1969 (6) TMI 14 - HC - Income Tax

Ownership of premises - sale of property - in the case of a sale of immovable property a registered document is necessary to give effect to the sale - sale takes effect from the date of execution of the document - expression income from property used in ss. 6 and 9 of the IT Act 1922 refers to the income of the legal owner of the property who is the only person assessable to tax on the basis of the bonafide annual value thereof

Issues Involved:
1. Whether legal ownership of premises No. 17B, Gurusaday Road, Calcutta, passed to the purchaser on March 29, 1956.
2. Whether the assessee was liable to be assessed in respect of the bona fide annual value of premises No. 17B, Gurusaday Road, Calcutta, under section 9 of the Indian Income-tax Act, 1922, for the assessment year 1957-58.

Issue-wise Detailed Analysis:

Issue 1: Legal Ownership Transfer

The primary issue was whether the legal ownership of the property at premises No. 17B, Gurusaday Road, Calcutta, transferred to the purchaser on March 29, 1956. The assessee claimed that an oral agreement on March 27, 1956, led to the sale and possession transfer on March 29, 1956, with the consideration paid on April 16, 1956. However, the deed of conveyance was executed on March 17, 1958, and registered on July 8, 1958.

The Income-tax Officer and the Appellate Assistant Commissioner both held that ownership did not transfer until the registration of the deed of conveyance, meaning the property remained legally owned by the assessee during the relevant accounting year. The Tribunal initially agreed with this but also opined that beneficial ownership passed to the purchaser on March 29, 1956.

The High Court referenced multiple legal provisions and precedents, including sections 17(1)(b) and 47 of the Indian Registration Act, 1908, and section 54 of the Transfer of Property Act. The court emphasized that a sale of immovable property valued over Rs. 100 requires a registered instrument to transfer ownership. The court cited the Supreme Court's decision in Commissioner of Income-tax v. Bhurangya Coal Co., which held that title to immovable properties does not pass until a proper deed of conveyance is executed and registered.

The High Court concluded that the legal ownership did not transfer on March 29, 1956, as the registered deed of conveyance was executed and registered much later. Therefore, the Tribunal was correct in holding that the legal ownership did not pass to the purchaser on March 29, 1956.

Issue 2: Assessability of Bona Fide Annual Value

The second issue was whether the assessee was liable to be assessed for the bona fide annual value of the property under section 9 of the Indian Income-tax Act, 1922, for the assessment year 1957-58. The Tribunal had initially held that, although the legal ownership remained with the assessee, the beneficial ownership had passed to the purchaser, and thus the income from the property should be assessed in the hands of the beneficial owner.

The High Court examined the concept of ownership under section 9 of the Indian Income-tax Act, 1922, which refers to the income of the legal owner. The court noted that Indian law does not recognize the concept of beneficial ownership separate from legal ownership. The court cited the case of Alapati Venkataramaiah v. Commissioner of Income-tax, which held that title must pass by a registered conveyance for the transfer to be effective.

The court reiterated that under Indian law, there is only one owner, the legal owner, and beneficial ownership is unknown. Therefore, the income from property under sections 6 and 9 of the Indian Income-tax Act, 1922, refers to the income of the legal owner, who is the only person assessable for tax based on the bona fide annual value of the property.

The High Court concluded that the assessee was liable to be assessed for the bona fide annual value of the property for the assessment year 1957-58, as the legal ownership had not transferred until the deed was executed and registered.

Conclusion:

1. Legal Ownership Transfer: The Tribunal was right in holding that the legal ownership of premises No. 17B, Gurusaday Road, Calcutta, did not pass to the purchaser on March 29, 1956.
2. Assessability of Bona Fide Annual Value: The Tribunal was not right in holding that the assessee was not liable to be assessed in respect of the bona fide annual value of premises No. 17B, Gurusaday Road, Calcutta, under section 9 of the Indian Income-tax Act, 1922, for the assessment year 1957-58.

The assessee was directed to pay the costs of the reference to the Commissioner.

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