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TMI Blog1982 (12) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Case No. 140 relates to the assessment year 1965-66, 141 to assessment year 1966-67 and 142 to that of 1963-64. The facts as emerge from the statement of the case that has been submitted to this court by the Tribunal are admitted on all hands and are these. The assessee is a private limited company and derives income from house properties alleged to be owned by it and from investments. We are not concerned with the question of investments. The Sahay family was owning several properties. By an agreement dated the 19th day of February, 1962, it sold immovable properties consisting of lands and buildings to the assessee-company for a consideration of Rs. 12,83,000. The physical possession of the properties sold by the Sahay family was taken over by the assessee-company, but no conveyance deed was executed and registered in favour of the assessee-company. The company, however, collected rent, which was assessed under s. 22 of the Act, as income from the house properties. The ITO allowed deduction as provided under the law while computing the income from the house property. The assessee claimed more expenses before the AAC in appeal but the order of the assessing officer was conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision of the Calcutta High Court in the case of Ganga Properties Ltd. [1970] 77 ITR 637, it observed: " Thus, it is abundantly clear that under section 22 of the Act, not the beneficial owner but the legal owner is to be assessed. As the assessee was not the legal owner, the income from property was not rightly assessed in its hands." Accordingly the first contention of the assessee was accepted and the appeal was decided in its favour. As the Tribunal had accepted the first contention of the assessee it did not proceed to discuss the alternative contention raised by it as referred to above, namely, that it should be assessed as income from other sources under s. 56 of the Act. These are the facts. The orders of assessment of the ITO, the appellate order of the AAC and the second appellate order of the Tribunal itself have been made annexures as part of the statement of the case. Before embarking upon an elaborate investigation with regard to the true purport and intention of the Legislature in engrafting s. 22 of the Act, it is relevant to set out forthwith two clauses of the deed of agreement between the Sahay family and the assessee-company, namely, the Sahay Propertie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s down that : " The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax shall be changed to income-tax under the head Income from house property'. " The emphasis, therefore, in this statutory provision is that the tax under the section is in respect of ownership. But this matter is not as simple as it looks. This leads us to a more vexed question as to what is ownership. Should the assessment be made at the hands of the person who has the bare husk of the legal title or at the hands of the person who has the rights of an owner of a property in a practical sense ? Enjoyment as an owner only in a practical sense can be attributed to the term " owner " in the context of this section a person who can exercise the rights of the owner and is entitled to the income from the property for his own benefit. It is well settled, and learned counsel for either side were not at loggerheads, that the section cannot be so construed as to make it an instrument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a property is acquired, with a right to exercise such necessary control over the property acquired which it is capable of, it is the intention to exclude others which evinces an element of ownership. To the same effect and with a more vigorous impact is the subject dealt with by Dias on Jurisprudence, (4th Edn., at p. 400): "The position, therefore, seems to be that the idea of ownership of land is essentially one of the 'better right' to be in possession and to obtain it, whereas with chattels the concept is a more absolute one. Actual possession implies a right to retain it until the contrary is proved, and to that extent a possessor is presumed to be owner." "Again, at p. 404, the learned author says: "Special attention, should also be drawn to the distinction between 'legal ' ownership recognised at common law and 'equitable' ownership recognised at equity. This occurs principally when there is a trust, which is purely the result of the peculiar historical development of English law. A trust implies the existence of two kinds of concurrent ownerships, that of the trustee at law and that of the beneficiary at equity. " We are not concerned in this case with any case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the true connotation of the term " owner " within the meaning of S. 22 of the Act in its practical sense, leaving the husk of the legal title beyond the domain of ownership for the purpose of this statutory provision. The reason is obvious. After all, who is to be taxed or assessed to be taxed more accurately a person in receipt of money having actual control over the property with no person having better right to defeat his claim of possession or a person in legal parlance who may remain a remainder man, say at the end or extinction of the period of occupation after, again say, a thousand years ? The answer to this question in favour of the assessee would not merely be doing palpable injustice but would cause absurd inconvenience and would make the Legislature to be dubbed as being a party to a nonsensical legislation. One cannot reasonably and logically visualise as to when a person in actual physical control of the property realising the entire income and usufructs of the property for his own use and not for the use of any other person, having the absolute power of disposal of the income so received, should be held not liable to tax merely because a vestige of legal ownership or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfers not completed in the manner prescribed therefor by any law. The section is, therefore, applicable to cases where the transfer is not completed in a manner required by law unless such a non-compliance with the procedure results in the transfer being void. There is, however, a distinction between an agreement void as such and an agreement void in the absence of something which the vendor could do and had expressly or impliedly contracted to do, and where vendor agrees to sell his share of property, including sir land, there is an implied term in the contract that he will apply for sanction to the revenue authorities necessary for such transfers and the court will direct him to do so. It cannot be