Calcutta High Court
Madgul Udyog vs Commissioner Of Income-Tax on 5 July, 1989
Equivalent citations: [1990]184ITR484(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee, the following common questions of law arising out of the consolidated order of the Tribunal for the assessment years 1978-79, 1979-80 and 1980-81 have been referred for the opinion of this court:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was the owner of the flats within the meaning of section 22 of the Income-tax Act, 1961, and, as such, the annual value of the said flats should be chargeable to income-tax in the hands of the assessee ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the annual value of those flats should be determined in accordance with Clause (a) of Section 8(1) of the West Bengal Premises Tenancy Act, 1956, and it should not be taken at nil ?"
2. 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, Bally-gunge 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 Assessment year No. of flats Diwali 1975 1976-77 5 " 1976 1977-78 11 " 1977 1978-79 3 " 1978 1979-80 2 " 1979 1980-81 2 " 1980 1981-82 1 + 1 shop Total :24
3. Two shops on the ground floor remain unsold till date.
4. The assessee-firm was duly assessed to income-tax in respect of profits and gains arising on construction and sale of flats as aforesaid in the years in which the construction was completed and the possession of the flats in question was handed over to the purchasers concerned notwithstanding the fact that the deeds of conveyance had not been executed and registered in favour of the purchasers. It may be noted that save and except two flats for which the deeds of conveyance were executed and registered in the previous year relevant to the assessment year 1977-78, the rest of the purchasers did not come forward to pay the registration charges and get the flats registered in their respective names. The income from construction and sale of flats was assessed as business income and the assessee-firm has always treated the constructed and unsold area as stock-in-trade.
5. The buyers of the respective flats are in full and exclusive possession of the respective units purchased by them against payment of full and valuable consideration to the assessee-firm. Each of them has been occupying and/or enjoying the rents, issues and profits of the respective units purchased by them since the date of their respective possession. The buyers are also being assessed to income-tax in respect of the notional /actual income arising from the said flats since the date of their respective possession.
6. The Income-tax Officer assessed the assessee-firm on the so-called notional income in respect of the flats sold by it and for which possession was duly handed over to the respective buyers against payment of full consideration only on the ground that no deeds of conveyance had been registered in respect of these units in favour of the buyers. The assessment of notional income 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 .
(d) CIT v. Ganga Properties Ltd. .
(e) East India Housing and Land Development Trust Ltd. v. CIT .
7. 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 Properties Ltd. [1970] 77 ITR 637 and the Special Bench of the Tribunal in the case of R. K. Sawney as well as other decisions that may be cited before the Income-tax Officer.
8. In the meantime, the appeals for the assessment years 1978-79, 1979-80 and 80-81 which had been similarly decided in favour of the assessee-firm by the Commissioner of Income-tax (Appeals), Calcutta, by His order dated January 30, 1985, came up for hearing before the Tribunal. These appeals were heard and disposed of by the Tribunal by its order dated September 4, 1986. The present reference arises out of the aforesaid order of the Tribunal.
9. Two issues were raised before the Tribunal. Firstly, whether the asses-see was liable to be taxed on the annual value of the flats and, secondly, whether the annual value of the flats should be determined in terms of the West Bengal Premises Tenancy Act, 1956.
10. The first issue was decided by the Tribunal against the assessee-firm. The relevant findings of the Tribunal may be summarised as under :
(i) Sale of immovable property is governed by Section 54 of the Transfer of Property Act and there cannot be any departure from the said provisions. There cannot be a valid transfer of ownership of immovable property of the value of more than Rs. 100 by mere delivery of possession and acceptance of price thereof. The sale must be evidenced by a registered instrument.
(ii) What has been acquired by the purchaser without a registered instrument is only a right to enforce specific performance of the contract of sale and not ownership in the property. The assessee cannot claim that, by mere transfer of possession, it was divested of ownership of the property.
(iii) The word "owner" used in Section 22 cannot be construed otherwise than how it appears in general law, The Income-tax Act in that regard does not depart from the general law.
(iv) The plea that income from these flats had been assessed in the hands of the purchasers is of no relevance. The theory of evidence of dpiible taxation has no relevance in such a situation. A wrong order, if any, in the case of any other assessee does not and cannot enure to the benefit of the assessee.
