9911796707
TMI Blog1984 (8) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... shown is private limited company only. 3. Common issue involved for all the years is that on the facts and in the circumstances of the case, the income from buildings, namely. ' Surya Kiran ', ' Ansal Bhavan ' and ' Asha Deep ' should be taxed in the hands of the assessee because the assessee, a builder company, is not the owner of these buildings. At the assessment stage it was held as above while at the first appellate stage the learned Commissioner (Appeals) held that no case has been made out to tax the assessee-builder company on notional income from house property on the basis that the assessee is the owner of multi-storeyed buildings in which these various flats have come into being under different contracts with different persons for the purpose of constructing residential or commercial units for them. The learned first appellate authority also held that in relation to the contention of the assessee put forth before him as to there being an overriding title created at source in favour of the flat owners, he was not deciding the said aspect of the case since, according to him, he having held that no notional income from house property was assessable in the hands of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether, he is entitled to receive any income therefrom. The further facts which are admitted on both sides, in this connection, are that the assessee before starting construction activity had entered into agreements with prospective buyers of the finished flats for their own use and it is only after part advances had been received for the purpose of construction that the construction was commenced. As and when the construction proceeded, further advances were to be made by the prospective purchasers. The entire building was, therefore, constructed with the monies provided by the prospective purchasers and, according to the agreements made with the prospective purchasers before starting construstion, the finished flats were to be handed over to the prospective purchasers subject to certain conditions, but the right to earn any income from these flats by way of any rent or even by way of self-occupation was never contemplated in favour of the assessee. As a matter of fact also, it is admitted on both sides that the assessee had never earned rental income from these flats. It is further admitted that after the buildings were complete, another stamped agreement for sale was entered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itled to pay only Rs. 5,56,862.79 in respect of the said plot. The matter is now pending in the High Court. Till the issue of commercialisation charges is settled, the Land and Development Officer in law can exercise his right of re-entering the property on the ground that full commercialisation charges have not been paid. It is this impediment which is standing in the way of final transfer of the flats to the flat owners. It is also admitted on both sides that the assessee-company has been treated as a building contractor. The entire activity has been treated as a commercial activity and the assessee-company has been taxed on the profit accruing to it as a result of this activity on the differences between the cost of land plus cost of construction and the sale price receivable by it. Shri Batra, the learned representative for the assessee, has urged that, on the above facts, the assessee-company is liable to be assessed and was actually assessed on income arising to it as a result of construction activity done by the company and on difference between the cost of land and cost of construction of the building on the one hand and the sale price on the other hand. He further urged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred and profit thereon has been taxed as business activity. According to him, the income from that source cannot again be taxed in the hands of the assessee on any basis, notional or real. The ITO has reiterated the arguments contained in the directions given to him by the IAC under section 144B(4). His views in the matter may be quoted from the instructions issued by him to the ITO as follows : " There are no two opinions about the proposition of law that under the provisions of the Income-tax Act income from property is an artificially defined income and the tax liability arises from the fact that the assessee is the owner of the property. It is also generally accepted in law that liability to tax does not depend on the power of the owner to let the property or on the capacity of the owner to receive the bona fide annual value of the property. As held by the Bombay High Court in the case of CIT v. Zorostrian Building Society Ltd. [1976] 102 ITR 499 even when the purchaser is put into possession with all the other rights incidental thereto, in the absence of a registered sale deed, the transferee could not be regarded as the owner. The annual letting value of a property has, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... started, plans had to be got approved from the concerned municipal authorities, the permission for using the land for such commercial purposes was to be obtained by the assessee and for this purpose, besides the flat owners and the builders, the other governmental agencies had to come into the picture. The prospective flat owners were not intended to be given more rights than those which were incidental to the peaceful enjoyment of the flats which they were to own as residential or commercial units. Nor were interests in such other rights material to them. To make such a venture possible, separate agreements had to be entered into by the builder with a view to procure finances with a number of prospective buyers before such a construction could be undertaken. These individual agreements had to anticipate and provide for all the factors which would come into play as a result of a large number of prospective buyers owning self-contained flats in one multi-storeyed building on the one hand and the involvement of Government authorities before, during and after the completion of the multi-storeyed buildings on the other. The builder had also to ensure that funds would come to him