2006 (8) TMI 130 - HC - Income Tax

Income of house property plot was allotted to the assessee by the society and he had made some constructions over it. However, in the year 1975, the assessee surrendered his membership in the society and in his place his wife became a member of the society. The society admitted his wife as a member in his place and thus for all practical purposes his wife became the owner of Plot. She had also paid the amount incurred by him for the construction of the house and other incidental expenses by cheque - whether the house property can be treated to belong to the assessee Sri Ram Saran Das Tandon or to Smt. Vimlawati Tandon after 1975 when the name of Smt. Vimlawati Tandon was entered in the members register of the society in place of her husband - as the assessee ceased to be the member of the society in the year 1975 and in his place Smt. Vimlawati Tandon became a member of the society, the house property belongs to Smt. Vimlawati Tandon and not to the assessee. - Tribunal was justified in holding that the income from the house property was assessable in the hands of the wife of the assessee

Summary

Issues:
1. Interpretation of ownership of house property under the Income-tax Act, 1961.
2. Transfer of ownership within a cooperative society.
3. Tax liability concerning income from house property.

The High Court of Allahabad addressed two references relating to the ownership of a house property, specifically plot No. 64, Lajpat Nagar, Varanasi, under the Income-tax Act, 1961. The first reference, under section 256(2) of the Act for assessment years 1979-80 and 1982-83, questioned the justification of the Income-tax Appellate Tribunal in finding the income from the property assessable in the assessee's hand. The second reference, under section 256(1) for the assessment year 1983-84, inquired about the justification of assessing the income in the hands of the assessee's wife. The court consolidated both references due to the commonality of the assessee involved.

The facts revealed that the assessee, a member of a cooperative society, had been allotted plot No. 64 in Lajpat Nagar, Varanasi, where he constructed a house. Subsequently, in 1975, the assessee's wife became a member of the society in his place, and the ownership of the property was transferred to her. The wife reimbursed the expenses incurred by the assessee for the construction of the house. The Income-tax Officer initially included the property's income in the assessee's hands, but the Commissioner of Income-tax (Appeals) later deleted the addition. Upon further appeal, the Tribunal reinstated the Income-tax Officer's order for the relevant assessment years but confirmed the deletion for 1983-84.

The court deliberated on whether the property belonged to the assessee or his wife post-1975. Referring to section 27(iii) of the Act, which deems a cooperative society member as the owner of an allotted building, the court concluded that as the assessee's membership was transferred to his wife, she was the rightful owner of the property. Citing the decision in CIT v. Podar Cement P. Ltd., the court emphasized that ownership, for tax purposes, is based on entitlement to receive income rather than legal title conveyed through registration. Therefore, the property in question belonged to the wife, absolving the assessee of tax liability.

In light of the above analysis, the court ruled in favor of the assessee, answering the questions in the negative for the first reference and in the affirmative for the second. The judgment clarified the ownership dynamics within a cooperative society and the tax implications concerning income from house property. The court also directed that each party would bear its own costs in the matter.