Income-Tax Officer vs Dr. Ela Anand Arpna Trust.
1990 Latest Caselaw 49 Del

ORDER

Per Bakhshi Manzoor Ahmed, JM - This appeal filed by the revenue is directed against the order of the AAC of the Income-tax, N-Range, New Delhi and dispute relates to assessment but in respect of which the title has not been transferred by a registered document.

2. The brief facts giving to this appeal are that the assessed along with three others were the co-owners of the building styled as Sen Nursing Home. This building was sold to Ansal & Sehgal Property Pvt. Ltd. vide an agreement of sale executed on 15-6-1976 in consideration of Rs. 78 lakhs. Out of the sale consideration, the vendors had to pay the un-earned increase to Land & Development Office and were also to pay registration charges. They, accordingly, received net consideration of Rs. 60 lakhs. The balance of Rs. 18 lakhs was retained by Ansal & Sehgal Property Pvt. Ltd. On taking possession of the property, M/s Ansal & Sehgal (P.) Ltd converted the Sen Nursing Home into commercial flat after spending substantial amounts and thereafter these flats were sold. However, neither the property which was sold by the assessed along with other co-owners to M/s. Ansal & Sehgal Property Pvt. Ltd. was registered in favor of the vendees not have the flats been registered in favor of the owners who have purchased these flats. However, house tax has been levied upon the flats owners who are paying the same. With this background, the assessing officer held that the assessed along with the three other co-owner were still the owners of the property and that the income from this property was assessable in their hands under section 22 of the Income-tax Act, 1961. The assessing officer estimated the annual letting value of the assessed. The AAC considering the decision of the Honble Delhi High Court in Sushil Ansal v. CIT [1986] 160 ITR 308 accepted the contention of the assessed and deleted the income.

3. The revenue being aggrieved is in appeal before us. The learned Departmental Representative Shri Rajender Kumar contended that since the property was not transferred in favor of the vendees by means of registered document, the vendors continued to own the property in the assessable in their hands. He, heavily relied upon the decision of the Honble Delhi Court in the case of CIT v. Hans Raj Gupta [1982] 137 ITR 195 and urged that the orders of the AAC be set aside and those of the assessing officer restored. On the other hand, the learned counsel for the assessed Shri O. C. Tandon contended that the order of the AAC was in accordance with the decision of the Honble Delhi High Court in Sushil Ansals case (supra) and accordingly no interference is called for. He further drew our attention to the observations of the Delhi High Court in Sushil Ansals case at page 314 and urged that keeping the facts and circumstances of the case, in view, the assessed is not liable to tax on the notional income from house property which has been sold and in turn converted into flats, in respect of which assessed is having only a hollow title.

4. We have given our careful consideration to the rival contentions and have perused the records. In this case, it is not disputed that the assessed has sold the house property and registered instrument required for transferring the legal title to the vendees has not been executed. However, it is also not disputed that the property has been converted by the vendees into commercial flats which have been sold to others. Now on these facts, it is to be seen as to whether the assessed is liable to pay tax on the notional income of the property which has been sold and of which legal title has admittedly not been transferred to the vendees. The Honble Delhi High Court has taken a consistent view in number of decisions giving a strict interpretation to the word owner and pointed out that the execution of an agreement of sale coupled with the possession would not be sufficient to confer on the proposed transferee the right of ownership of the property even if handing over of the possession is in certain circumstances sufficient to attract the provisions of section 53A of the Transfer of Property Act. Thus, where in a case, the property is transferred without registered instrument of sale the owner of the property would be assessable to tax in respect of the annual letting value of the property to be determined in accordance with section 23. The income from house property is assessable on notional income in accordance with provisions of section 22 read with section 23. Sections 22 and 23 may be quoted hereunder for ready reference :-

Section 22 :

"The annual value of property consisting of any building or lands appurtenant thereto of which the assessed is the owner, other than such portion 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 chargeable to income-tax under the head "Income from house property".

Section 23 :

"For the purposes of sec. 22, the annual value of any property shall be deemed to be :-

(a) the sum for which the property might reasonably be expected to let from year to year; or

(b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable : Provided............."

Where section 22 provides for assessment of annual letting value of the buildings and lands appurtenants thereto chargeable to income-tax under the head "Income from house property". Section 23 prescribes the procedure for determining the ALV of the house property. This section provides that the annual value of any property shall be deemed to be the sum for which the property might be reasonably be expected to be let from year to year. Where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of sum referred to above, the amount so received or receivable is deemed to be the annual letting value of the property. Thus it is evident that under section 23 the ALV of the property shall have to be the value on which the property is expected to be let from year to year. So in order to assess the income from the house property following conditions must be satisfied :-

(a) The assessed must be owner of the building;

(b) The building must not be used for business purposes, the income from is chargeable to tax;

(c) The property must be such as to yield annual rent."

Where in a case the property is not transferred by a registered document and the transferee does not alter the property, there would be no difficulty to hold that the previous owner having the legal title over the property shall be liable to tax on the annual letting value of the property.

5. However, we are faced with a different situation. Here in this case the property has been converted into commercial flats and the building transferred to the vendees is no longer in existence in the same form in which it was before its transfer. Annual letting value of the property is to be assessed of such property of which the assessed is the owner. Therefore, property must exist in such form in which it can yield annual rent. If the property is not capable of yielding any rent the annual letting value shall, in our view be NIL. This is so because the assessed in having only a hollow title in respect of the property which is no more in existence in the form in which it has been sold.

6. In such circumstances, income from house property cannot be assessed in the hands of the assessed. We may usefully refer to the decision of the Supreme Court in the case of R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570. In the case the Honble Supreme Court held as under :

"For the purpose of Section 9 of Indian Income-tax Act, 1922 (corresponding to section 22 of the Income-tax Act, 1961) the owner must be the person who can exercise the right of the owner, not on behalf of the owner but in his own right. Their Lordships further held that no one denies that an evacuee from Pakistan has a residual right in the property that he left in Pakistan. But, the real question is, can that right be considered as ownership within the meaning of section 9 of the Act."

7. As mentioned earlier section 9 now section 22 seeks to bring to tax income of the property in the hands of the owner. Hence, the focus of that section is on the receipt of the income. The Court in the above noted case has further held -

"The word owner has different meanings in different contexts. The meaning that we give to the word owner in section 9 must not be such to make that provision capable of being made instrument of oppression. It must be in consonance with the principles underlying the Act."

8. Applying the test laid down by their Lordships of the Supreme Court in the above noted case, we are of the view that the assessed cannot be taxed in respect of the property sold by him which has been converted into commercial flats. It may be pertinent to mention that the Legislature in its wisdom has introduced clause (iiia) to section 27 w. e. f. 1-4-1988 which is reproduced hereunder :

"For the purposes of section 22 to 26 -

(i).............. (ii)............. (iii).................

(iiia) a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), shall be deemed to be the owner of that building or part thereof."

It may also be relevant to quote section 53A of the Transfer of Property Act :

"53A. Part performance - Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,

and transferee has, in part performance of the contract taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,

and the transferee has performed or is willing to perform his part of the contract,

then, notwithstanding that contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being in force, the transfer or any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract :

Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof."

9. It is evident that the Legislature has already taken care of the anomaly that could arise in peculiar circumstances like that the present case. With effect from 1-4-1988, flat owners in particular circumstances are deemed to be the owner for purposes of sections 22 to 26 in consequence of which they will be assessable to tax on the income from such flats.

10. We accordingly confirm the order of the AAC, N Range, New Delhi. The appeal of the revenue is dismissed.