ORDER
VIMAL GANDHI, J. M. :
In these appeals by the Revenue and cross-objections by the assessed against order of CIT(A) question of taxability of rental income of house property is involved. For the sake of convenience, all of them are being disposed of through this consolidated order.
2. There is delay in the submission of appeals by the Revenue. The delay was explained by the learned departmental representative as per letter dt. 6th July, 1992. On consideration of above letter and submissions of both the parties, we are satisfied that the delay occurred due to sufficient cause. The delay is accordingly condoned and the appeals are considered and disposed of on merits.
3. Briefly stated, facts are that Government of India granted perpetual lease of a plot of land situated at 4-E/11, Jhandenwalan Extension, New Delhi on 23rd Jan., 1974 to three brothers, namely, S/Shri Balwant Singh, Saudagar Singh and Bahadur Singh, the assesseds before us in equal shares. The three brothers entered into an agreement dt. 10th May, 1980 with one Shri Satish Chand Jain to construct a multi-storeyed building on the aforesaid plot. Shri Jain at the relevant time was also Managing Director of the Company, known and styled as M/s. Indraprastha Builders (P) Ltd. Under the said agreement the three brothers were to retain 1/2 share of multi-storeyed building and Shri Satish Chand Jain was to retain the balance of 50%. The three brothers also entered into a second agreement on the same date with M/s. Indraprastha Builders (P) Ltd. As per the said agreement 1/2 portion of the structure to be constructed was to be given on lease @ Rs. 3 per sq. ft. per month for a period of 5 years with option to renew. Under the agreement each of the brothers was given an advance of Rs. 50,000 which was to remain interest free deposit with the lessees.
4. The construction of multi-storeyed building was carried till July, 1981. Completion certificate was granted by Municipal Corporation of Delhi on 3rd Aug., 1981. The three brothers let out on 26th Feb., 1983 1/2 share of the property on rent to Oriental Bank of Commerce on monthly rent of Rs. 80,277.27 i.e., @ Rs. 850 per sq. ft. M/s. Indraprastha Builders (P) Ltd. let out other 1/2 portion to the same bank vide agreement dt. 26th Feb., 1983 at fixed rent of Rs. 85,000 per month. The lease deeds dt. 26th Feb., 1983 are on proper stamp paper and are duly registered.
5. In returns for the assessment year under consideration, the three brothers showed rental income amount which was roughly 1/3rd of 50 per cent of total rental income which each of them was entitled to receive from the bank. The Assessing Officer did not accept this position and called upon the assessed to furnish evidence of transfer of half property to Shri S. C. Jain. The assesseds were further called upon to produce said Shri S. C. Jain in support of claim that entire investment was made by him. The assessed produced copies of agreement with Shri S. C. Jain, M/s. Indraprastha Builders (P) Ltd. and with Oriental Bank of Commerce, but did not produce Shri S. C. Jain before the Assessing Officer. The assessed relied upon a large number of decisions supporting the claim that piece of land may belong to one person and superstructure on such land to another. The Assessing Officer held that evidence was not led to show that entire investment in property was made by Shri S. C. Jain. She concluded that the three brothers, on facts and circumstances of the case were to be treated as the complete owner of the property and, therefore, entire rental income from bank as annual letting value was to be assessed in the hands of the three brothers in equal shares. Accordingly 1/3rd share of total rent amounting to Rs. 6,80,000 was added in the hands of each of the assessed. The addition and assessment was justified following the decision of Hon able Delhi High Court in the case of Sushil Ansal vs. CIT (1986) 160 ITR 308 (Del) and of Supreme Court in the case of Late Nawab Sir Mir Osman Ali Khan vs. CWT (1986) 28 Taxman 641 (SC).
