Income Tax Appellate Tribunal - Kolkata
Marshall Sons And Co. (I.) Ltd. vs Income-Tax Officer on 4 June, 1992
Equivalent citations: [1992]42ITD481(KOL)
ORDER
R.V. Easwar, Judicial Member
1. This appeal filed by the assessee relates to the assessment year 1974-75 and is directed against the order of the CIT(A) passed on 13-7-1987.
2. The first ground raised by the assessee in the appeal is that the departmental authorities erred in holding that the rental income from the property at Ghusuri, Howrah, Calcutta, belonging to the assessee-company was assessable under the head 'other sources'. The facts in this connection are very brief. The assessee derived rental income of Rs. 1,71,806 from this property during the accounting year relevant to the assessment year 1984-85. The income was offered under the head "Income from house property" for the purpose of assessment. The ITO, however, took the view that the company was not the legal owner of the property inasmuch as the execution and registration of the sale deed in favour of the assessee-company was pending. He, therefore, came to the conclusion that the assessee cannot be said to be the 'owner' of the property under Section 22 of the IT Act. He, therefore, held that the income from the property should be assessed under the head 'Other sources'.
3. The assessee, though it had offered the income for taxation under the head "Income from house property", appealed to the CIT(A) and contended that the rental income was not taxable at all. The contention of the assessee was that income from property can be assessed under the head "House property" only if the assessee is found to be the legal owner of the property. Since in the present case the assessee was admittedly not the legal owner, inasmuch as there was no sale deed executed and registered in its favour, the income from the property cannot be assessed under Section 22 of the IT Act. The assessee further submitted that if the income cannot be taxed under the head 'Income from house property' it cannot be taxed even under the head 'Other sources' and the rental income should be held to be not taxable at all under the IT Act. The CIT(A) did not accept this submission. He upheld the order of the ITO.
4. In the further appeal before us, Mr. N.K. Poddar, the Ld. counsel for the assessee, submitted that the assessee had paid the full purchase consideration for the property and was also in possession. It was also admitted by him that the property was let out by the assessee and rental income of Rs. 1,71,806 was actually received by it during the relevant accounting year. But what Mr. Poddar contends is this. Under Section 22 of the IT Act it is only the legal owner who can be assessed on the income from the property being building or land appurtenant thereto. If it is found that the assessee is not the legal owner of the property, on the principle of the decision of the Supreme Court in Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT [1966] 61 ITR 428, the income cannot be taxed at all under the Income-tax Act. He pointed out that it is immaterial that the assessee originally admitted the income under the head 'Income from house property'. In this connection he also relied on the following decisions:--
(1) CIT v. Ganga Properties Ltd. [1970] 77 ITR 637 (Cal.) (2) CIT v. Smt. T.P. Sidhwa [1982] 133 ITR 840 (Bom.) (3) CIT v. Prabhabati Bansali [1983] 141 ITR 419 (Cal.) He pointed out that the Calcutta High Court, in the first of the above decisions, held that in order that an assessee can be taxed on the income from property under Section 9 of the FT Act, 1922, which was the same as Section 22 of the IT Act, 1961 he should be found to be the legal owner of the property and in the absence of a registered sale deed conveying the title to the assessee the income cannot be taxed under the head 'Income from house property'. His next submission was that if the income cannot be assessed under the head 'Property' on the ground that the assessee was not the legal owner thereof, then the income cannot be taxed at all as held by the Supreme Court in Nalinikant Ambalal Mody's case (supra) followed by the Bombay High Court in the second of the above decisions. He -referred to the third decision which, according to him, has held that the income cannot be taxed even under the head 'other sources'.
5. On his part Mr. Sen, Ld. departmental representative submitted that the matter in dispute was now concluded against the assessee by the decision of the jurisdictional High Court in Madgul Udyog v. CIT [1990] 184 ITR 484 (Cal.). He submitted that in the said decision, the Calcutta High Court has held that the term "owner" should be interpreted in its broadest possible meaning and that if a person has paid the sale consideration and is also in possession of the property, the fact that a formal sale deed was not executed and registered in his favour conveying the title in the property to him cannot stand in the way of treating the person as the owner of the property for the purpose of Section 22 of the IT Act. He further pointed out that in the present case it was not in dispute that the assessee has factually let out the property and was in receipt of rental income. He submitted that the assessee having derived a benefit from the property cannot demur to an assessment of the income, whether, it be under the head "property" or "other sources". He lastly submitted that if it is found by the Tribunal that the income is not assessable under the head 'other sources' it should be directed by the Tribunal to be assessed under the head 'property' following the decision of the Calcutta High Court in Madgul Udyog's case (supra). As for the decisions relied on by Mr. Poddar, Mr. Sen submitted that they are all distinguishable on facts. He further drew our attention to the decision of the Calcutta Bench of the Tribunal in ITO v. Mrs. Bilas Razdan [1987] 22 ITD 567, where on identical facts, the Tribunal had held that the income from the property was assessable under Section 56 of the Act under the head "Other sources". He submitted that the said decision should be followed in the present case also.