(v) The fact that the Income-tax Officer, for the purpose of assessment of business profits under Section 28 of the Income-tax Act, 1961, in the hands of the assessee-firm, has already treated the flats as having 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 a 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. C1T [1986] 160 ITR308 (Delhi) ;
(b) CIT v. Ganga Properties ;
(c) CIT v. Union Land and Building Society (P.) Ltd. [1972] 83 ITR 794 (Bom) ;
(d) Kartar Singh (S.) v. CIT ;
(e) CIT v. D. L. F. Housing Construction (P.) Ltd. ;
(f) Anand (D. C.) and Sons v. CIT ; and
(g) CIT v. Biman Behari Shaw Shebait [1968] 68 ITR 815 (Cal).
11. As regards the second issue relating to the quantum of annual value, the Tribunal did not agree with the submissions of the assessee-firm that such annual value was nil since it was not in a position to derive any rent, or profits from the flats which were already in the lawful possession of the buyers and who were also being assessed to income-tax in respect of rents and profits therefrom in their respective hands. The Tribunal also did not agree with the submission of the assessee-firm that the annual value cannot exceed the municipal valuation. This submission was based on the decision of this court in CIT v. Prabhabati Bansali [1983] 141 ITR 419. The Tribunal held that, after the amendment in Section 23 by virtue of the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, the said decision of this court was no longer good law and was not applicable in the instant case. The Tribunal held that if the valuation determined under the Calcutta Municipal Act was accepted, the assessee gets an allowance of 10% for the cost of repairs and again the assessee claims deduction of l/6th of the annual value under Section 24 of the Income-tax Act, 1961. The Tribunal further observed that the assessment made by the authorities of the Calcutta Municipality is only secondary evidence, which should not be preferred and that the Income-tax Officer should make his own assessment in the light of the provisions of the Income-tax Act and Section 8(1)(e) of the West Bengal Premises Tenancy Act, 1956. Accordingly, the Tribunal remanded the matter to the Income-tax Officer for redetermination of the annual value in the light of Section 8(1)(e) of the West Bengal Premises Tenancy Act, 1956.
12. Mr. N. K. Poddar, learned counsel appearing on behalf of the assessee, has submitted that the assessee is engaged in the business of construction of multi-storeyed buildings and sale of flats. The flats were held by the firm as stock-in-trade and not as capital assets. The income from such sale having been assessed as business profits, the assessee cannot be assessed once again notionally on the bona fide annual value 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.
13. 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 placed by Mr. Moitra on the recent decision of the Supreme Court in Nawab Sir Mir Osman All Khan v. CWT [1986] 162 ITR 888 and it was contended that, by this decision, the Supreme Court has already upheld the principles laid down by this court in Ganga Properties Ltd [1970] 77 ITR 637, as well as in S. B. (House and Land) Pvt. Ltd. v. CIT [1979] 119 ITR 785. It was further contended that the income-tax law has not been amended in respect of the assessment years 1978-79 to 1979-80 and 1980-81 now under consideration and, therefore, according to the Revenue, the assessee-firm was liable to be assessed on a notional basis in respect of the bona fide annual value of the property in question.
14. The rival contentions have to be examined in the light of the decisions cited at the Bar.
15. In R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570, the Supreme Court was dealing with the case of an assessee whose property remained vested in the Custodian of Evacuee Property by virtue of Section 6(1) of the Pakistan (Administration of Evacuee Property) Ordinance, 1949, as evacuee property. The assessee was held not to be the owner of the property for the purposes of Section 9 of the Indian Income-tax Act, 1922. It may be noted that the assessee was the legal owner. But the Supreme Court held that since the assessee was not in a position to exercise the rights of ownership, he could not be assessed on the notional income under Section 9 of the 1922 Act, corresponding to Section 22 of the 1961 Act. The following observations of the Supreme Court are of great significance (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.
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 well 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 a 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."
16. 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 of the English Income-tax Act, 1952, is worded differently. But the principles underlying the two statutes are identical..."
17. Again, the Supreme Court observed as under (at pp. 578, 579) :
". . .As mentioned earlier that section seeks to bring to tax income of the property in the hands of the owner. Hence, the focus of that section is on the receipt of the income. The word 'owner' has different meanings in different contexts. Under certain circumstances, a lessee may be considered as the owner of the property leased to him. In Stroud's Judicial Dictionary, 3rd edition, various meanings of the word 'owner' are given. It is not necessary for our present purpose to examine what the word 'owner' means in different contexts. The meaning that we give to the word 'owner' in Section 9 must 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."
