Shri Sushil Ansal Petitioner v. Commissioner Of Income-Tax

S. Ranganathan, J.:— Income-tax is only one tax though it is levied on the sum total of one's income classified as chargeable under various heads which are set out in Section 14 of the Act. The computation of the income under each of these heads carries its own difficulties but, of all the heads of income referred to in Section 14, the computation of the income under the head ‘income from house property’ is perhaps the simplest. There are two important features of the assessment of this kind of income. The first is that, under this head, the annual value of property consisting of any buildings or land appurtenant thereto, of which the assessee is the owner, is chargeable to income tax. Thus, the tax under this section is in respect of the ownership of property and not the occupation, possession or other kind of rights over house property. The second point is that the annual value of any property for the purpose of this computation was prescribed under Section 23 (at the point of time with which we are concerned) to be the same for which the property might reasonably be expected to let from year to year. In other words, though the tax under this head is a tax on income, it is not a tax upon the rents actually derived by an owner from the property but is charged on an artificial or notional income which one could derive from such property even where the owner in fact may derive no income whatever therefrom. This proposition has been laid down in a large number of cases and it will be sufficient to refer to the decisions of this Court in Kartar Singh v. C. I. T. 1969-73 ITR 438 (1), C.I.T v. D.L.F Housing Construction P. Ltd. 1981-128 ITR 773 and Anand & Sons v. C1T 1981-131 ITR 77 (2).

2. The twin concept under Sections 22 and 23 which envisage a tax on the owner of the property but at the same time disassociates the tax from the actual derivation or enjoyment of the income from the property has led to the difficulty that comes up for consideration in the present case.

3. A person may become the owner of a building in various ways. He may have inherited the building and the land on which it stands from his parents or some other persons. He may have purchased the land and then constructed the building thereon. He may have taken the land on lease and constructed the building thereon. Or, lastly, he may have acquired the land as well as the building from somebody else. In the fourth set of circumstances outlined above, there is a transfer of ownership from one person to another in respect of the building. This transfer may be by way of sale, gift or exchange and, if so, under the Transfer of Property Act, 1882 (T. P. Act, for short) the transfer of ownership can be effected only by means of a registered instrument (vide: Sections 54, 118 and 123 of the T. P. Act). However, in recent times, various other devices are sought to be employed for transferring one's ownership in property. This is due to various reasons. In the first place, the drawing up of a sale deed and its registration involve considerable expenses by way of stamp duties and registration charges. Secondly, in some places there are restrictions on the transfer of property and parties desire to circumvent these restrictions. Thirdly, due to shortage of space in big cities, house property takes the shape of flats, a large number of which constitute one building, the ownership of which is more conveniently held through membership of companies or cooperative societies. The difficulty now before us arises where a person who is the owner of a building claims that he has transferred a house property to another person by one of these means without the execution and registration of an instrument of transfer. The question is as to which person is to be assessed on the income from the property in such cases, the transferor or the transferee or both ?

4. The assessee in the present reference, Sushil Ansal, is an individual and this reference arises out of his assessment to income tax for the assessment year 1970-71, the relevant previous year for which was the year which ended on 31-3-1970. There is a piece of land on Barakhamba Road which belongs to the Government but has been given under perpetual lease. The name of the original lessee is not on record. A company known as Ansal and Sehgal Pvt. Ltd. entered into an arrangement with the lessee and constructed a multi-storeyed building on this piece of land which is known as Akashdeep. This multi-storeyed building consists of a number of flats. The assessee claims that he is the owner of three of these flats. He claims that he has paid the entire price thereof and got possession them. He claims he has absolute rights of disposal over them and that in fact he has let them out to different tenants. He is deriving the income from the flats. He is paying the municipal taxes in respect thereof. During the previous year under consideration he derived a net income of Rs. 18403 (after paying the taxes) from these flats by way of rent. He has shown in his return the income from this property by computing the same after deducting municipal taxes as well as the statutory deduction of 1/6th of the annual value on account of repairs as provided in Section 24 of the Act. The Income-tax Officer, However, assessed the entire sum of Rs. 18403 as “income from other sources” and denied the deduction for repairs claimed by the assessee. The short reason given for doing this was, in his own words:

“Registration has not been effected regarding ownership of the flats. Income is taken as Income from other Sources' and no deductions are allowed.”

