Kerala High Court
Mammon K. Cherian vs Commissioner Of Income-Tax on 18 March, 1975
Equivalent citations: [1976]102ITR553(KER)
Author: V. Khalid
Bench: V. Khalid
JUDGMENT Govindan Nair, C.J.
1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following question to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the order of the Appellate Tribunal confirming the inclusion of the income from property belonging to the wife in the hands of the assessee in respect of the assessment year 1962-63 is valid in law ?
2. The year of assessment was 1962-63. The short question with which we are concerned relates to the income of Rs. 4,457, derived by renting out the building which was constructed on a plot of land which belonged to the assessee's wife with funds furnished, according to the findings entered by the Tribunal, in its entirety, by the assessee, is liable to be taxed in the hands of the assessee as income derived from an asset directly or indirectly transferred by the assessee to his spouse falling within Section 64(1)(iii) of the Income-tax Act, 1961. That section is in these terms:--
" 64. (1) In computing the total income of any individual, there shall be included all such income as arises directly or indirectly...............
(iii) subject to the provisions of Clause (i) of Section 27, to the spouse of such individual from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart. "
3. At page 12 of the paper-book the Income-tax Officer in what is called the " remand report " has found that the plot of 20 cents on which the building was constructed "was got by the assessee's wife on the partition of her mother's properties in 1959. This is completely established and accepted." This finding has not been altered by the Tribunal. It is on this finding that the Tribunal has proceeded. At the end of paragraph 18 of the Tribunal's order there is the further finding by the Tribunal:
"On a consideration of all the facts of the assessee, we have no hesitation in holding that the entire cost of construction had been met by the assessee, that there is no substance in the plea of loan or its repayment or of the mother-in-law having given anything more than the small sum of Rs. 500 and that the department was, therefore, justified in including the entire income from this property which incidentally goes under the name of the assessee."
4. We shall refer to one other fact. Though the Income-tax Officer in the " remand report" at page 22 of the paper-book expressed the view that " the property is a benami holding of the husband--Sri Mammon K. Cherian--the wife just lending her name and plot to the husband and accordingly bringing to tax the entire property income in his hands ", the Tribunal has not proceeded on the basis that the property belonged to the assessee and that the wife was merely a name-lender, to use the word adopted by the Income-tax Officer, for the husband. The Tribunal has proceeded on the footing that the property belonged to the wife, the entire amount required for constructing the building on the plot having been provided by the husband. It has further found that such advance by the husband was without adequate consideration. That this is so is clear from the question that is referred to us which speaks of income from the property "belonging to the wife".
5. The plot of 20 cents on which the building was constructed belonged exclusively to the assessee's wife. The entire cost of construction was with funds furnished by the assessee. The claim of the department is that the rent derived from the building by renting it out is income arising from assets transferred by the assessee directly or indirectly to his spouse without adequate consideration.
6. Counsel on behalf of the assessee contended before us, relying on the decision in R.K. Murthi v. Commissioner of Income-tax, [1961] 42 ITR 379 (Mad).
that this was really a case of loan by the husband to the wife, at any rate, to the extent of Rs. 28,000. We do not think that the assessee is entitled to contend before us that any part of the amount required for constructing the building was given on the basis of a loan by the assessee to his wife. There is a clear finding of the Tribunal that there was no such loan. There is no appropriate question before us for disputing this finding. We have, therefore, to proceed to decide this case on the basis of that finding.
7. Confronted with the above situation counsel contended that even assuming that the entire amount required for constructing the building was supplied by the assessee, the husband, even then, the rent received, viz., Rs. 4,457, during the relevant accounting period cannot in its entirety be taken to be income derived from assets transferred by the assessee directly or indirectly to his spouse. This submission was elaborated by contending that the fact that the building was constructed on land extending to 20 cents belonging exclusively to the wife had not been given its due weight by the Tribunal. That there was a contention by the assessee in this regard is clear from the "remand report". The Income-tax Officer stated:
" The fact that property stands on the plot of the wife does not make any difference--the rent received is for the building and not for the plot. At best from the property income, an estimated ground rent might be calculated and allowed to the wife. Since no ground rent is paid to the wife--in fact the wife does not enjoy any part of the income--there is no question of allowing any ground rent from the income of the property."