18. In Sushil Ansal v. CIT [1986] 160 ITR 308, the Delhi High Court held (at p. 314) :
"... that apart, the more important aspect which is relevant for the purposes of this case is that the decision in R. B. Jodha Mal Kuthiala , even if interpreted in the manner in which the assessee in this case seeks to do, only helps the original owner of the property and not the present assessee. That decision may be directly in point to help Ansal and Sehgal (P.) Ltd. to contend that the income from the properties (in fact, from all the flats contained in the building 'Akash-deep') cannot be assessed in its hands, merely because regular sale deeds have not been executed by it in favour of the various 'purchasers' like the assessee. 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 these flats and the income therefrom in any manner they like and against whom the company has lost all rights of recourse because of the provisions of Section 53A of the Transfer of Property Act, that the company is the owner of nothing but the husk of title over the property and should not be assessed on the principle of the decision of the Supreme Court and this contention may perhaps have to be accepted. The decision of the Supreme Court could be said to be a complete answer to an attempt to assess the company."
19. 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 a 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 Income-tax Act, 1961, is on the receipt of income. The meaning given to the term "owner" in Section 22 must 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. One of the most important powers of ownership is the right to exclude others from possession and the property right is essentially a guarantee of the exclusion of other persons from the use or handling of the thing.
20. The Patna High Court then proceeded to hold that the consideration money had been paid in full and the assessee had been put in exclusive and absolute possession of the property. It had been empowered to dispose of and even alienate the property. The assessee had the right to get the conveyance duly registered and executed in its favour, but had not exercised the option. The assessee was not entitled to say that, because of its own default in having a deed registered, it was not the owner of the property. In the circumstances, the assessee must be deemed to be the owner of the property within the meaning of Section 22 and was assessable as such on the income from the property.
21. In CIT v. Modern Flats (P.) Ltd. [1967] 65 ITR 67, the Bombay High Court held that although no conveyance deed was executed by the assessee-builder in favour of the flat-holders, since it had transferred all its right, title and interest in the various flats to each one of the flat-holders, it cannot have any further ownership in the flats left in them and hence the assessee-builder was not the owner of any part of the building and was not liable to be assessed on notional basis.
22. In Smt. Kala Rani v. CIT [1981] 130 ITR 321, the Punjab and Haryana High Court held that before a person can be assessed under Section 22 of the Income-tax Act, 1961, it is not necessary that he must be the owner of the property by virtue of a sale deed in his favour. What is being taxed under Section 22 is the income from house property or the annual value of the property of which the assessee is the owner. The focus of the section is on the receipt of income from house property. If, in a given case, it is found as a fact that the buyer is in occupation of the building as owner for all intents and purposes, except for the registration of the sale deed in his favour, then he is liable to tax under Section 22, It may be noted that the buyers of the flats have already been assessed to tax in the case of the assessee-firm.
23. 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.
24. 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 question of assess ability. In whosoever's name the house property may stand or get registered, it would yet be the duty of the Income-tax Officer to find out who the real owner of the property is, so as to fix the liability for income-tax on that owner in respect of that property. In this case, it was found that although the house property stood in the name of the assessee's son, on investigation, it was proved that the assessee was the real owner of the property. The court, therefore, upheld the assessment of income from the property in the hands of the assessee.
25. In Smt. Savita Mohan Nagpal v. CIT [1985] 154 ITR 449, the Rajas-than High Court applied the principles of overriding title even in the case of assessment of income under the head "Income from house property". It was submitted, relying on this decision that, in view of the agreement for sale and the right of the buyers to enjoy the rents, issues and profits of the property and to possess the property to the entire exclusion Of the assessee firm, the rental income by the principles of overriding title is assessable in the hands of the buyers and not in the hands of the assessee firm. Since the buyers have already been assessed to income-tax in respect of such rental income, there should be no question of assessing the same in the hands of the assessee-firm once again.