5. On appeal, the Appellate Assistant Commissioner accepted the assessee's contention. He directed the Income-tax Officer to assess the income under the head “income from house property” and allow statutory relief on account of repairs.

6. The Income-tax Officer appealed to the Appellate Tribunal. The Appellate Tribunal found as a fact that there was no sale deed in respect of the 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 pointed out that the super-structure of the multi-storeyed building including the flats vested originally with the company which had constructed the same. But so far as the assessee was concerned he had only entered into an agreement to purchase the flats. Any instalments of purchase price that were paid were only in pursuance of the agreement to sell. The Tribunal pointed out that till regular sale deeds were executed in the assessee's favour, the title in the flats remained vested in the company and that the assessee could not in law have claimed to have purchased the flats or become the owner thereof. The Tribunal disapproved the attempt of the Appellate Assistant Commissioner to base his conclusion on a principle of agency or some principle applicable in the case of owners of property whose rights were subject to certain limitations. The Tribunal noticed that the words “sale” and “owner” have acquired a definite connotation and that a sale in that sense could be made only by a registered instrument in the case of immovable properties of the value of Rs. 100 and upward. The decision of the High Court in CIT v. Meatles Ltd. (1962-84 ITR 37 (3) was followed and the conclusion of the Income-tax Officer restored.

7. The assessee has obtained this reference to this Court on the following questions:

“1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee could not be treated as the owner of the three flats in the building ‘Akash Deep’ ?

2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the income enjoyed by the assessee from those flats would be assessed under the head ‘income from other sources’ and not under the head ‘Income from House Property’ ?”

Though the questions referred are two in number, the controversy is basically one, namely, whether the assessee could claim to be the owner of the three flats in the building Akash Deep in the circumstances mentioned above.

8. The question, thus, posed, is not res integra. It has been considered in several decisions, including decisions of this Court, in the context of property income, in the context of the provision which entitles an owner to get depreciation, development rebate on machinery or plant and also in the context of the Wealth Tax Act where a person is liable to tax on property belonging to him. The decisions, however, are not uniform and reveal a divergence of judicial opinion. We do not think it is necessary to discuss these decisions at length; it will be sufficient to indicate their effect. One line of cases has taken the same view as the tribunal has in this case. These decisions are:

(1) CIT v. Modern Flats (1965-65 ITR 67, Bom.) (4)

(2) CIT v. Ganga Properties Ltd. (1970-77 ITR 637-Cal.) (5)

(3) CIT v. Union Land & Building Society P. Ltd. (1972-83 ITR 794-Bom.) (6)

(4) CIT v. Meales Ltd. (1972-84 ITR 37-Del.) (Supra)

(5) Cit, Hyderabad v. Nawab Mir Barkat Ali Khan Bahadur . (1974 Tax L. R. 90-A. P.) (17)

(6) CIT v. Zorastrian Building Society Ltd. (1976-102 ITR 499-Bom.) (8)

(7) CIT v. Hindustan Cold Storage & Refrigeration P. Ltd. (1976-103 ITR 455-Del.) (9)

(8) CIT v. Hans Raj Gupta (1982-137 ITR 195-Del. (10)

9. The decisions which take a contrary view and which are strongly relied upon by the learned counsel for the assessee are:

(1) CIT (Addl.) v. U. P. State Agro Industrial Corporation Ltd. (1981-127 ITR 97-All.) (11)

(2) Kala Rani v. CIT (1981-130 ITR 321-Pun.) (12)

(3) CIT v. Steelcrete Ltd. (1983-142 ITR 45) (13)

(4) CIT (Addl.) v. Sahay Properties & Investment Co. P. Ltd. (1983-144 ITR 357-Pat.) (14)

10. It may be added that, in the last of the above decisions, of the Patna High Court, the Supreme Court has granted the department special leave to appeal.