6. The assessed challenged the above addition in appeal before the CIT(A) and filed copies of two agreements dt. 10th May, 1980 entered with Shri S. C. Jain and M/s. Indraprastha Builders (P) Ltd. The assessed further filed copies of agreements with Oriental Bank of Commerce entered by M/s. Indraprastha Builders (P) Ltd. and three brothers. The assessed mainly relied upon agreements with the banks. Under the above agreement, each of the assessed was individually entitled to receive roughly 1/6 of total rent. It was claimed that above amount alone could be assessed in the hands of the assessed. Alternatively, it was pleaded that if whole rent is to be assessed in the hands of three brothers proper deduction of sum of Rs. 10,200 which was annually charged over the property he allowed under S. 24(1) (iv) or 24(1) (vi) of IT Act, 1961. It was further contended that Shri S. C. Jain should have been summoned and compelled to appear before the Assessing Officer to depose regarding investment. The observations of Assessing Officer regarding investment were also assailed before the CIT(A).
7. The learned CIT(A) perused various agreements between assesseds and Shri S. C. Jain, M/s. Indraprastha Builders (P) Ltd. and the bank. He was of the view that no comments were called for on the question of investment. He observed that the first agreement with Shri J. C. Jain was implemented only in part because 1/2 of the property has not, in fact, been transferred to Shri Jain. This portion was let out by M/s. Indraprastha Builders (P) Ltd. and this fact was clear from their return wherein 50 per cent of return was shown. On consideration of second and third agreement, the learned CIT(A) held that only 50 per cent of the constructed area was let out by the three brothers to the bank. The other 50 per cent was let out to M/s. Indraprastha Builders (P) Ltd. at Rs. 3 per sq. ft. and the said company in turn leased it out to the bank at the rate of Rs. 85,000 per month. The learned CIT(A) then referred to Ss. 22 to 27 of IT Act, 1961 and to decisions in case of R. B. Jodha Mal Kuthiala vs. CIT (1971) 82 ITR 570 (SC), Nawab Sir Mir Osman Ali Khan (supra), CIT vs. Sawhney Steel and Press Works (P) Ltd. (1987) 168 ITR 811 (AP), Sushil Ansal vs. CIT (supra). The learned CIT(A) held that two decisions relied upon by the Assessing Officer to assess the whole rental income in the hands of the assessed co-owners were not applicable when admittedly M/s. Indraprastha Builders (P) Ltd. were in the enjoyment of 50 per cent of the property in their own rights and were assessed to tax on above income. Alternatively, the learned CIT(A) held that only real income was to be assessed in the hands of the assessed. The real income in the CIT(A)s view was the income actually received by the assessed from M/s. Oriental Bank of Commerce on the basis of leases deed dt. 26th Feb., 1983. The assesseds were further held to be entitled to receive rent from M/s. Indraprastha Builders (P) Ltd. in terms of second agreement @ Rs. 3 per sq. ft. in respect of 50 per cent of the property. Even if rent was not actually received from M/s. Indraprastha Builders (P) Ltd. the rental income had accrued and was assessable on the basis of right to receive. The rent paid by bank and assessed in the hands of M/s. Indraprastha Builders (P) Ltd. could not be treated as income of the assessed. For arriving at the above conclusion, the CIT(A) relied upon and derived support from the decisions of Supreme Court in the case of State Bank of Travancore vs. CIT (1986) 158 ITR 102 (SC), Rajasthan High Court in the case of Smt. Savita Mohan Nagpal vs. CIT (1985) 154 ITR 449 (Raj) and of Calcutta High Court in the case of Park Hotel (P) Ltd. vs. CIT 1987 Taxation 84(3) 295 (Cal). The learned CIT(A) accordingly held that assesseds were liable to be assessed only on income actually received by them from bank plus share income on account of lease of 50 per cent of building to M/s. Indraprastha Builders (P) Ltd. The Revenue is aggrieved by the finding that only 50 per cent of rent from bank is assessable in the hands of the assesseds. In the cross objections the assesseds have objected to addition of rental income @ Rs. 3 per sq. ft.