as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transfer value of the right to own the flats arising out of the contract is being taxed in the hands of the assessee as business income. In these circumstances, the basis on which the ITO has taxed the income from these flats, as if the assessee was the owner of the flats, does not appear to be tenable. The flats were constructed as a part of the contract between the builder and the flat owners. No one could own them before they had come into existence. Since they had come into existence as a result of the contract, the builder could not own them even after they were constructed as he could never dispose them of in any other manner or use them in any other manner for his own benefit except in the manner provided for in the contract, i.e., to earn the difference between his cost and the sale price. Such a profit cannot be taxed except on the ground that the assessee is a building contractor in respect of these flats. There is, thus, a contradiction involved in the position, the department has adopted in treating the assessee as the owner of the same property which the appellant has constructed for the flat owners with flat owners' funds and on the profit of which he was also tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e word ' person ' has been defined in section 2(31) of the Act. The scope of the ' total income ' in respect of which such a person is to be charged to income-tax is defined in section 5 of the Act. It included such income which a person receives or which is deemed to be received on his behalf or which accrues or arises or is deemed to accrue or arise to him. No person can be charged on an income which does not accrue or arise to him or which he cannot receive either himself or through an agent. As the Privy Council held inPatialaStateBank, In re. [1941] 9 ITR 95 (Bom.), " income-tax is a tax on a person in relation to his income. . . . The tax is not made a charge on the income upon which it is levied ". The revenue must, therefore, determine who is the person entitled to the income either through receipt or accrual because no one can be charged to tax on income which some other person is entitled to receive now or at some other time by virtue of its accrual. For the same reason, two persons cannot be separately charged to tax in respect of the same income. Even where a provision is made, like in section 64 of the Act, that the income of a person would be charged in the hands of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m house property '." It would be noted that under this section what is provided for is the mode of computation in respect of ' property ' ' of which the assessee is the owner '. The ownership with which this section is concerned is that of the ' property ' and not merely the ' land '. If only ' land ' is owned, the computation in respect of any income arising out of such land would be computable under sections 56 to 59 of the Act and not under sections 22 to 27. There is nothing in section 22 which can be construed as meaning that whosoever owns the land owns the superstructure thereon also. Even otherwise the position of law in this respect is well settled that the ownership need not vest in the same persons. Even on the stand taken by the ITO he had first to determine the question whether the assessee could be said to own the superstructures in this case within the meaning and in the context of which the word ' owner ' has been used in section 22 because the word ' owner ' has not been defined in the Income-tax Act. The Supreme Court has discussed this question in R.B. Jodha Mal Kuthiala's case. They have held as follows : " The question is who is the ' owner ' referred to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied upon by the revenue where the question involved was as to the point of time at which the ownership in an immovable property was transferred under the Transfer of Property Act are not, therefore, to my mind, relevant as in those cases the transferors were complete owners who could dispose of the property in any manner they liked. This is not so in this case. The construction of the property was started under contracts and agreements, funds were to come from the prospective buyers, the builder at no time was entitled to deal with these flats as an owner, the possession was handed over on completion of flats and on payment of full dues as agreed upon and the builder had been assessed on the profits arising out of such construction as a building contractor as also on transfer fees resulting by exchange of the flats either during construction or thereafter. It is difficult to see how he could be considered as an ' owner ' of these flats and taxed on ' notional ' income therefrom under section 22. The Bombay High Court while considering a similar question in respect of computation of income from residential flats in a multi-storeyed building has laid down in the case of Fazalbhoy In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 22 of the Act in the light of what I have discussed earlier about the scheme, the intent and the purpose of the Act. The case relied upon by the learned IAC in his instructions to the ITO in this case, namely, CIT v. Zorostrian Building Society Ltd. [1976] 102 ITR 499 (Bom.) is not material in this connection as it was common ground in that case that the assessee had owned the house property and had right to receive income from that house property in the first instance. The position of the cases of CIT v. D.L.F. Housing Construction (P.) Ltd. [1981] 128 ITR 773 (Delhi) and of D.C. Anand Sons v. CIT [1981] 131 ITR 77 (Delhi) was also the same. There was no doubt that the transferor in each of these cases had full rights of ownership which he meant to transfer. In the case before us the builder, i.e., the appellant-company, neither had any right at any stage to receive income from these flats except by way of earning profit as per the contracts entered into even before the flats came into existence nor to dispose them of as a complete owner as the flats were constructed as a result of the contracts. In this connection reference may also be made to the decision of the Delhi Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... til