1992 (3) TMI 12 - HC - Income Tax

Summary

Issues Involved
1. Assessability of rental income in the hands of the assessee.
2. Legal ownership of the property without a registered conveyance deed.
3. Applicability of sections 60, 61, and 63 of the Income-tax Act, 1961.
4. Interpretation of "revocable transfer" under section 63 of the Income-tax Act, 1961.
5. Classification of the income under "Income from house property" or "Income from other sources."

Detailed Analysis

Assessability of Rental Income in the Hands of the Assessee
The primary issue was whether the rental income derived by the assessee from the two office flats was assessable in his hands under the head "Income from other sources" as per section 56 of the Income-tax Act, 1961. The Income-tax Officer initially assessed the rental income under "Income from other sources" for the assessment year 1979-80 and under "Income from house property" for the assessment years 1981-82 and 1982-83. The Appellate Assistant Commissioner upheld the assessee's contention that the rental income could not be assessed in his hands, relying on the Tribunal's decision in the earlier years and the case of CIT v. Ganga Properties Ltd. [1970] 77 ITR 637.

Legal Ownership of the Property Without a Registered Conveyance Deed
The assessee argued that he was not the legal owner of the flats as no conveyance deed was executed and registered in his favor by Western Building Corporation. Therefore, he contended that the rental income should be assessed in the hands of the builder, Western Building Corporation. This argument was supported by the decision in CIT v. Ganga Properties Ltd. [1970] 77 ITR 637, which held that no title in immovable property could pass without a registered deed of conveyance.

Applicability of Sections 60, 61, and 63 of the Income-tax Act, 1961
The assessee also argued that the agreement for sale dated December 4, 1972, was a "revocable transfer" under section 63 of the Income-tax Act, 1961. Therefore, the rental income, though received by the assessee, should be assessed in the hands of Western Building Corporation as per sections 60 and 61 of the Act. The Tribunal, however, upheld the Department's contention that the rental income was assessable in the hands of the assessee under "Income from other sources," following the principles laid down by the Delhi High Court in Sushil Ansal v. CIT [1986] 160 ITR 308.

Interpretation of "Revocable Transfer" Under Section 63 of the Income-tax Act, 1961
The court examined the definition of "revocable transfer" under section 63, which includes any provision for retransfer of income or assets to the transferor or any right to reassume power over the income or assets. The assessee argued that various clauses in the agreement allowed the vendor to reassume possession of the property, making it a revocable transfer. However, the court was not convinced by this argument, stating that the clauses indicated incidents of a lease rather than a sale, and the right to re-enter was akin to a lessor's right under a lease agreement.

Classification of the Income Under "Income from House Property" or "Income from Other Sources"
The court held that the expression "owner" includes an occupant enjoying all the benefits of ownership. The introduction of clause (iiia) in section 27 of the Income-tax Act, 1961, deems a person in possession of a property under a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882, as the owner. The court concluded that the assessee's rights under the agreement were in the nature of a leasehold right, and the rental income derived from the flats should be assessed under "Income from other sources."

Conclusion
The court answered the question of law in the affirmative and against the assessee, holding that the rental income derived by the assessee was assessable in his hands as "Income from other sources" under section 56 of the Income-tax Act, 1961. The judgment emphasized that the agreement for sale was, in substance, a lease agreement, and the right to re-enter upon breach of conditions was typical of a leasehold arrangement, not a sale. Therefore, sections 60, 61, and 63 concerning revocable transfers were not applicable in this context.