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TMI Blog2012 (9) TMI 1237X X X X Extracts X X X X X X X X Extracts X X X X ..... y distributed to the shareholders. So also, monthly rent collected was distributed to the shareholders after deduction made towards maintenance and taxes. The shareholders, who are also assessees, had filed separate individual returns, in which, the income earned from the building allotted to the respective shareholders was also disclosed and accordingly taxed. The respondent/company filed a nil returns. The AO held that the rental income derived is an attributable to the respondent/company and accordingly levied the tax. The respondent/company aggrieved by the said order filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) rejected the appeal. The Appellate Tribunal allowed the appeal and set aside the order of the Appellate Authority. The revenue aggrieved by the said order has filed the above appeals. 2. The following substantial questions of law are formulated for consideration in these appeals: 1) Whether the Tribunal was correct in holding that the share holders of the assessee company being deemed owners of the property as per section 22 read with section 27(iii) of the Act the rental income cannot be taxed in the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res that the assessee or a co-operative society can allot or lease a house building to its members. A member, who is so allotted, would be construed as the owner of such building allotted or leased to them. In such a case, there would be registered a conveyance deed executed in favour of the member by the company, society etc. The allotment by resolution would be a sufficient for investment of right over such property in favour of the member. The Memorandum of Association and Articles of Association of the respondent/company are part of the records before the Appellate Tribunal. 7. Paras-3 & 11 of the objects of company in the Memorandum of Association are as follows: 3. To carry on business as proprietors of flats and buildings and to let on lease or otherwise apartments therein and to provide for the conveniences commonly provided in flats, suites and residential and business quarters. 11. To distributed among the members any of the properties of the company, in specie or in proceeds of sale or disposal of any property, subject to section 205 of the Companies Act. 8. Paras-51 to 55 of the Articles of Association are as follows: 51. The Company may by a resolution passed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of detriment to the company or to the other shareholders. The company and Board of Directors shall recognise such mortgage and charge subject to the provisions laid down in articles 8, 9 and 10, and in the event of transfer or sale of shares, deposit and the rights vested in the constructed area allotted to such Member by such mortgagee or creditor for realisation of monies advanced, the Board shall register such transferee as a Member and the holder of such shares and deposit and the consequent rights in respect of constructed area attached thereto. 9. The resolution of the company dated 30th July, 1998, which allotted the specific portion of the building in favour of the shareholders reads thus: Resolved that the Scheme of Allotment of Shares for the Units be implemented in terms of Memorandum of Association and Articles of Association of the Company with regards to its property bearing No. 6671, 6672, 6673 and 67 etc...., Infantry Road, Bangalore. 10. With reference to the above materials, it is vehemently argued that there is allotment of specific portion in the building to each of the shareholders is in accordance with the Memorandum of Association and Articles of Associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory of the common law and (ii) those declaring the meaning of an existing statute. Obviously, those declaratory of the common law should be construed as intended to lay down a rule for future cases and to act retrospectively. They closely resemble interpretation clauses, and their paramount purpose is to remove doubt as to the meaning of existing law, or to correct a construction considered erroneous by the legislature. (emphasis supplied). In Francis Bennion's Statutory interpretation (second edition 1992) page 105, the learned Author say "declaratory act-A declaratory Act or enactment declare what the law is on a particular point, often "for the avoidance of doubt". In Justice G P Singh's (sixth edition 1996) "Principles of statutory interpretation", under the heading "declaratory statutes", the learned Authority has summed up as follows: Declaratory statutes: The presumption against retrospective operation is not applicable to declaratory statute. As stated in Craies and approved by the Supreme Court: "for modern purposes a declaratory Act may defined as an Act to remove doubts existing as to the common law, or the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relation to, any asset which is not to be included wholly or partly in the net wealth by virtue of the provisions of sub-section (IA) of section 5, the amount of such debt shall, for the purposes of the said sub-clause, be limited to the value of the said asset which is not includible in the net wealth under sub-section (IA) of section 5;] 13. Learned Senior Counsel relied upon the decision of Patna High Court in the case of Commissioner of Wealth-Tax v. Smt. Shushila Devi Tamakuwala reported in [Vol. 212 1995 ITR 203. In the said decision, the circular issued by the CBDT is extracted hereunder: In this connection, attention is invited to sections 22 to 27 of the Income-tax Act, 1961, which refer to income from house property. These sections are applicable to income from house property whether the house property is residential or it is used for business. In the circumstances, it is presumed that the exemption to house property under section 5(1)(iv) is available both to residential as well as business premises whether used by the association or let out. The above circular instructions become relevant for consideration of both under the Wealth Tax Act and Income Tax Act, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be distributed as dividends to the members in terms of Section 205 of the Company Act. Sri K.V. Aravind cited a decision of the Supreme Court in the case of Calcutta Tramways Co. Ltd. v. Commissioner of Wealth Tax reported in 86 ITR 133 (SC). 5) Clause 11 also contemplates that distribution of the properties or sale proceeds should be subject to Section 205 of the Companies Act. Therefore, the respondent/company can only pay dividends to the members and could not have acted as an implied agent to lease properties and such a contention would be contrary to the objects of the company in the Memorandum of Association. 6) The respondent/company, if really, had allotted a specific portion of the building exclusively to the shareholders should have exercised their right and should have leased the properties in their own right. It is impermissible on their behalf in the given situation for the respondent/company to execute the lease deed. 7) The lease deed explicitly shows that it is the respondent/company, who has leased the property and executed the lease deed. The contention that the execution of lease deed on behalf of the members is untenable and there is nothing suggested in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the building need not be necessarily a residential building, under Section 27(iii) of the Act it can be a commercial building. The respondent/company has allotted a specific portion to the shareholders. Under the IT Act, shareholders are deemed to be the owner of the portion allotted to them and they would be liable for tax. However, the company, which owns the building, is an ostensible owner. Therefore, it cannot not be said that the company cannot effect the lease. The lease effected by the respondent/company should be construed as one executed on behalf of the shareholders. Notwithstanding the fact that the lease deed may not refer to that effect. Therefore, it is to be held that the shareholders are the owners of the specific portion of the building allotted to them and the company which executed the lease deed, has not retained any part of rent amount or rent deposit and after deducting the tax and maintenance has distributed the income to the shareholders proportionately to their shareholders. The shareholders have also filed returns disclosing the said income and paid the tax. In the given situation, it cannot be argued that the respondent/company deemed to have deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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