1997 (5) TMI 454 - SC - Income Tax

Summary

Issues Involved:
1. Scope of Section 22 of the Income Tax Act, 1961.
2. Assessment of rental income under Section 22 vs. Section 56 of the Act.
3. Determination of 'legal owner' for tax purposes.
4. Applicability of amendments to Section 27 of the Act and their retrospective effect.

Issue-wise Detailed Analysis:

1. Scope of Section 22 of the Income Tax Act, 1961:
The primary issue in all the cases was the interpretation of Section 22 of the Income Tax Act, 1961, which pertains to the taxation of income from house property. The court examined whether the income derived from house property should be taxed under Section 22 or under Section 56 as 'income from other sources'. The respondent-assessees contended that since they were not the 'legal owners' of the properties, the income should be assessed under Section 56. The court had to determine the correct interpretation of the term 'owner' within the context of Section 22.

2. Assessment of Rental Income under Section 22 vs. Section 56 of the Act:
The court analyzed whether the rental income should be calculated based on the bona fide annual value or the actual rent received. The assessees argued that the rental income should be assessed under Section 56 as 'income from other sources' because the title to the property had not been legally transferred to them. The Income Tax Officer, however, assessed the income under Section 22, considering the annual letting value of similar properties. The court had to decide whether the income should be taxed under Section 22 or Section 56.

3. Determination of 'Legal Owner' for Tax Purposes:
The court examined the concept of 'legal ownership' and whether possession and beneficial enjoyment of the property without a registered sale deed could constitute ownership for tax purposes. The court referred to the case of Jodha Mal Kuthiala v. Commissioner of Income Tax, where it was held that the owner for tax purposes is the person who can exercise the rights of the owner in his own right. The court also considered various judgments from different High Courts, which had divergent views on this issue. The court concluded that the person in possession and enjoying the property, even without a registered sale deed, could be considered the owner for the purposes of Section 22.

4. Applicability of Amendments to Section 27 of the Act and Their Retrospective Effect:
The court considered the amendments to Section 27 introduced by the Finance Act, 1987, which expanded the definition of 'owner' to include persons in possession of the property under certain conditions. The court examined whether these amendments were clarificatory and, therefore, retrospective in nature. The court concluded that the amendments were indeed clarificatory and had retrospective effect, thereby supporting the view that possession and beneficial enjoyment could constitute ownership for tax purposes.

Conclusion:
The court held that the views taken by the High Courts of Allahabad, Patna, Rajasthan, Punjab, and Haryana, which considered the person in possession and enjoying the property as the owner for tax purposes, were correct. The contrary views taken by the Delhi, Bombay, and Andhra Pradesh High Courts were not upheld. The court emphasized that the term 'owner' in Section 22 should be interpreted to mean the person entitled to receive income from the property in his own right, aligning with the amendments to Section 27. Consequently, the income from the properties in question should be assessed under Section 22 of the Income Tax Act.