26. In Chitpore Golabari Co. (P.) Ltd. v. CIT [1971] 82 ITR 753, the Division Bench of this court referred to the earlier judgment in the case of Ganga Properties Ltd. , and held that all aspects of ownership involved under Section 9 of the Indian Income-tax Act, 1922, had not been decided and/or discussed in Ganga Properties' case . The court also observed that a decision on other points must await proper facts. In Chitpore Golabari's case [1971] 82 ITR 753 (Cal), the decision went against the assessee, because it was found by the court that the assessee continued to be in possession of the property even after executing the agreements for sale. This is not the case here. The assessee-firm has already parted with possession in accordance with the agreements for sale against payment of full and valuable consideration and the buyers are in possession of the flats and are enjoying the rents, issues and profits thereof to the entire exclusion of the assessee-firm.
27. Mr. Moitra 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.
28. 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 assessee-company 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 a specific head, the assessment could not be done treating it as business income.
29. 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.
30. 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 was a case where the assessee executed a deed of settlement in favour of his father in respect of only the income from the property but did not transfer the property itself. The court held that, in view of the provisions of Section 16 of the 1922 Act corresponding to Section 60 of the 1961 Act, there was nothing but a transfer of income and there being no transfer of property, the transferor's son continued to be assessable to income-tax in respect of the rental income.
31. In CIT v. DLF Housing Construction (P.) Ltd. [1981] 128 ITR 773, the Delhi High Court found that, in accordance with the terms of the sale deed, the vendor was allowed to possess and use the premises as a licensee without payment of any fee although the deed of conveyance was duly executed and registered in favour of the buyer of the property. The court held that, in view of the execution and registration of the deed of conveyance, the buyer was the owner of the property and, therefore, he was liable to be assessed in respect of the rental income. This case has no application to the facts and circumstances of the instant case.
32. In D. C. Anand and Sons v. CIT , the assessee had sold the property to the tenant company. Full consideration had not been paid by the tenant company. The sale deed was executed on May 31, 1966. But the tenant stopped paying the rent from May, 1965. The sale deed did not make any reference to any earlier agreement between the parties for waiver of rent by the landlord-assessee in favour of the tenant company. There was nothing to show that the income from the property had been diverted from the assessee by an overriding title. The court found that the landlord-assessee was entitled in law to receive the rent between May, 1965, and May, 1966, but it did not voluntarily do so. On these facts, the court held that the landlord could not avoid charge of tax on the rent which he did not realise for the period May, 1965, to May, 1966. This case is also clearly distinguishable on facts and has no application to the instant case.
33. In CIT v. Biman Behari Shaw Shebait [1968] 68 ITR 815, the Division Bench of this court was considering the case of a property which was dedicated to a deity by will and was not to be let allowed in view of certain restrictions contained in the will. The court held that even though a property is not allowed to be let 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.
34. 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, 1957. 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.
35. 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 Income-tax Act, 1961, where 'owner' is spoken of in respect of house properties, the legal owner is meant and not the equitable or beneficial owner ...".
"In the instant appeal, however, we are concerned with the expression 'belonging to' and not with the expression 'owner'." (p. 894).
"In the instant case, as we have noticed, the position is different. We are concerned with whether the assets, in the facts and circumstances of the case, belonged to the assessee any more ... (p. 895)"
"We are, however, not concerned in this controversy at the present moment. It has to be borne in mind that in interpreting the liability for wealth-tax, normally equitable considerations are irrelevant . . . Therefore, the fact that the Legislature has deliberately and significantly not used the expression 'assets owned by the assessee' but 'assets belonging to the assessee', in our opinion, is an aspect which has to be borne in mind." (p. 896).
36. It is also not correct to say that the Supreme Court in Nawab Sir Osman Ali Khan [1986] 162 ITR 888, approved the decision of this court in Ganga Properties Ltd. . The Supreme Court discussed the Calcutta decision at page 896 of the Reports and clearly observed that this case was concerned with Section 9 of the Indian Income-tax Act, 1922, and was not relevant lor the purposes of the Wealth-tax Act, 1957. The Supreme Court also referred to the decision of this court in S. B. (House and Land) Pvt. Ltd. v. CIT [1979] 119 ITR 785 and observed that this decision was based upon the particular facts of the case and was not relevant for the purposes of the Wealth-tax Act, 1957. The submissions made by learned counsel for the Revenue are not borne out from the decision of the Supreme Court in Nawab Sir Mir Osman Ali Khan's case [1986] 162 ITR 888. Furthermore, the Supreme Court had no occasion to decide on the question of ownership for the purposes of Sections 22 to 24 of the Income-tax Act, 1961. The decision of the Supreme Court, therefore, does not help the Revenue.