11. Though there is, thus, a conflict of views on the issue before us, the course which we have to follow seems to be quite clear. This Court has taken a consistent view in a number of decisions giving a strict interpretation to the word ‘owner’ and pointing out that the execution of an agreement of sale coupled with the handing over of possession would not be sufficient to confer on the proposed transferee the right of ownership of the property even if the handing over of possession is in certain circumstances sufficient to attract the provisions of Section 53-A of the Transfer of Property Act. We do not think that we would be justified in departing from the consistent line of authorities of this Court. In fact, we cannot do so except by reference of the matter to a Full Bench. Having regard to the importance of the matter, we did seriously consider the advisability of referring the question to a larger bench. But as the decisions of this Court are consistent and inform, as a decision even of a larger Bench of this Court cannot help to resolve the controversy among various courts and as the Supreme Court is already seized of the issue in the appeal that has been admitted against the judgment of the Patna High Court, we think that the proper course for us would be to follow the earlier decisions of this Court leaving it open to the parties, if so advised, to agitate the matter further. This is also the reason why we do not discuss in detail the elaborate arguments addressed by Messrs. Sharma, S. B. Gupta and Wazir Singh.

12. It is, however, strongly urged on behalf of the assessee that the earlier decisions of this Court should be considered to have been over-ruled by the decision of the Supreme Court in R. B. Jodha Mal Kuthiala v. CIT (1971-82 ITR 570) (15). We are unable to accept this contention for two reasons. In the first place, even in some of the earlier decisions of this Court, the decision of the Supreme Court has been referred to and its scope has been explained by this Court. It is, therefore, not possible for us to hold at this stage that these decisions stand over-ruled because of the Supreme Court's decision. But 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 (supra), 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 & 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 person 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. The decision in Kuthiala's case (supra), however, does not say that a person in the position of the assessee in the present case has become the owner of the property. It is only an authority for the proposition that the company which still continues to be an owner merely in name cannot be assessed merely because the technical legal ownership of the property continues to vest in it. Nor can the decision of the Supreme Court be interpreted as holding that a person, who is in the enjoyment of the income from a piece of property and against the employment of which there can be no interdict at the instance of anybody, cannot be assessed on the income from the property. So far as the present assessee is concerned, there is no dispute that he is in possession of all the three flats and that he has been deriving the income from these three flats. He cannot, therefore, say that he cannot be assessed on the income of this property merely because he is not the owner of the property in the sense that no regular transfer deed has been executed by the company in his favour.

13. It is, however, contended that if the assessee is not the owner of the property, he cannot be assessed at all on the income from this property as a person cannot be assessed on income from property unless he is the owner of the property. It is said that so far as house property is concerned the intendment of the Act is to levy the tax on the owner of the property and if the owner is not taxable for any reason, say the decision of the Supreme Court, then no other person can be taxed in respect of the income from the property even though he might be enjoying the property and its income without any impediment. For this proposition reliance is placed on the decision of the Bombay High Court in CIT v. T. P. Sidhwa (1982-133 ITR 840) (16). In this case the assessee was in possession of the property and derived income from the property much earlier to a regular deed of conveyance in her favour dated 2-2-1963. The question that arose before the Income-tax Officer was whether the income derived by the assessee as rent of the property for the period from 1-4-1959 to 2-2-1963 when she was not the legal owner of the property was chargeable to tax under the head ‘Income from Other Sources’ under Section 12 of the Indian Income-tax Act, 1922, for the assessment years 1960-61 and 1961-62 and under Section 56 of the Income-tax Act, 1961 for the assessment years 1962-63 and 1963-64. The Income-tax Officer took the view that although the assessee may not be the legal owner of the property till 2-2-1963, she could be regarded as beneficial owner as regards the property and was assessable under the head ‘Income from Other Sources’. This was confirmed by the Appellate Assistant Commissioner but the Tribunal was of the contrary view. The Tribunal relying on the decision of the Supreme Court in Nalinikant Ambalal Mody v. S. A. L. Narayan Row (1966-61 ITR 428) (17) held that since the character of the income was income from property, it could be charged under Section 9.Section 22 only if the conditions laid down under the relevant provisions of the charging section are satisfied and could not be brought to tax under the residuary head ‘Income from Other Sources’ merely because the conditions mentioned in that section are not satisfied. The Tribunal also accepted the contention of the assessee that, if the revenue's contention is accepted, there was a possibility of double taxation of the same income in two hands — in the hands of the owner as ‘income from property’ and in the hands of the recipient of income who is not the owner as ‘income from other sources’. This view of the Tribunal was upheld by the High Court.

