1984 (8) TMI 121 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of income from buildings in the hands of the builder company.
2. Classification of the company as an industrial company for certain assessment years.

Detailed Analysis:

1. Taxability of Income from Buildings:
The primary issue was whether the income from buildings, namely 'Surya Kiran', 'Ansal Bhavan', and 'Asha Deep', should be taxed in the hands of the builder company. The Income Tax Officer (ITO) held that the builder company was the owner of these buildings and thus should be taxed on the notional income from house property. However, the Commissioner of Appeals (Appeals) reversed this decision, stating that no case was made to tax the builder company on notional income from house property. The Commissioner reasoned that the builder company constructed the buildings under contracts with prospective buyers, who provided the funds for construction. The flats were handed over to the buyers upon completion, and the builder company did not earn any rental income from these flats. The buyers were assessed on the rental income they earned from these flats.

The Tribunal upheld the Commissioner's decision, stating that the builder company could not be taxed on notional income from the flats as it was not the owner. The Tribunal emphasized that the term 'owner' under Section 22 of the Income Tax Act should be interpreted in a manner that aligns with the principles underlying the Act. The Tribunal cited several case laws, including R.B. Jodha Mal Kuthiala v. CIT and CIT v. Fazalbhoy Investment Co. (P.) Ltd., to support its conclusion that the builder company was not the owner for tax purposes. The Tribunal also noted that the flat owners had been assessed on the rental income from the flats, and thus, the builder company could not be taxed on the same income.

2. Classification of the Company as an Industrial Company:
For the assessment years 1974-75, 1975-76, and 1977-78, the revenue challenged the Commissioner's decision to classify the company as an industrial company. The Tribunal referred to the decision in ITO v. Hydle Constructions (P.) Ltd. and restored this issue to the file of the Commissioner of Appeals for fresh examination. The Tribunal directed the Commissioner to re-examine the issue in light of the said decision and after calling for requisite material from the assessee and giving a reasonable opportunity of being heard to the parties.

Conclusion:
The Tribunal upheld the Commissioner's decision that the builder company should not be taxed on notional income from the buildings, as it was not the owner for tax purposes. The Tribunal also restored the issue of the company's classification as an industrial company to the Commissioner of Appeals for fresh examination. The appeals for the assessment years 1974-75, 1975-76, and 1977-78 succeeded in part for statistical purposes, while the appeal for the assessment year 1978-79 was dismissed.