1992 (9) TMI 129 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of rental income of house property.
2. Delay in submission of appeals by the Revenue.
3. Ownership and investment in the superstructure.
4. Validity of agreements and their registration.
5. Assessment of rental income and real income theory.
6. Applicability of Section 24(1)(x) of IT Act for unrealized rent.

Detailed Analysis:

1. Taxability of Rental Income of House Property:
The primary issue in these appeals and cross-objections is the taxability of rental income derived from a house property. The Government of India granted a perpetual lease of a plot to three brothers. They entered into agreements with Shri Satish Chand Jain and M/s Indraprastha Builders (P) Ltd. for the construction and leasing of a multi-storeyed building. The rental income was derived from leasing parts of this building to Oriental Bank of Commerce.

2. Delay in Submission of Appeals by the Revenue:
The appeals by the Revenue were delayed. The delay was explained and, upon consideration, the delay was condoned, allowing the appeals to be considered on their merits.

3. Ownership and Investment in the Superstructure:
The Assessing Officer treated the three brothers as the complete owners of the property, adding the entire rental income to their hands. The brothers contended that they were only owners of 50% of the building, with the other 50% belonging to Shri Jain or M/s Indraprastha Builders (P) Ltd. The CIT(A) observed that the first agreement with Shri Jain was only partially implemented and that M/s Indraprastha Builders (P) Ltd. let out their portion of the property. The ownership of the superstructure was crucial to determining the taxability of the rental income.

4. Validity of Agreements and Their Registration:
The agreements with Shri Jain were unregistered and improperly stamped, making them invalid under Section 107 of the Transfer of Property Act. Therefore, no right, title, or interest could pass to Shri Jain or M/s Indraprastha Builders (P) Ltd. Consequently, the three brothers continued to be the owners of the property. The doctrine of part performance under Section 53A of the Transfer of Property Act was also considered but found to have limited applicability.

5. Assessment of Rental Income and Real Income Theory:
The CIT(A) held that only real income, i.e., the income actually received by the assessee, should be assessed. The theory of real income was discussed with reference to several cases, including State Bank of Travancore vs. CIT. The CIT(A) concluded that the rental income from M/s Indraprastha Builders (P) Ltd. at Rs. 3 per sq. ft. should be assessed, even if not actually received, as it had accrued and was assessable based on the right to receive.

6. Applicability of Section 24(1)(x) of IT Act for Unrealized Rent:
The assessees contended that no rent was actually received from M/s Indraprastha Builders (P) Ltd. and that litigation for recovery of rent was pending. They claimed that deduction for unpaid rent should be allowed under Section 24(1)(x) of the IT Act. The CIT(A) did not address this issue adequately, and it was linked to the main issue of ownership of the property.

Conclusion:
The Tribunal found that both the Assessing Officer and the CIT(A) did not adequately address the question of ownership of the superstructure and the investment in it. The matter was set aside and remanded to the Assessing Officer for fresh determination in accordance with the law. The appeals and cross-objections were allowed for statistical purposes.