14. We should like to point out at the outset that this question does not arise in the case before us. As mentioned earlier the assessment had been completed under the head ‘income from other sources’. The assessee's contention, however, was that the assessment should be completed under the head ‘income from property’ and allowance in respect of repairs should be made. At no stage was a contention raised that if the income was not assessable under the head ‘income from property’ it was not assessable to tax at all. The plea of the assessee was that the income was chargeable under one head and not the other and not that, if it was not to be charged under the head under which it had been shown by the assessee, it could not be charged to tax at all. But we may also observe that even if a view is taken that this aspect is covered by the question referred to us by the Tribunal, we are of opinion that this contention is not acceptable. It is no doubt true that the decisions of the Bombay High Court supports the contention urged on behalf of the assessee but, with respect, we are unable to accept the view taken by the Bombay High Court in this regard. There can be no quarrel with the proposition applied by the Bombay High Court and established by the decision of the Supreme Court in the case of Nalinikant Ambalal Mody v. S. A. L. Narayan Row (1966-61 ITR 428) (17) that if any particular item of income falls within the purview of one of the specific heads, it cannot be sought to be taxed under the residuary head merely because, in a particular case the requirements of the specific provision are not fulfilled. The question, however, is regarding the true scope of the charge of income under the head ‘income from house property’ envisaged in Sections 22 to 27 of the Act. In our opinion, this head covers only cases of property income in the hands of an owner. It is not intended to cover the assessment of all income from all house property or land. For instance, Section 22 talks only of income from buildings and lands appurtenant thereto. But we think it cannot be said that the intention of the section is to bring to charge the income from all buildings and all lands and that since, by the language of Section 22 only the income from land appurtenant to buildings is charged, income from lands not appurtenant to buildings cannot be brought to charge under Section 56. So also, it has been held in a large number of decisions since the promulgation of 1922 Act and 1961 Act that Section 22 only talks of income from property owned by an assessee and that income from house property not owned by an assessee will be assessable under Section 56. For instance, if a person takes on lease a property belonging to an owner of property and subsequently sublets it, there is no reason why the lessee should not be taxed in respect of the income which he actually derive by subletting the property. There is also no double taxation involved in a matter of this type. The owner is taxed in respect of the income which he actually or notionally derives from the property. The fact that the lessee who derives income, by subletting the property is being taxed cannot be an objection to the assessment of the owner in respect of the income of the property of vice versa. In any case, this objection on the ground of double taxation cannot apply in a case of the present type where, we think, the “legal” owner of the property may not be assessable at all on the principle of the Kathiala's case. In our view, therefore, Section 22 should be read as confined to cases of assessment of an owner of building and lands appurtenant thereto. The assessment of persons other than owners and the assessment of income from property other than house property or other than lands appurtenant to buildings is not within the head of income clarified under Section 22 and can be made under Section 56 in the hands of persons actually deriving the income. If, therefore, the second question is taken as covering this aspect also we would like to express our respectful dissent from the conclusion of the Bombay High Court and to say that the present assessee is assessable under Section 56 in respect of the income from property. Before we conclude we may mention that, during the course of the hearing, 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 191 (10), the time had even come for legislation amendment, if necessary, possible retrospective effect. Serious consideration at the highest administrative level was quite was also warranted in view of the recurrent nature of the problem, its magnitude and the convict 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 decided to do so.

15. For the above reasons, we are of opinion that in this case the assessment was properly completed by the Income-tax Officer. The two house property or other than lands appurtenant to buildings is not within the head of income classified under Section 22 and can be made under Section 56 in the hands of persons actually deriving the income. If, therefore, the second question is taken as covering this aspect also we would like to express our respectful dissent from the conclusion of the Bombay High Court and to say that the present assessee is assessable under Section 56 in respect of the income from property.

16. Before we conclude we may mention that, during the course of the hearing, 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 191) (10), 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.

17. For the above reasons, we are of opinion that in this case the assessment was properly completed by the Income-tax Officer. The two questions referred to us are answered in the affirmative and in favour of the department. However, having regard to the circumstances, we direct that the parties should bear their own costs.

Question answered in favour of the department.