6. in reply, Mr. Poddar submitted that the decision of the Calcutta High Court in Madgul Udyog's case (supra), was a decision in the case of a builder of flats and that the same should be confirmed to the facts of the particular case. He sought to distinguish the said decision on the ground that it was rendered in the case of a seller of the flats and not in the case of a buyer of the flats. In the present case, he pointed out, the assessee is the buyer of the property and, therefore, the decision of the Calcutta High Court was not applicable. He further pointed out that the decision of the Tribunal relied on by Mr. Sen was rendered following the decision of the Calcutta High Court in Park Hotel (P.) Ltd. v. CIT [1987] 167 ITR 60 where the facts were entirely different and, therefore, was not applicable to the present case.
7. On a consideration of the rival submissions, we are of the view that the income from the property at Ghusuri, Howrah, is assessable in the hands of the assessee. The facts are not in dispute. The assessee has paid the entire purchase consideration and is in possession of the property. It also derives income from the property by way of rent. The question before us is whether the rental income is taxable in the hands of the assessee and if so under what head. We are unable to accept the submission of Mr. Poddar that the income cannot fall under the head "property". The issue is now, in our opinion, concluded by the decision of the Jurisdictional High Court in Madgul Udyog's case (supra). There, the facts were that the assessee was engaged in the business of construction of multistoried buildings and sale of flats therein. The assessee handed over possession of the flats to the buyers on payment of full consideration. However, no conveyance deeds were executed and registered in the names of the buyers. The income arising from the sale of flats had been assessed as business income in the hands of the assessee as and when the possession of the flats constructed by the assessee was handed over to the buyers. The buyers were also assessed on the notional income or actual income arising from the flats from the date of their taking possession. The question arose as to whether the assessee, the builder of the flats, was assessable under Section 22 of the Act in respect of the notional income from the property even after the flats had been handed over to the buyers. It was in this context that the High Court was called upon to decide the true meaning and import of the word "owner" appearing in Section 22. It was submitted in that case on behalf of the assessee that even though no formal sale deeds were executed and registered in favour of the purchasers of the flats since the assessee-builder had transferred all its right, title and interest in the flats sold by it and had also handed over possession, it was not assessable as "owner" in respect of the notional income from the property under Section 22 of the Act. It was held by the High Court that the word 'owner' appearing in Section 22 of the Act was comprehensive and generic and must be construed in the setting of the socio-economic development in the concept of owner. It was held that for the purpose of Section 22, the owner must be that person who could exercise the rights of the owner, not on behalf of the owner, but in his own right. The Court further held that though equitable considerations are irrelevant in interpreting tax laws, those laws, like any other law, have to be interpreted reasonably and in consonance with justice. Accordingly the Court held that the meaning to be given to the word "owner" under Section 22 of the Act should not be such as to make that provision capable of being made an instrument of oppression. It must be in consonance with the principles underlying the Act. While arriving at this conclusion the Hon'ble High Court agreed with the decision of the Patna High Court in Addl. CIT v. Sahay Properties & Investment Co. (P.) Ltd. [1983] 144 ITR 357' where the Patna High Court held that a person in receipt of money having actual control over the property, with no person having a better right to defeat his claim of possession, should properly be considered to be the "owner" for the purpose of Section 22 of the Act. The Patna High Court pointed out that such an interpretation would be the most practical interpretation and in consonance with the principles underlying Section 22 of the Act. Dealing with the contention that in the absence of a registered deed conveying the title to the assessee, the assessee cannot be called the owner of a property notwithstanding that the assessee had paid the full consideration and was in actual control and enjoyment of the property, the Patna High Court held as under: (page 364) 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 another person with the power of a residual ownership when such contingency arises which is not the case even here.
It was with these observations and views taken by the Patna High Court regarding the meaning to be ascribed to the word "owner" appearing in Section 22 of the Act that the Calcutta High Court agreed while deciding the issue in Madgul Udyog's case (supra). It is, therefore, not possible to accept the submission of Mr. Poddar that the principle of the decision in Madgul Udyog's case (supra) should be confined to cases of flat-builders or sellers of the properties. Such an understanding of the decision is not, in our view, justified, in view of the broad meaning attributed by the Hon'ble High Court to the word "owner" in Section 22. It is true that the Hon'ble High Court was concerned with the case of a seller of the property. However, the decision of the Hon'ble High Court on the scope and ambit of the term 'owner' appearing in Section 22 of the Act is in general terms and it is not for us to attempt any subtle distinction, as suggested by Mr. Poddar, as to the application of the ratio of the decision.
