9911796707
TMI Blog1989 (1) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... he flats was agreed to be paid in instalments. The last instalment of 10 per cent of the price was agreed to be paid by the prospective purchaser, hereinafter referred to as the purchaser, on completion of the building and handing over of its possession to him. The entire sale price was thus deposited by the purchaser. On completion of these flats, they were let out to the State Bank of India on a monthly rent of Rs. 1,34,590. It was claimed by the assessee that is has let out the said flats to the State Bank of India on behalf of the purchasers and the rent is paid by the Bank directly to the purchasers of the flats. The assessee's case, therefore, was that the rental income of the said 43 flats is not assessable in the hands of the assessee and it does not belong to him. It was also the case of the assessee that the flats in question belonged to the purchaser and not to the assessee. On enquiry, it was found by the assessing officer that the flats have not so far been transferred to the purchasers and no deed of conveyance has been executed or registered. He was of the view that unless and until the flats are transferred to the purchasers and deed of conveyance is executed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control and possession of the property and they are the owners of the flats within the meaning of section 22 of the Income-tax Act and, therefore, the ITO was not justified in treating the rental income as income of the assessee. The learned CIT(A) agreed with the contentions advanced on behalf of the assessee. He observed that under the Income-tax Act, it is the income from property that is assessable and not the ownership. He also observed that the property had been purchased by 43 owners as per agreements and everything has been done, namely, the consideration has been paid, possession taken and effective control being exercised. It was under this right and effective control that these owners had given special power of attorney to Shri M.L. Agrawal (partner of the assessee firm) to act on their behalf to negotiate and lease out the property to the State Bank of India. He also observed that it was on account of their effective ownership that the rent was being received by them individually and the lessee, the State Bank of India, having duly recognised the real ownership, was paying the rent directly into their personal account maintained by it. He also agreed that it is a fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the purchasers, the legal title in the property continues to vest in the assessee and he continues to be the owner of the same. According to him, the assessing officer was right in treating the assessee as the owner of the property and in the given set of circumstances, the individual purchasers cannot be treated to be the legal owner of the flats. He has vehemently argued that title to the land and the building does not pass till the conveyance is executed and registered. His further submission was that the expression "income from house property", used in section 22 of the Income-tax Act, 1961, refers to the income of the legal owner of the property, and it as only the legal owner who is assessable to such income. He has also submitted that an owner must be the person who can exercise the rights of the owner, not on behalf of the owner but in his own rights. With such arguments, he has submitted that the learned CIT(A) was wrong in holding that the rental income from the property is not assessable in the hands of the assessee. In support of his arguments, he has cited the undermentioned decisions : CIT v. Dewan Bahadur Dewan Krishna Kishore [1941] 9 ITR 695 (PC) Alapati V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and they were exercising full control over them, and in the circumstances for all intents and purposes they had become the owner of the flats purchased by them and the assessee had nothing to do with their ownership. According to him, before a person can be assessed to tax u/s 22 of the Income-tax Act, it is not necessary that he must be the owner of the property by virtue of sale deed in his favour. He has further submitted that what is being taxed under that section is the income from house property or the annual value of the property of which the assessee is the owner. The focus of this section is on the receipt of income from house property. If in a given case, it is found as a fact that the assessee is in occupation of the building as owner for all intents and purposes, except the sale deed in his favour, then he is liable to tax u/s 22 of the Act. In support of this view, he has cited the case of Smt. Kala Rani v. CIT [1981] 130 ITR 321 (Punj. Har.) and Addl. CIT v. Sahay Properties Investment Co. (P.) Ltd. [1983] 144 ITR 357 (Pat.). Thus, he has supported the order of the CIT(A) and has urged that the receipts by way of rent of the 43 flats in question are not liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to him, the copies of only some of the documents have been filed before the Tribunal, and identical documents had been executed between the assessee and all the 43 flat owners. 11. Paper No. 1 of the assessee's paper book is the copy of an application sent to the assessee by one of the prospective purchasers expressing his intention to purchase one of the flats in the building. Paper Nos. 2 to 5 of the paper book is the copy of the letter containing the terms and conditions of allotment of the flats. It indicates allotment of flat to the prospective purchasers. It contains the mode of payment. The payment of the sale price was to be made in instalments. The last instalment consisting of 10 per cent of the price was to be paid on completion of the building and on handing over of possession. Paper No. 6 is the copy of the assessee's letter dated 16th March, 1978 whereby the flat owners were intimated that the assessee is getting tenants, who were prepared to hire the entire building before it is completed and the purchasers were asked to authorise the assessee to finalise the letting out of the property. Paper No. 8 of the paper book is copy of the letter dated 8th May, 1979, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rents payable to lessors as per the details and directions shown in the Schedule B of the deed by crediting the rental amount specified therein every month to the account of each person separately opened by him with the lessee Bank at the Hazratganj Branch, Lucknow. In this connection, we may quote the following clause of the deed relating to the payment of the rent : " As per arrangements with parties in whose favour agreeements of sale have been executed by the Lessor, the Lessee will distribute the rents payable to Lessors as per the details and direct one shown in Schedule 'B' to this agreement by crediting the rental amount specified therein every month to the account of each person separately opened by him with the Lessee Bank at their Hazratganj Branch, Lucknow. The Lessor will issue valid receipts for the rentals so paid in favour of the lessee. The payment of rent so made will discarge the lessee of its liability for payment of rent to Lessors. The above arrangement will only be a distribution of rent paid to lessors among the specified parties on the instructions of lessor and shall not be deemed in any way that such specified persons are party to this lease or that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the meaning of section 2(m) of the Wealth-tax Act, 1957. The material expression, with which the court was concerned in that case, was "belonging to the assessee on the valuation date". After analysing the facts of the case in the light of the law and the decided cases, the Hon'ble Court had held that in the eye of law, purchasers cannot be and are not treated as legal owners of the property in question. In this connection, following observations of the Hon'ble Court can be referred with advantage : " The material expression with which we are concerned in this appeal is 'belonging to the assessee on the valuation date'. Did the assets in the circumstances mentioned hereinbefore, namely, the properties in respect of which registered sale deeds. had not been executed but consideration for sale of which had been received and possession in respect of which had been handed over to the purchasers belong to the assessee for the purpose of inclusion in his net wealth ? Section 53A of the Transfer of Property Act gives the party in possession, in those circumstances, the right to retain possession. Where a contract has been executed in terms mentioned hereinbefore and full conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