8. In the grounds of appeal before the Tribunal the contention was specifically raised in ground No. 3 that " in any view of the matter it is an admitted fact that the plot and the already existing building belonged to your appellant's wife which she inherited from her parents and, therefore, even if it is presumed that the part of the monies was advanced by the husband the entire income cannot be included in the hands of your appellant ". The order of the Tribunal does not discuss this ground. The assessee filed a representation before the Tribunal at the stage of drawing up of the statement of the case and this has been noticed in paragraph 12 of the statement of the case in these terms:
" The learned counsel for the assessee wanted the Tribunal to incorporate in the statement certain arguments which were advanced on behalf of the assessee before the Tribunal at the time of hearing the appeals. We find no substance in the said suggestion. The submissions made on behalf of the assessee have already been incorporated in the order of the Tribunal. The statement of the case is accordingly finalised."
9. It is not stated that these arguments were not advanced before the Tribunal. This clearly shows that arguments were advanced before the Tribunal. The point, therefore, urged before us by counsel is a matter arising from the order of the Tribunal, by applying the principle of the decision of the Supreme Court in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., [1961] 42 ITR 589 (SC). The Supreme Court summarised the circumstances under which a question of law can be said to arise from the order of the Tribunal, and under item No. 1, the court said :
" When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order."
10. On behalf of the department, counsel, Sri P. A. Francis, urged relying on the decision of this court in Clen Leven Estates Ltd. v. Commissioner of Income-tax, [1973] 91 ITR 391 (Ker) that the rule that what has been erected in land belongs to the land is a principle not applicable to India and that, therefore, the building cannot be said to be owned by the owner of the plot of the land on which it was constructed. This principle has no application whatever in deciding the question before us which we may state is only about the application of Section 64(1)(iii) of the Act which we have already read. Can it be said that the sum of Rs. 4,457 is income derived from the assets transferred by the assessee directly or indirectly to his spouse ? This is the question that we have to answer. The income is no doubt derived from renting out the building. We cannot conceive of a building in existence without lateral support from the land on which it is constructed. We go further and state that very often the land on which the building is situate has a more important role in determining the rent of the building constructed on it. That the rent varies with reference to the location of the building is a fact too well-known to be mentioned. A building constructed within the area of the Cochin Corporation for instance, will fetch much more rent than a similar building constructed in a village.
The contribution of the land by its location or its situation by the side of a road or in an important commercial centre is, therefore, a contributory factor in determining the quantum of the rent that can be fetched by a building constructed on it. To ignore that would amount to assuming an unreal position for which there is no justification. We find it difficult to accept the argument advanced by counsel on behalf of the department that the rent is for the building and nothing has been paid towards the land. The rent fetched is not only from the facilities the building provides but from the location of the land, its situation and its value. The rent as we indicated must depend on both the factors, the location and situation of the land and its value, and the usefulness and the facilities afforded by the building. What part of the rent is attributable to the building alone will have, therefore, to be deter mined. This has not been done. The question referred to us, therefore, can only be answered in the following manner. The Tribunal has erred in including the entire income (the sum of Rs. 4,457) as income derived from the assets transferred directly or indirectly by the assessee to his wife.
There is no doubt that the income derived from the assets transferred by the assessee to his wife can only be a part of the sum of Rs. 4,557. What part it is is not for us to decide nor have we any material before us for doing so. The Tribunal must decide this after re-hearing the appeal and if necessary after collecting additional material and taking evidence. We answer the question accordingly. We direct the parties to bear their respective costs.
11. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.