1985 (3) TMI 111 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner under Section 263 of the Income Tax Act.
2. Assessment of notional income from property.
3. Ownership and beneficial ownership under Indian law.
4. Double taxation of the same income.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner under Section 263 of the Income Tax Act:
The assessee challenged the jurisdiction of the Commissioner (CIT) under Section 263, arguing that an appeal was pending before the first appellate authority. The Tribunal held that the pendency of an appeal does not restrict the CIT's jurisdiction under Section 263. The authorities cited by the CIT were found to support this conclusion.

2. Assessment of Notional Income from Property:
The CIT issued a notice under Section 263, proposing to include notional income from flats that had been handed over to purchasers but not yet registered. The Tribunal examined whether the assessee could be taxed on the notional income for the period between handing over possession and registration of the flats. It was noted that the assessee had consistently treated the date of handing over possession as the date of sale for computing business income, which had been accepted in past assessments.

3. Ownership and Beneficial Ownership under Indian Law:
The Tribunal discussed the concept of ownership in the context of Section 22 of the Income Tax Act. It was noted that the legal title remained with the assessee until registration, despite the possession being handed over to the purchasers. The Tribunal referred to several legal precedents, including the Supreme Court's decision in R.B. Jodha Mal Kuthiala vs. CIT, which emphasized that ownership for tax purposes should be interpreted in a practical sense, focusing on the right to income rather than mere legal title.

4. Double Taxation of the Same Income:
The Tribunal found that the purchasers had already been assessed on the income from the flats, and taxing the same income in the hands of the assessee would result in double taxation. It was highlighted that the income from property should be taxed in the hands of the person who enjoys the income, as per the Supreme Court's guidance. The Tribunal also referred to the Board's Circulars, which supported the view that individual members of a cooperative housing society should be assessed on the income from their flats, even if the legal ownership rested with the society.

Conclusion:
The Tribunal set aside the CIT's order under Section 263, restoring the ITO's original order. It concluded that the assessee could not be taxed on the notional income from the flats, as the income had already been taxed in the hands of the purchasers. The Tribunal emphasized the need to avoid double taxation and to interpret ownership in a practical sense for tax purposes. Both appeals were allowed, and the quantum appeal was restored to the CIT(A) for fresh disposal in accordance with the law.