the land is transferred to a limited company or a co-operative society. In this connection CIT v. Madras Cricket Club [1934] 2 ITR 209 (Mad.), Ballygunge Bank Ltd. v. CIT [1946] 14 ITR 409 (Cal.), Sri Ganesh Properties Ltd. v. CIT [1962] 44 ITR 606 (Cal.) and Sakarchand Chhaganlal v. CED [1969] 73 ITR 555 (Guj.) are relevant. Neither can it be said that on such transfer the flats would belong to such registered society or limited company. The income from the residential flats will remain receivable by the individual flat owners alone to the exclusion of everybody else. Similarly, the flats would remain transferable by them alone under their own rights. In fact there would be no displacement of their rights in this respect, vis-a-vis, the builder who would be replaced by a society or a limited company. Therefore, simply because some further acts are to be performed in which certain Government authorities are involved can have no effect, in the circumstances of this case, as to the person who would be taxable on income from the flats whether on a real basis or on a notional basis. As stated earlier, notional basis adopted in sections 22 to 27 is a mode of computation and not capa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised are meant to be collected, otherwise the very reason for creating it in the first instance goes. If demands of this magnitude are created every year, ultimately they have to be realised by attachment and sale of the multi-storeyed buildings. In that event, what would happen to the vested interests of the flat owners from whose moneys it was constructed in the first instance ? As I see, impossible situations are created for the department from such legal fictions besides bewildering nightmares for the assessees concerned. I cannot imagine that the Legislature could ever have wanted to create such a situation by putting the word ' owner ' in section 22. Considering all the facts, I do not consider that any case can be made out to tax the assessee on notional income from house property on the basis that he is the owner of multi-storeyed buildings in which these various flats have come into being under different contracts with different persons for the purpose of constructing residential or commercial units for them. 6. On our part, we have heard at length the learned authorised representatives of the parties. The hearing was spread over various dates and the parties have also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the owners of the flats. The obligations imposed on the company were merely for the purpose of effective and efficient use of the building for the common benefit of all the flat owners, which is essential in the context of present day living in multi-storeyed flats. This sort of living is of recent origin and this was not at all thought of at the time when the laws were made. It is, therefore, necessary to give a practical meaning to the provisions of the taxing statute in the light of the various developments that have taken place in the style of living. The meaning to be given to the word ' owner ' in section 22 must not be such as to make that provision capable of being made an instrument of oppression. It must be in consonance with the principles underlying the Act. The assessees had transferable rights, unrestricted enjoyment and full control and dominion over the flats, and had derived income from leasing out the flats. Accordingly, they were the owners of the flats. In the circumstances, the AAC was right in holding that the impugned incomes were assessable as ' income from house property '." The Tribunal, Delhi Special Bench ' B ', referred the following case laws in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the learned first appellate authority for all the assessment years under appeal, stand upheld. 9. Yet the above apart, in Nawab Bahadur of Murshidabad v. CIT [1955] 28 ITR 510 at page 525, the Hon'ble Calcutta High Court and in R.B. Jodha Mal Kuthiala's case at pages 579 and 580, the Hon'ble Supreme Court has held that, ' owner ' under the provisions of the Act includes persons who are entitled to the whole income of the property, though they may be under certain restrictions with regard to the disposition or alienation of the property. In Madras Cricket Club's case the Hon'ble Madras High Court held that in order that a person may be assessed as the owner of a building under section 9, it is not necessary that he should also be the owner of the land on which the building stands. CIT v. Abubaker Abdul Rehman [1939] 7 ITR 139 (Bom.) is also in point and so is the ratio of the Calcutta High Court in Sri Ganesh Properties Ltd. v. CIT [1962] 44 ITR 606 and that of the Mysore High Court in Y. V. Srinivasamurthy v. CIT [1967] 64 ITR 292. The order dated10-12-1981of the Hon'ble Delhi High Court in the case of Smt. Ram Parkash also supports the view upheld by us as above. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he right to such beneficial use or interest is in another and where such right is recognised by law and can be enforced by the Courts at the suit of such owner or of someone on his behalf. One is also said to have the beneficial ownership of land who has done everything to entitle him to a patent from the Government and who, therefore, has the legal right to the patent and all that remains to be done is for the proper officer to issue it. [Associated Clothiers Ltd. v.UnionofIndia, 59 Punj. LR 122 : AIR 1957 Punj. 621]." (Judicial Dictionary-8th Edition 1980 by K.J. Aiyer) The words ' owner of house property ' are defined in section 27 but the said definition raises a fiction since it provides for a deemed owner of house property. Under section 27(iii), a member of a co-operative society to whom a building or part thereof is allotted or leased under a house building scheme of the society is deemed to be the owner of that building or part thereof for the purposes of sections 22 to 26, i.e., although co-operative society is the legal owner and the member is only an allottee or a lessee, the member is treated as a owner of the house property for the purposes of the Act and once it is s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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