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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX REFERENCE NO. 1 OF 1994
ALONG WITH
INCOME TAX REFERENCE NO. 3 OF 1994
Mr. Pallonji M. Mistry (Decd.),
Executrix of his Estate,
Mrs. Dhun R. Shroff
M/s. Pallonji & Co. Pvt. Ltd.
87, Abdul Rehman Street,
Mumbai. ... Appellant
The Commissioner of Income
Versus
Tax, Bombay City-V, Bombay. ... Respondent
Mr.Niraj Seth along with Ms.Jyotsna Kendhalkar i/by
Vigil Juris for the Appellant.
Mr. P.S. Sahadevan for the Respondent.
CORAM: F.I. REBELLO, &
R.S. MOHITE, JJ.
DATED: FEBRUARY 11, 2009
ORAL JUDGMENT (Per F.I. Rebello,J.):
. Income Tax Reference No. 3 of 1994 is in respect
of the assessment years 1976-77, 1977-78, 1978-79,
1979-80, 1980-81, 1979-80. Income Tax Reference No.
1 of 1994 is in respect of the assessment years
1984-85 and 1985-86. In respect of both the
References, the learned tribunal has referred
several questions for determination of this court.
In our opinion, if question No. 2 is answered,
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there will be no need to answer the other questions
referred to. The question for consideration before
us reads as under :
“Whether the Appellate Tribunal erred in law
in holding that the property would stand
transferred only with effect from the date
of registration of the Deeds of Conveyance
of flats?”
2. A few facts may now be set out. The assessee
had 1/3rd share in the property known as Bhaktawar
building. The other shares were held by other
persons. The property consists of five flats
jointly owned by the co-owners and 32 flats occupied
by the tenants. Another three flats at the relevant
time were in possession of the Court Receiver. Out
of 32 flats, 9 flats were sold prior to the
accounting year relevant to the assessment year
1976-77. This transfer of 9 flats was accepted by
the Income Tax Officer in assessment year 1975-76.
Out of remaining 23 flats, 19 were sold on different
dates during the accounting year relevant to the
assessment year 1978-79 and in respect of the
balance, conveyances were executed in the subsequent
accounting years. The Assessing Officer held that
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the assessee was the owner of the 23 flats in
dispute as mere execution of conveyance deed was not
enough without the deed being registered as required
under the provisions of the Registration Act. Since
that has not been done, the Assessing Officer held
that the assessee continued to be the owner of the
23 flats. On reference to the respective
Commissioner under Section 146(3), the order of the
Assessing Officer was upheld. In appeal on behalf
of the assessee,
ig an emphasis was led on the
provisions of the Maharashtra Apartment Ownership
Act. 1970 and the Maharashtra Apartment Rules,
1972. Based on this act and rules, it was contended
that the transfer made by the assessee was complete
and the ownership cannot be attached to the assessee
so as to assess the income therefrom in the
assessees hands. The learned Commissioner did not
agree with the contention as advanced on behalf of
the assessee and held that the assessee was rightly
treated as owner of the property. Against which,
the assessee preferred an appeal before the I.T.A.T.
The contentions urged before the Commissioner were
also urged before the I.T.A.T. The learned I.T.A.T.
confirmed the orders of the Commissioner (Appeals).
The tribunal has been pleased to make the reference.
After hearing parties with their consent, the
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question has been reframed to address the issue
which arises.
3. At the threshold on behalf of the appellant, the
learned counsel submits that the concept of
ownership considering the provisions of the Transfer
of Property Act read with Registration Act is
different in the context of the provisions of the
Income Tax Act. What is to be considered for the
purpose of Income
ig Tax Act are the provisions of
Section 22 of the Act of 1963. In support thereof,
the learned counsel has placed reliance on the
judgment of the Supreme Court in Commissioner of
Income Tax Vs. Podar Cement Pvt.Ltd. 226 ITR 625.
4. In Podar Cement (supra), the assessee was the
owner of four flats in a building called as “Silver
Arch”, Nepeansea Road, Bombay. The builder of the
said building was M/s. Malabar Industries Pvt.
Ltd. Out of the four flats, two were directly
purchased by the respondent company from the
builders and the other two were purchased by its
sister concern and subsequently by the assessee.
The possession of the flats was taken after payment
of consideration in full some time in August, 1973.
The flats in question in fact had been let out to
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various persons. The rental income from these flats
were included in the Return of the assessment for
the assessment years in question, namely, 1975-76
and 1976-77. It was submitted on behalf of the
assessee that the rental income of the flats was
assessable as income from other sources under
Section 56 of the Act and not as Income from house
property under Section 22 of the Income Tax Act.
The submission was based on the contention that the
assessee
was not the legal owner of the property in
the flats and as such the income from the flats
could not be assessed as income from house property.
The Assessing Officer assessed the income as income
from house property. In an appeal preferred, the
order of the Assessing Officer was upheld. In the
appeal before the I.T.A.T. it held that income from
the flats cannot be taxed as income from house
property under Section 22 of the Act. Reference was
made at the instance of the Revenue to the High
Court. The High Court confirmed the view taken by
the tribunal and held that the income in question
was assessable under Section 56 of the Act. The
matter was taken up in appeal before the Supreme
Court. The Supreme Court for the purpose of
considering the contentions considered Section 9(1)
of the Old Act as also Section 22, 27 and 56 of the
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Act of 1961.The learned Supreme Court then from the
submissions of the parties observed as under:
“….. that the controversy revolves around
the meaning to be given to the word “of
which the assessee is the owner” occurring
in Section 22 of the Act.”