8. There is one more reason why the submission of Mr. Poddar that the decision of the Calcutta High Court in Madgul Udyog's case cannot be applied to the facts of the present case cannot be accepted. Mr. Poddar cited the decision of the Calcutta High Court in the case of Ganga Properties lid. (supra) in support of his contention that in the absence of a registered deed conveying the title to the property to the assessee, the assessee cannot be taxed in respect of the income therefrom. This decision was also considered by the Hon'ble High Court in Madgul Udyog's case (supra). While dealing with this decision the High Court observed that the decision of the Calcutta High Court in GangaProperties Ltd. 's case (supra) should be understood and read in the light of the Supreme Court's decision in R.B. Jodha Mai Kuthiala v. CIT [1971] 82 ITR 570. It was further held by the Hon'ble High Court that the decision in Ganga Properties Ltd. 's case (supra) did not deal with all aspects of ownership, as noticed by an earlier Calcutta High Court decision in Chitpore Golabari Co. (P.) Ltd. v. CIT [1971] 82 ITR 753. It is no doubt true that the High Court in Madgul Udyog's case (supra) was dealing with the dase of flats which were held as stock-in-trade and not as capital assets, a distinction stressed upon by Mr. Poddar. However, we are unable to appreciate this distinction sought to be made by Mr. Poddar since as stated earlier the observations of the High Court vis-a-vis Section 22 of the IT Act are applicable to all cases irrespective of whether the properties are held as stock-in-trade or they are held as capital assets.
9. We also find that in Madgul Udyog's case the Hon'ble High Court has referred to and agreed with the following decisions:--
(1) CIT v. Modem Flats (P.) Ltd. [1967] 65 ITR 67 (Bom.) (2) Smt. Kola Rani v. CIT [1981] 130 ITR 321 (Punj & Har.) (3) Addl. CIT v. U.P. State Agro Industrial Corpn. Ltd. [1981] 127 ITR 972 (All.) (4) P. Joseph Swaminathan v. CIT [1984] 145 ITR 1983 (Mad.) In all the above cases, it is noticed that it is the uniform conclusion that for the purpose of Section 22 of the Act it is the person who has paid the consideration and is in possession and enjoyment of the property who is to be treated as the owner.
10. As stated earlier, while deciding Madgul Udyog's case (supra) the Hontole Calcutta High Court has referred to the decision of the Supreme Court in R.B. Jodha Mal Kuthiala's case (supra). Now, in that case, the Supreme Court formulated the following guidelines for bringing to tax income under the head "Property" under Section 9 of the 1922 Act:--
(i) Section 9 seeks to bring tp tax income of the property in the hands of the owners;
(ii) therefore, the focus of that section is on the receipt of the income;
(iii) the meaning to be given to the word "owner" in Section 9 must not be such as to make the provisions capable of being made an instrument of oppression ;
(iv) the meaning to be given to the word "owner" must be in consonance with the principles underlying the Income-tax Act.
Since the focus of Section 22 of the 1961 Act is also on the receipt of the income, it is the assessee in the present case who is to be treated as "owner" of the property. Such an interpretation would be in consonance with the principles underlying the Act, since one of the basic objects of the Act is to tax income where it is found. The treatment of the assessee in the present case as 'owner' of the property cannot also be said to be oppressive, since it is the assessee which is in receipt of the income from the property for which it is asked to pay tax.
11. At this juncture, we have to notice an agreement put forward by Mr. Poddar based on the provisions of Section 2(47)(v) of the Act. This clause was inserted by the Finance Act, 1987, with effect from 1-4-1988. By this clause, the meaning of the word "transfer" in relation to capital assets was expanded to include transactions involving the allowing of possession of an immovable property in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act. According to Mr. Poddar, the Legislature in its wisdom has thought it fit to include such transactions within the meaning of the word "transfer" only from 1-4-1988 and as the present case is one relating to a transaction prior to that date the assessee cannot be treated as "owner" for the purpose of assessment under Section 22. But this argument cannot be accepted in the light of the decision of the Calcutta High Court in Madgul Udyog's case (supra). The answer to this argument is again that the High Court has interpreted the word "owner" appearing in Section 22 of the Act to include persons who have paid the purchase price and are in actual possession or enjoyment of the immovable property awaiting the "husk of title" over the property to be conveyed to them. Therefore, there is no need to look into the provisions of Clause (v) of Section 2(47) introduced with effect from 1-4-1988 for deciding the controversy before us.
12. For these reasons, we are of the considered opinion that the decision of the Hon'ble Calcutta High Court in Madgul Udyog's case (supra) is a complete answer to all the contentions raised by Mr. Poddar. We, therefore, hold that the rental income derived by the assessee from the property at Ghusuri, Howrah, is to be taxed under the head 'Income from house property'. The ITO is directed to bring to tax the income under the head 'Income from property' instead of "other sources" as taken by him. needless to add that the assessee will be entitled to all the deductions available in computing the income under the head "Income from house property".
13. In the view we have taken of the assessability of the rental income derived from the property, we do not think it necessary to deal with the contention of Mr. Poddar that if the rental income cannot fall under Section 22 of the Act, it cannot be brought to tax at all, on the principle of Supreme Court decision in NalinikantAmbalalMody's case (supra). That contention really becomes academic. The principle of the decision in Mody's case, followed by the Bombay High Court in Smt. T.P. Sidhwa's case (supra), is applicable only if it is found that the income does not fall under a particular head; that principle can have no application to the present case, since we have held that the rent derived by the assessee from the property at Ghusuri falls to be assessed under Section 22 of the Act under the head "Income from house property".
14 to 23. [These paras are not reproduced here as they involve minor issues.]