1989 (4) TMI 66 - HC - Income Tax

Summary

Issues:
1. Whether rental income received by the directors should be included in the income of the company for the assessment year 1978-79.

Analysis:
The case involved proceedings for liquidation against the assessee-company, during which the company passed a resolution to give its building to the directors to discharge debts. The resolution was approved by shareholders, and a registered deed was executed in favor of the directors. The Income-tax Officer sought to add the rental income from the building to the company's income from the date of the sale deed execution, not the possession transfer date. The Tribunal referred the matter based on a previous decision where the assessee occupied a property before the sale deed was executed. The court noted the difference in scenarios, emphasizing that in the present case, the directors were the owners of the building, and the rental income received by them should not be included in the company's income.

The court referred to a previous case where the assessee occupied a property before the sale deed was executed and income was included in the assessee's income for the relevant assessment years. The court distinguished the current case where the directors were considered the owners of the building, and the rental income rightfully belonged to them, not the company. The court highlighted the difference between taxing a person in possession without title and taxing a person who relinquished possession after settling debts with the value of the building. Based on this reasoning, the court held that the rental income received by the directors should not be included in the company's income for the assessment year 1978-79.

In conclusion, the court decided in favor of the assessee, ruling that the rental income received by the directors, who were deemed the owners of the building, should not be considered as part of the company's income. The court's decision was based on the distinction between possession and ownership, emphasizing that the income rightfully belonged to the directors and not the company. The judgment was delivered in favor of the assessee, with no order as to costs.