. After considering various authorities, the
learned court observed as under :
“One of the most important of these powers
is the right to exclude others.”
. What flows from this proposition is that the
assessee should be in a position to exclude all
other persons from the use of the property. In
other words the assessee must be in exclusive
possession in his own right to the exclusion of all
others.
. Reliance was placed in the case of R.B. Jodha
Mal Kuthiala Vs. C.I.T. Punjab, J.& K. and
Himachal Pradesh,82 ITR 570. The learned Supreme
Court noted the law as followed by the other High
Courts as to how they have understood the ratio of
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the judgment in Jodhamal (supra). The Rajasthan
High Court had addressed the issue as to whether the
words “of which the assessee is owner” can be
applicable only to the registered owner or also to
such persons in whose favour registered sale deed
has not been executed but an agreement for sale has
been executed and the possession of the property has
been given and consideration had been paid. After
considering various aspects, the court was pleased
to hold that it is not required that the Deed has to
be registered. What is to be considered is whether
the person who was put in possession can enjoy the
property to the exclusion of others. The Supreme
Court then noted that the law laid down by the
Supreme Court in Jodhamal (supra) has been rightly
understood by the High Courts of Punjab and Haryana,
Patna, Rajasthan etc and held that the requirement
of registration of sale deed in the context of
Section 22 is not warranted.
. While so holding, it also noted the amendment
carried out to Section 27 of the Act by Finance Act,
1987 by substituting some of the clauses with effect
from 1.4.1988. The court addressed to itself, a
question whether this amendment was clarificatory or
declaratory and after considering various aspects
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was pleased to hold that it had no hesitation to
hold that the amendment in the Fiance Bill of 1988
was declaratory/clarificatory in nature, in so far
as it relates to Section 27(iii), (iiia) and (iiib)
and consequently provisions were retrospective in
operation. The learned court then observed that in
view of that the views taken by the High Courts of
Patna, Rajasthan and Calcutta, gets added support
and consequently the contrary view taken by the
Delhi,
Bombay and Andhra Pradesh High Courts is not
good law. The following paragraph may now be
reproduced :
“64. We are conscious of the settled
position that under the common law owner
means a person who has not valid title
legally conveyed to him after complying with
the requirements of law such as Transfer of
Property Act,Registration Act, etc. But in
the context of Section 22 of the Income Tax
Act having regard to the ground realities
and further having regard to the object of
the Income Tax Act, namely, “to tax the
income”, we are of the view, owner is a
person who is entitled to receive income
from the property in his own right.”
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. It would thus be clear from the law declared by
the Supreme Court in the case of Poddar Cement
(supra), that there is no requirement that there has
to be a registered Deed of conveyance for a person
to be treated as an owner for the purpose of Section
22 of the Income Tax Act.
5. Considering the law as declared, we may refer to
the
findings recorded in so far as the assessee is
concerned. The tribunal in its order dated
16.2.1988, held as under :
“Out of the 40 flats, 5 flats were retained
by the co-owners and 3 flats continue tobe
in the possession of the Court Receiver.
Nine flats were sold in the earlier years
and the transfer was accepted as complete by
the Revenue authorities. We are concerned
with the status of the balance 23 flats.
Out of these 23 flats, 19 were sold to
different parties during the accounting year
relevant to the assessment year 1976-77.
The declaration as required under the
Maharashtra Apartment Ownership Act, 1970
was executed by the co-owners some time in
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10July, 1974. Deed of apartment was executed
during 1975 in favour of each of the 19
tenants. Registration, however, was done
later on after the end of the previous year
relevant to the assessment year 1976-77.
Similarly, the balance flats were sold in
the subsequent assessment years.”
. From the above facts what emerges is that the
flats were
initially occupied by the tenants. 19
flats were sold to different parties in the course
of assessment year 1976-77. The entire
consideration was received in the course of that
assessment year. Thus the purchasers were in
possession and the entire consideration was paid.
Similarly declaration as required under the
Maharashtra Ownership Act was executed in July,
1974. The Deed of apartment was executed in 1975 in
favour of each of 19 tenants. From the order of the
Assessing Officer, however, we find that the rental
income has been assessed in the hands of the
assessee for the relevant assessment years. From
these facts what really emerges is that though rent
was not actually received, the A.O. proceeded on
the footing that the rent was receivable as there
was no registration of the conveyance in favour of
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the tenants and the assessee continued to be the
owner.
. On the facts noticed, in our opinion, it may be
possible to arrive at the conclusion that the
assessee herein ceased to be the owner. However, as
relevant sale documents are not available before us,
in our opinion, the proper course would be to remand
the matter back to the tribunal for answering the
issue in the
context of the law as laid down in
Poddar Cement (supra) and the observations made by
us in this judgment.
. In the light of the above, question referred is
answered in the affirmative in favour of the
assessee and against revenue.
(R.S. MOHITE, J.) (F.I. REBELLO,J.)
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