37. The decision of this court in S. B. (House and Land) Pvt. Ltd. [1979] 119 ITR 785 proceeds on peculiar facts and is clearly distinguishable. In that case, the court found that the assessee, a private limited company, had taken on lease certain lands and premises for a period of 84 years with an option for 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.
38. 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 pay registration charges and stamp duty. It is, therefore, clear that the decision in S. B. (House and Land) P. Ltd. has no manner of application to the facts of this case.
39. The term "ownership" is not merely a word of technical legal meaning but it is to be interpreted in its broadest possible meaning. It consists of a bundle of rights. What rights would constitute "ownership" in a given case would depend on the context in which it is used. Broadly "ownership" is that of one who has dominion over the property which is the subject of ownership. If the ownership itself is a criterion of assessment under Section 22 of the Income-tax Act, 1961, one must find out whether the assessee has income from such property or not. Mere interest of a person in the property will not be enough. In the socio-economic perspective, the problem of providing housing accommodation to millions has assumed importance. But land being scarce, to minimise the pressure on land, multi-storeyed buildings have come up providing residential accommodation to many. It is difficult, if not impossible, for people belonging to the low income group or middle income group or even high income group to buy land and build houses on it having regard to the availability and the prohibitive price of land. The builders build and sell flats to individual buyers. Upon payment of full consideration, a buyer of a flat has the right to possess it to the exclusion of others. A buyer has exclusive right of possession, enjoyment and disposal of the flat. He has the right to control, handle and dispose. This right, even if it is not perfect in the sense that there has been no change of ownership from the builder to the buyer by a registered deed of conveyance, his right as owner is in no way encumbered. The flat is not charged with any real right towards a third person. Accordingly, the word "owner" appearing in Section 22 of the Income-tax Act, which is comprehensive and generic, must be construed in the setting of the socio-economic development in the concept of ownership. We respectfully agree with the views taken by the Patna High Court in Sahay Properties' case [1983] 144 ITR 357, where the Patna High Court observed as follows (at p. 364) :
"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 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 remainderman, 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 asses-see would not merely be doing palpable injustice but would cause absurd inconvenience and would make the Legislature to be dubbed as being a 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 another person with the power of a residual ownership when such contingency arises which is not the case even here."
40. Let us now turn to the facts of this case. The assessee-firm is engaged in the business of construction of multi-storeyed buildings and the flats in question were held by it as stock-in-trade and not as capital assets. The assessee-firm has already sold and delivered possession of the flats to the respective buyers against payment of full consideration in terms of the agreements for sale entered into by the assessee-firm in the course of its said business. The income arising from the sale of these flats has already been assessed by the Income-tax Officer as business profits in the hands of the assessee-firm under Section 28 of the Income-tax Act, 1961, in the years in which the construction was completed and possession of flats was handed over to the respective buyers against payment of full consideration in spite of the fact that the conveyance deeds had not been executed and registered. In other words, the Income-tax Officer has himself treated these very flats as having been already sold for assessing business profits although conveyance deeds had not been executed. The buyers of the respective flats are lawfully occupying and/or enjoying the rents, issues and profits since the date of their taking over of possession of the flats in question on payment of full and valuable consideration in terms of valid agreements for sale. The buyers are being assessed to income-tax on notional/actual rental income, as the case may be, arising from the said flats since the date of their taking over of possession. There cannot be and should not be a double assessment of the same income-once in the hands of the assessee-firm and again in the hands of the buyers. The assessee-firm has been left with no right, title or interest in the said flats, except an obligation like a trustee to execute and register the conveyance deeds in favour of the buyers (who in this easy are the beneficiaries in exclusive possession of the flats) when they come forward to pay the stamp duly and registration charges, etc. As such, the assessee at best could be assessed in the like manner and to the same extent as the beneficiaries, who are the buyers of the flats in this case. Since the buyers have already been assessed to tax, there is no further question of assessing the assessee-firm 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 with the principles underlying the Act. The decision of this court in CIT v. Ganga Properties Ltd. [ 1970] 77 ITR 637 should be read and understood in the light of the subsequent decision of the Supreme Court in Kuthiala's case [1971] 82 ITR 570. It does not deal with all aspects of ownership as noted by this court in Chitpore Golabari Co. (P.) Ltd. v. CIT [1971] 82 ITR 753. Ganga Properties' case does not consider the recent development of the concept of multi-storeyed buildings and issues incidental thereto. All cases so far decided relate to the holding and sale of property by an assessee as capital assets. The assessee-firm in this case was carrying on the business of construction of multi-storeyed buildings and sale of flats therein. The flats in question were constructed and sold as stock-in-trade and not as capital-assets. Earlier cases including the case of Ganga Properties are, therefore, clearly distinguishable on facts. The question of notional income should not arise in relation to stock-in-trade particularly when the business income arising on sale has already been assessed in the hands of the assessee-firm in the respective years in which the construction was completed and possession was handed over.
