TMI Blog1997 (5) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... ent-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 society which was formed by the purchasers of the flats and that so long as the ownership was not transferred in the name of the assessee the rental income from the flats could not be assessed as 'income from house property' (under Section 22 of the Act). 4. One other subsidiary question was also raised by the assessee that the rental income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal value. We are not concerned with the latter question here. 7. The Tribunal when moved by the Revenue under Section 256(1) of the Act referred the case straight away to this Court under Section 257 of the Act in view of conflicting decisions between the High Courts. 8. The question referred to 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. 4165/94 : 9. In this case the respondent-assessee, an individual, returned for the assessment year 1983-84 the rental income from two flats bearing Nos. 406 and 407 at Kailash Building, Curzon Road, New Delhi, and also parking space and claimed that the said income must be assessed as 'income from house property'. However, the Income Tax Officer took the view that the assessee only had tenancy rights and, therefore, the income could be as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me must be assessable under the head 'income from other sources' under Section 56 of the Act. 13. Aggrieved by that, the appellant preferred an appeal to the Appellate Assistant Commissioner who was convinced by the claim of the appellant directed the ITO to assess the income under the head 'income from house property' and to allow statutory relief on account of repairs. 14. 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 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 constructed the same and the assessee had only entered into an agreement to purchase the flats, though actually the assessee had paid all the installments of purchase price. The Tribunal was of the view that till regular sale deeds were executed in favour of the assessee the title in the flats remained vested in the company and, therefore, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 22 of the Act charges the income arising from the house property and not the ownership of the house property. Such income from the 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 the 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 actual user and recipient of income under Section 56 of the Act. Permitting such assessment would be opposed to equity and justice which is not normally allowed by the Courts. As a corollary from the last contention he submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. The 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 that 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. Balkrishna Gupta and Ors. v. Swadeshi Polytex Ltd. and Anr. [1985] 2 SCR 854 . 2. Narandas Karsondas v. S.A. Kamtam and Anr. [1977] 2 SCR 341 . 3. Bai Dosabai v. Mathurdas Govinddas and Ors. [1980] 3 SCR 762 . 4. Rani Chhatra Kumari v. Mohan Bikram (1931) 58 I.A. 279. 20. We are given to understand that an identical issue is pending before a Full Bench of the Delhi High Court and Mr. Syali, learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble 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 - 26 - (i) x x x (ii) x x x (iii) a member of a cooperative 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 Section 53A of the Transfer of Property Act, 1882 (4 of 1882), shall be deemed to be the owner of that building or part thereof; (iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 : 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. 25. 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 reasonably and in consonance with justice . Again at page 577, it was held that 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 . Again at page 578 it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose appeals were dismissed as withdrawn on 20.3.1996 without deciding the issue. 30. 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 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. 31. The Patna High Court has cited this Court's judgment in Jodha Mal's case and also number of other judgments of the different High Courts. The High Court had also gone into the concept of ownership an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er vivos, or to charge as security; (d) Power to leave the res by will. 34. 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 of 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). 35. 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 others:.... Reference in this connection has been made to the case of Tubantia: Young v. Hichens and of Pierson v. Post [1805] 3 Caines 175 (Supreme Court of New York).... 36. It would thus be seen that where the possession of a property is acquired, with a right to exercise such necessary control over the property acquired which it is capable of, it is the intenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Dictionary, 3rd Edn., Vol. 3, p.2060). Thus the juristic principle from the view point of each one is to determine the true connotation of the term owner within the meaning of Section 22 of the Act in it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 part performance was introduced in the Transfer of Property Act, 1882, by inserting S.53A therein. the Section specifically allows the doctrine of part performance to be applied to the agreements which, though required to be registered, are not registered and to transfers not completed in the manner prescribed therefore by any law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 41. 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 the Judgment reported in Krishna Lal Ajmani's case (supra). 42. The Rajasthan High Court in Mah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Court in the case of CIT v. Nawab Mir Barkat Ali Khan, (1974) Tax LR 90 and the Karnataka High Court in the case of Ram-Kumar Mills P. Ltd. v. CIT [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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. 43. We do not think that it is necessary to set out extracts from the judgments of other High Courts taking similar view. 44. 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. 45. The law laid down by this Court in Jodha Mai's case according to us, has been rightly understood by the High Courts of Punjab and Haryana, Patna, Rajasthan, etc. The requirement of registration of the sale-deed in the context of the Section 22 is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, year in the year out. It also comprises processing by executive officials. 47. Applying the above principle also, the view taken by the High Courts of Patna, Punjab and Haryana, etc. can be supported. 48. 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. 49. 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. 50. It may not be out of place to extract a passage from the judgment of the Delhi High Court under Appeal (C.A. No. 4549/95). The High Court in a way conceded the correctness of the Patna view by observing as follows : It can be contended, in view of the agreements of sale and the handing over of the possession to various persons who are, in fact entitled to enjoy the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (1981) 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 to do so. 55. May be this is one of the reasons for the Parliament to bring in the amendment referred to above to Section 27 of the Act. At any rate the admitted position when the amendment was brought in, was that there was divergence of opinion between the High Courts on the issue at hand. 56. In the Memorandum explaining provisions in Finance Bill 1987 concerning Section 27 reads as follows : SIMPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 59. In Francis Bennion 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'. 60. 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 presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court : For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplain 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) 63. From the circumstances narrated above and from the Memorandum explaining the Finance Bill, 1987 (supra), 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, 1988 was declaratory/clarificatory in nature so far as it relates to Section 27(iii), (iiia) and (iiib). Consequently, these provisions are retrospective in operation. If so, the view taken by the High Courts of Patna, Rajasthan, and Calcutta, as noticed above, gets added support and consequently the contrary view taken by the Delhi, Bombay and Andhra Pradesh High Courts is not good law. 64. We are conscious of the settled position that under the common law own ..... X X X X Extracts X X X X X X X X Extracts X X X X
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