 9 or 22, therefore, must be understood in this sense and cannot be understood in any other sense. There is no justification either in the scheme of the Act or in the context or setting of section 9 or 22 for giving meaning to the term 'owner' as beneficial or equitable owner which concept is not recognised in India and in fact it is specifically contrary to the express provisions of the law. The Nizam, therefore, in spite o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression 'owner'. We are concerned with whether the assets in the facts and circumstances of the case belonged to the assessee any more .... The Bench decision of the Calcutta High Court in CIT v. Ganga Properties Ltd. [1970] 77 ITR 637, rested on the terms of section 9 of the Indian Income-tax Act, 1922, and the court reiterated again that in Indian law, beneficial ownership was unknown ; there was but one owner, namely, the legal owner, both in respect of vendor and purchaser, and trustee and cestui que trust. The income from house property refers to the legal owner and further in the case of a sale of Immovable property, a registered document was necessary. But these proportions as noted hereinbefore rested on the use of the expression in section 9 of the Indian Income-tax Act, 1922. It used the expression 'owner' unlike 'belonging to'. . . . The Gujarat High Court had occasion to deal with part performance in the case of an agreement of sale in CIT v. Ashaland Corporation [1982] 133 ITR 55. The Gujarat High Court noted that in the case of a person who was a dealer in land, the business transaction would be completed only when the purchase or sale transaction was complete. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pposite to the question arising for consideration in this case. That was a case in which the property of an evacuee statutorily vested in the custodian under the provisions of the Pakistan (Administration of Evacuee Property) Ordinance, 1949, and the decision was rendered entirely on the interpretation of the provisions of the Ordinance. I am in respectful agreement with the view taken by the Bombay High Court that the ratio of the decision in Kuthiala's case 1971] 82 ITR 570 (SC) is no basis to hold that a person who had parted with possession of property in favour of the intending purchaser but had not executed the sale deed is not the owner, as also with the view taken by the Delhi High Court that whoever is the owner of property in the eye of law is also the owner for purposes of section 22 of the Income-tax Act and that the decision in Kuthiala's case [1971] 82 ITR 570 (SC) constitutes no basis to take a contrary view. I am also in respectful agreement with the views expressed by the Calcutta High Court in the case of, Ganga Properties Ltd. [1970] 77 ITR 637, the Andhra Pradesh High Court in the case of Barkat Ali Khan [1974] Tax LR 90 and respectfully disagree with the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing upon decision of the Supreme Court in R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570, that for the purposes of section 22 of the Act, the owner must be the person who is capable of receiving the rent or income of property and in the present case inasmuch as possession has been passed on to the vendee, although a registered sale deed has not been executed, and as full consideration has been received, section 53A of the Transfer of Property Act is attracted. Since no one including the owner can disturb the possession of the vendee, there cannot be a better claim for ownership than that of the vendee and, in the circumstances, he being entitled to receive the rent or income of the property must be held to be the owner for the purpose of the said section. It was also submitted that a practical view must be taken in the matter. Merely because there is some residue left with the original owner for no practical purpose, the vendor or the assessee cannot be treated as owner of the property. All that the vendor or the assessee has, after he parted with possession pursuant to the agreement of sale, is only the husk of a title and no real rights of ownership. Bearing this aspect in min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r situation as noticed by their Lordships in paras 9 and 10, which read thus (at p. 575): "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. For a minute, let us look at things from the practical point of view. If the thousands of evacuees who left practically all their properties as wen as businesses in Pakistan had been considered as the owners of those properties 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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