1982 (9) TMI 117 - AT - Income Tax

Summary

Issues Involved:
1. Whether the income from flats should be assessed under 'Income from house property' or 'Income from other sources'.
2. Interpretation of the term 'owner' under Section 22 of the Income-tax Act, 1961.
3. The legal implications of the agreements and documents involved.

Issue-wise Detailed Analysis:

1. Whether the income from flats should be assessed under 'Income from house property' or 'Income from other sources':

The Income Tax Officer (ITO) argued that the assessees should be assessed under 'Income from other sources' because they are not the legal owners of the property. The Appellate Assistant Commissioner (AAC) took a different view, stating that the income should be assessed under 'Income from house property'. The Special Bench was convened due to conflicting views.

2. Interpretation of the term 'owner' under Section 22 of the Income-tax Act, 1961:

The revenue's argument, based on Section 22, emphasized that the term 'owner' means the legal owner, and since the assessees did not hold legal title, they could not be considered owners. The revenue referenced several legal sources and judgments to support this view, including observations from the Supreme Court in cases like Ram Gopal Reddy v. Addl. Custodian Evacuee Property and Delhi Motor Co. v. U.A Basrurkar.

The assessees contended that ownership under the Income-tax Act should be understood in light of the rights of a person in possession of the property. They relied on decisions like CIT v. Modern Flats (P.) Ltd. and Smt. Kala Rani v. CIT, suggesting that the concept of ownership need not be limited to legal title but should include beneficial ownership and control over the property.

The Special Bench referred to the Supreme Court's decision in R.B. Jodha Mal Kuthiala v. CIT, which considered the meaning of 'owner' under Section 22. The Supreme Court held that the owner is the person who can exercise the rights of the owner in his own right, not necessarily the person with legal title. The focus is on the receipt of income and the ability to exercise ownership rights.

3. The legal implications of the agreements and documents involved:

The agreements and documents indicated that the assessees had an absolute right of enjoyment and possession of the flats, which were transferable and heritable. Despite the language suggesting that Ashoka Estate (P.) Ltd. was the owner, the Special Bench concluded that the assessees exercised full control and dominion over the flats. The builders constructed the flats with the money received from the allottees, and the allottees had paid the full consideration and taken possession.

The Special Bench found that the flat owners could transfer their rights, subject to paying 'transfer charges' to Ashoka Estate (P.) Ltd. The documents, although not drafted with proper care, indicated that the assessees had ownership rights over the flats.

Conclusion:

The Special Bench concluded that the assessees should be assessed under 'Income from house property' as they exercised ownership rights over the flats. The appeals were dismissed, affirming the AAC's view that the income should be assessed under 'Income from house property'. The decision highlighted the need to interpret the term 'owner' in a practical manner, considering the modern context of multi-storeyed buildings and the rights of flat owners.