1989 (1) TMI 147 - AT - Income Tax

Summary

Issues Involved:
1. Assessability of rental income from 43 flats.
2. Ownership status of the flats.
3. Legal implications of non-execution of sale deeds.
4. Application of section 22 of the Income-tax Act, 1961.
5. Treatment of income not received by the assessee.

Detailed Analysis:

1. Assessability of Rental Income from 43 Flats:
The core issue was whether the rental income of Rs. 3,90,335 from 43 flats, claimed to have been sold by the assessee, should be assessed in the hands of the assessee. The assessee argued that the rental income belonged to the individual purchasers, who had paid the full consideration and taken possession of the flats. The assessing officer, however, concluded that since no deed of conveyance had been executed or registered, the flats legally belonged to the assessee, making the rental income assessable in its hands.

2. Ownership Status of the Flats:
The assessee contended that the flats were sold to 43 purchasers, who had paid the full price and taken possession. The assessing officer found that the flats were still registered in the name of the assessee's partners in municipal records, and no legal transfer had occurred. The CIT(A) agreed with the assessee, stating that effective control and possession were with the purchasers, making them the owners under section 22 of the Income-tax Act.

3. Legal Implications of Non-Execution of Sale Deeds:
The assessing officer and the Departmental Representative argued that without executed and registered sale deeds, the legal title of the flats remained with the assessee. The Tribunal referenced the Supreme Court's decision in Nawab Sir Mir Osman Ali Khan v. CWT, which held that without a registered sale deed, the legal ownership does not transfer, even if possession and consideration have been transferred.

4. Application of Section 22 of the Income-tax Act, 1961:
The CIT(A) held that under section 22, the focus is on the income from property rather than legal ownership. It was observed that the flats were effectively controlled and possessed by the purchasers, and the rent was being paid directly to them by the State Bank of India. The Tribunal, however, concluded that legal ownership, as per section 22, remained with the assessee due to the absence of registered sale deeds, aligning with the Supreme Court's interpretation in Nawab Sir Mir Osman Ali Khan's case.

5. Treatment of Income Not Received by the Assessee:
The assessee argued that since the rent was directly credited to the purchasers' accounts, it did not receive the income, and thus, it should not be taxed in its hands. The Tribunal agreed that the rent was paid to the individual purchasers and not the assessee, except for a portion (0.40 paise per sq. ft.) that the assessee received for maintenance and services. This portion was acknowledged by the assessee as taxable income.

Conclusion:
The Tribunal dismissed the appeal, holding that the assessee remained the legal owner of the flats due to the non-execution of sale deeds, making the rental income technically assessable in its hands. However, since the rent was directly paid to the purchasers, the income did not reach the assessee, except for the maintenance fee, which was taxable. The ITO was directed to verify the facts regarding the maintenance fee and pass suitable orders.