8. Shri Nautiyal, learned Departmental Representative strongly assailed conclusion of the learned CIT(A) before us. He emphasised that Shri S. C. Jain was not produced before the Assessing Officer to explain investments in the superstructure. The agreement with Shri S. C. Jain was unregistered and was invalid under S. 107 of the Transfer of Property Act and could not make Shri Jain or M/s. Indraprastha Builders (P) Ltd. the lessee or sub-lessee of the building, without registered document, no right, title or interest could pass to Shri Jain or to M/s. Indraprastha Builders (P) Ltd. As a necessary corollary, the three brothers continued to be the owner of property. The entire letting value, therefore, was to be assessed in the hands of three brothers. Shri Daljit Singh, the learned counsel of the assessed, on the other hand, supported the impugned order of learned CIT(A). It was emphasised that only real income which the three brothers were entitled to receive from bank could be assessed. Learned counsel relied upon the lease agreements with the bank which were registered documents. He submitted that infirmities, it any, in the earlier registered documents were cured by the later agreements which superseded the earlier agreements and only rent actually received was assessable in the hands of the assessed. The assessment of rental income from M/s. Indraprastha Builders (P) Ltd. @ Rs. 3 per sq. ft. was opposed on the ground that no rent was actually paid by that concern and litigation for recovery of rent was pending. Alternatively, deduction of unpaid rent was claimed under S. 24(1) (x) of IT Act.
9. We have given careful thought to the rival submissions of the parties and considered the material brought on record. The Assessing Officer and learned CIT(A) took divergent view regarding assessability of 50 per cent of rental income. The basis given by each of the authority has been noted earlier and need not be repeated. Both the authorities justified their approach on certain decisions and, therefore, it is necessary to refer to decisions relied upon and considered by the lower authorities. We will start with the case of Sushil Ansal (supra).
10. In the case of Sushil Ansal (supra) the assessed had acquired three flats in building from Ansal & Sehgal (P) Ltd. (in short, the Company) who constructed multi-storeyed building on a piece of land under an agreement with the original lessee from the Government. The assessed had paid full price and had let out the flats to different tenants. The assessed was deriving income from said flats. The Assessing Officer assessed income of flats under the head “other sources” on the ground that assessed was not owner of the flats in the absence of registered transfer deed in his favor. The aforesaid view of the assessing Officer was confirmed in reference by the High Court. It was held that tax under that head “income from house property” is in respect of ownership of property and not the occupation, possession or other rights over the house property. The Court, however, made pertinent observation with reference to decision of Supreme Court in the case of R. B. Jodha Mal Kuthiala vs. CIT (supra). It observed that the aforesaid decision would help the original owners of flats i.e., company to contend that income from properties cannot be assessed in their hands merely because regular sale deeds were not executed by it in favor of purchasers like the assessed. The decision of the Supreme Court, it is observed, would be “complete answer to an attempt to assess the company.”
11. In the case of Nawab Mir Usman Ali Khan vs. CWT (supra) the Supreme Court was concerned with the question of liability of wealth-tax of certain properties belonging to late Nizam of Hyderabad. The Court considered the question as to what was the real import of expression “asset belonging to the assessed” in S. 2(m) of the WT Act, 1957. The Court held that under the above expression “assets” (immovable property) unless transferred or conveyed through registered deed would continue to being to the legal owner and would be assessable in his hands despite the fact that somebody else was equitable owner. In the decision it is specifically observed that the Court was not concerned with the term “owner” used in S. 22 of the IT Act, 1961 with which we are concerned. The Court specifically held as under :
“In the instant case, we have noticed, the position is different. We are not concerned with the expression owner. We are concerned whether the assets, in the facts and circumstances, belonged to the assessed any more.”
In the case of State Bank of Travancore vs. CIT (supra), the Supreme Court was concerned with the question of accrual of interest income on sticky advances which was credited to interest suspense account and not to interest account on the ground that advances itself had become extremely doubtful of recovery. The majority view did not agree that interest income did not accrue and was not taxable on the basis of real income theory. The majority as per headnote of the reported decision laid down the following propositions on real income theory :
(1) It is the income which has really accrued or arisen to the assessed that is taxable. Whether the income has really accrued or arisen to the assessed must be judged in the light of the reality of the situation.