41. As regards the second question, it was submitted by Mr. Poddar that, in the facts and circumstances of this case, when the assessee-firm is neither in possession of the flats nor is in a position to derive any rents, issues and/or profits therefrom, the so-called notional annual value cannot be anything but nil. If this contention is not accepted, such annual value cannot exceed the municipal valuation as laid down by this High Court in CIT v. Prabhabati Bansali [1983] 141 ITR 419. The Tribunal has distinguished this decision on the ground that, after the amendment by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, that decision is no longer good law.
42. The views of the Tribunal do not apear to be correct. The amendment Act only seeks to provide that, in case the actual rent received by an asses-see is higher than the annual value, the actual rent received would itself be considered as the annual value. In the present case, it is an admitted fact that the assessee-firm did not receive any rent. Therefore, there is no higher amount. In other words, we are still concerned 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.
43. 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."
44. 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 such gross rent."'
45. It would thus be seen that, in all, Section 23(1)(a) of the Income-tax Act is in pari materia with Section 168 of the Calcutta Municipal Act, 1951, as well as Section 154 of the Bombay Municipal Corporation Act, 1988. These matters were duly considered by this court in Prabhabati Bansali [1983] 141 ITR 419.
46. The Tribunal was not right in saying that there will be a double deduction for repairs in case the municipal valuation was adopted. The Tribunal failed to appreciate that the rateable value fixed by the municipality has to be increased by l/9th so as to determine the annual value being the gross annual rent at which the property is reasonably expected to be let from year to year.
47. The view that the annual value cannot exceed the municipal valuation is supported by the decision in CIT v. R. Dalmia , CIT v. M. R. Alagappan [1987] 164 ITR 690 (Mad) and C. J. George v. CIT .
48. The Tribunal has referred to the provisions of Section 8(1)(e) of the West Bengal Premises Tenancy Act, 1956, which reads as under :
"(e) where the provisions of Clause (a) or Clause (b) or Clause (c) or Clause (d) do not apply, such rent as would be reasonable having regard to the situation, locality and condition of the premises and the amenities provided therein and where there are similar or nearly similar premises in the locality, having regard also to the rent payable in respect of such premises."
49. Section 8(1)(e) of the West Bengal Premises Tenancy Act, 1956, again refers to that rent which would be reasonable.
50. Since there is no material difference between Section 168 of the Calcutta Municipal Act and Section 23(1)(a) of the Income-tax Act, there is no reason why the Tribunal should disregard the municipal valuation. In this context, it may be relevant to refer to the decision of the Supreme Court in Guntur Municipal Council's case, . There, the court held that the test in municipal laws relating to annual value is the same, namely, what rent the premises can lawfully fetch if let out to a hypothetical tenant. The municipality is thus not free to assess any arbitrary annual value and has to look to arid is bound by the theory of standard rent which would be payable for a particular premises under the Rent Control Act in force during the year of assessment.
51. Learned counsel 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.
52. 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.
53. On the oral prayer of Mr. Mukherjee, appearing for the Commissioner, we grant leave to appeal to the Supreme Court under Section 261 of the Income-tax Act, 1961, inasmuch as this judgment raises a substantial question of law of public importance. Let the certificate be drawn up and issued separately.
K. M. Yusuf, J.
54. I agree.