said that such an agreement is void because no sanction has been obtained. In the instant case, having reference to cl. 5 of the agreement it would be seen that the option was given to the assessee to demand at its pleasure a conveyance duly registered being executed in its favour by the Sahay family (the vendor) and to get its name mutated in the official records. The assessee has not exercised its option for reasons best known to it presumably to have a double weapon in its hands to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad put the purchaser in full possession of the property and had received the sale price. These decisions of the Calcutta and Bombay High Courts must not be deemed to be good law in view of the later decision of the Supreme Court in the case of Jodha Mal Kuthiala [1971] 82 ITR 570. In that case the Supreme Court held that an assessee whose house property vests in the Custodian of Evacuee Property cannot be assessed under this head since the word owner " must mean in the context of this section a person who can exercise the rights of an owner and is entitled to an income from the property and that this section cannot be so construed as to make it an instrument of oppression. Learned counsel for the assessee invited our attention to quite a number of decisions to show that the principles laid down by the Supreme Court in Jodha Mal's case [1971] 82 ITR 570, were distinguishable and had, as matter of fact, been distinguished in quite a number of cases, namely, in the cases of Zorostrian Building Society Ltd. [1976] 102 ITR 499 (Bom), S.B. (House Land) Pvt. Ltd. v. CIT [1979] 119 ITR 785 (Cal), D.C. Anand and Sons v. CIT [1981] 131 ITR 77 (Delhi) and CIT v. Hans Raj Gupta [1982] 137 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed by the assessee was used by the assessee for its business purposes. So far as the first condition was concerned, the Tribunal held that in view of the State Government's order dated April 24, 1968, the State of U.P. ceased to be the owner of the properties as it could not exercise any rights in respect thereof, that in view of the capital structure of the Corporation, constitution of its board of directors and the fact that the Corporation was in possession of the properties, it could, for purposes of s. 32, be held that the properties were owned by the Corporation and it was entitled to claim depreciation with respect to them. The Tribunal, however, pointed out that since the property consisted of land and buildings, depreciation could be claimed only in respect of the buildings and not land. On reference being made at the instance of the Revenue, it was held that there was correspondence on the record between the State of U.P. and the Corporation according to which the former had agreed to transfer the properties to the latter in consideration of Rs. 44,07,589. The State Govt. had received the amount of consideration in the form of equity shares amounting to Rs. 40,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 22 or s. 32 of the Act. Mr. Rajgarhia's contention, therefore, has to be accepted as wholly valid. The cases referred to and relied upon by Mr. Jain, learned counsel for the assessee, which, according to him, had tried to distinguish the Supreme Court case on their own facts are clearly a fortiori not consistent with the decision of the Supreme Court on the principles as laid down in Jodha Mal's case [1971] 82 ITR 570 (SC), which we shall presently demonstrate. Firstly, the cases on which Mr. Jain placed reliance are distinguishable on facts. Secondly, the distinction in principle, which these cases have tried to draw between the principle laid down by the Supreme Court and the other general principle adopted by the Calcutta and Bombay High Courts in the cases of Ganga Properties Ltd. [1970] 77 ITR 637 (Cal), Union Land and Building Society Pvt. Ltd. [1972] 83 ITR 794 (Bom) and Zorostrian Building Society Ltd. [1976] 102 ITR 499 (Bom), is not a valid distinction. In very sweeping terms, these cases have said that the judgment of the Supreme Court must be caged and cabined to the facts of its own case as there was a statutory provision under which the right of ownership could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the time, and that, in paying the tax, the trustee was really paying it on his behalf that is, on his income and that, consequently, there arose in each of the years in which the payment was made a right to deduct his 'personal allowance' from the annual value of the properties. The right to this abatement is said to have passed to the respondent himself in virtue of the reinvestment in his estate which occurred upon his discharge on composition. Rejecting this contention, the Lord President observed : 'It is obvious that, unless during the years in question the annual value of the properties was income of the respondent, he cannot have any claim to abatement of it for income-tax purposes; and, accordingly, everything depends upon the soundness of the proposition that the income consisting in the annual value of these properties was truly income of the respondent. I do not see how it can possibly be so described. It was part of the income arising from the sequestrated estates vested in the trustee for the respondent's creditors. Any income that did arise from those estates was income of the trustee as such, and he (and he alone) had the right to put it into his pocket as income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n next invited our attention to the observation in Pollock on jurisprudence, 6th Edition (1929), at pages 178-80: 'Ownership may be described as the entirety of the powers of use and disposal allowed by law ...... The owner of a thing is not necessarily the person who at a given time has the whole power of use and disposal; very often there is no such person. We must look for the person having the residue of all, such power when we have accounted for every detached and limited portion of it; and he will be the owner even if the immediate power of control and use is elsewhere.' It is not necessary to consider whether those observations hold good even now because of the various legislative measures enacted during the last about forty years after those observations were made. Suffice it to say that those observations are inapplicable to the case of the owner under section 9 of the Act." This decision of the Supreme Court of the year 1971 merely dispelled the argument of Mr. Mahajan relying upon Pollock's Jurisprudence, 6th Edn. of 1929, by saying that four decades had made radical changes in the law, in which circumstances the principle relied upon by Mr. Mahajan could not be qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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