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Issues Involved:
1. Whether the assessee was the owner of the flats within the meaning of section 22 of the Income-tax Act, 1961. 2. Whether the annual value of the flats should be determined in accordance with clause (a) of section 8(1) of the West Bengal Premises Tenancy Act, 1956, and not be taken at nil. Summary: Issue 1: Ownership of Flats u/s 22 of the Income-tax Act, 1961 The Tribunal held that the assessee-firm was the owner of the flats within the meaning of section 22 of the Income-tax Act, 1961. The Tribunal based its decision on several points: - Sale of immovable property is governed by section 54 of the Transfer of Property Act, requiring a registered instrument for valid transfer of ownership. - Without a registered instrument, the purchaser only acquires a right to enforce specific performance, not ownership. - The term "owner" in section 22 must be interpreted in line with general law. - Double taxation concerns were deemed irrelevant. - The Tribunal cited several decisions, including Sushil Ansal v. CIT [1986] 160 ITR 308 (Delhi) and CIT v. Ganga Properties [1970] 77 ITR 637 (Cal), to support its view. Issue 2: Determination of Annual Value The Tribunal rejected the assessee-firm's claim that the annual value of the flats should be nil or not exceed municipal valuation. It held that: - The amendment in section 23 by the Taxation Laws (Amendment) Act, 1975, rendered the decision in CIT v. Prabhabati Bansali [1983] 141 ITR 419 inapplicable. - The valuation under the Calcutta Municipal Act is secondary evidence, and the Income-tax Officer should determine the annual value per section 8(1)(e) of the West Bengal Premises Tenancy Act, 1956. Court's Decision: The High Court disagreed with the Tribunal on both issues. Issue 1: Ownership The court held that: - The assessee-firm, engaged in the business of construction and sale of flats, had transferred all rights, title, and interest in the flats to the buyers, who were in full possession and enjoyment of the flats. - The buyers were assessed for income from the flats, and double assessment should not occur. - The term "owner" in section 22 should be interpreted in its broadest sense, considering socio-economic developments and practical realities. - The court referred to various decisions, including R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC), which emphasized the practical exercise of ownership rights. Issue 2: Annual Value The court held that: - The Tribunal's view that the decision in Prabhabati Bansali [1983] 141 ITR 419 was no longer good law was incorrect. - The annual value should not exceed the municipal valuation, as supported by decisions in CIT v. R. Dalmia [1987] 163 ITR 517 (Delhi) and CIT v. M. R. Alagappan [1987] 164 ITR 690 (Mad). - Section 8(1)(e) of the West Bengal Premises Tenancy Act, 1956, refers to reasonable rent, aligning with the municipal valuation principle. Conclusion: The first question was answered in the negative, in favor of the assessee. Consequently, the second question did not require an answer. The court granted leave to appeal to the Supreme Court, recognizing the substantial question of law involved. Judgment: The judgment was delivered by Ajit K. Sengupta, J., and concurred by K. M. Yusuf, J.
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