(2) The concept of real income would apply where there has been a surrender of income which in theory may have accrued by in the reality of the situation, no income had resulted because the income did not really accrue.
(3) Where a debt has become bad, deduction in compliances with the provisions of the Act should be claimed and allowed.
(4) Where the Act applies, the concept of real income should not be read as to defeat the provisions of the Act.
(5) If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessed.
(6) The conduct of the parties in treating the income in a particular manner is material evidence of the fact whether income has accrued or not.
(7) Mere improbability of recovery, where the conduct of the assessed is unequivocal, cannot be treated as evidence of the fact that income has not resulted or accrued to the assessed. After debiting the debtors account and not reversing that entry – but taking the interest merely to a suspense account cannot be such evidence to show that no real income has accrued to the assessed or has been treated as such by the assessed.
(8) The concept of real income is certainly applicable in judging whether there has been income or not but, in every case, it must be applied with care and within well-recognised limits.
12. In the case of Smt. Savita Mohan Nagpal vs. CIT (supra), the assessed was owner of the property. She entered into an agreement with her son to make further construction and given him 1/2 share of the income. The property jointly constructed was let out and lease deed was executed jointly in the name of assessed and her son. The case of the Revenue was that agreement with son relating in immovable property not being a registered to document did not transfer any interest to the son and, therefore, assessed continued to be sole owner of the entire property. The High Court, however, held that as per agreement dt. 5th Nov., 1964 assesseds son Nitin Mohan was entitled to 50 per cent of net income of building. He thus had an overriding interest which may not be in the nature of a charge on the property yet the same constituted an obligation created by a paramount title. In view of the agreement 50 per cent of the net income was diverted by an overriding or superior title to son Nitin Mohan and same would not constitute the income of the assessed.
13. In the case of Park Hotels (P) Ltd. vs. CIT (supra) the assessed-company held on lease certain premises. It executed a sub-lease in favor of M/s. Surendra Overseas Ltd. under which the latter company paid premium to the assessed and rent to Rs. 15,000 per annum in respect of a multi-storeyed building built on portion under sub-lease. The said multi-storeyed building was let out to various tenants on rent by M/s. Surendra Overseas Ltd. The lease in favor of M/s. Surendra Overseas Ltd. was unregistered. The ITO held that no property or interest passed under the sub-lease and, therefore, entire income of property on national basis was assessable in the hands of the assessed as income from house property. The High Court on reference observed that income received from subletting by M/s. Surendra Overseas Ltd. never reached the hands of the assessed. The Court held that the income of the assessed from letting activity was assessable as “business” and not under the head “house property” as assessed was not owner of the property but only a lessee. There was thus no scope to assess any national income arising from the business. The Court, therefore, held that income collected by M/s. Surendra Overseas Ltd. could not be assessed in the hands of the assessed.
14. Each of the aforesaid cases was decided on peculiar facts of the case. As noted by the Hon able Delhi High Court in the case of Sushil Ansal (supra) there is a conflict of view on the issue regarding taxability of income from house property where legal ownership of the assessed is not strictly complete. The Assessing Officer treated three brothers as complete owner of the property and thereby added the entire rental income in their hands. It is admitted position that assesseds are lessees of plot from Government of India. Their case that as per agreements dt. 10th May, 1980 with Shri S. C. Jain and M/s. Indraprastha Builders (P) Ltd. they were owner only of 50 per cent of the building was rejected by the Assessing Officer as agreements were not properly stamped and registered. It was accordingly held that no right or interest was transferred to Shri Jain or to M/s. Indraprastha Builders (P) Ltd. The aforesaid agreements have not been made available to us by the parties and we are unable to make any comment on the terms or validity of the said agreements. But, it is an uncontroverter position that agreements are improperly stamped and are unregistered. In view of S. 17 of Registration Act and Stamp Act these agreements could not create any right, title or interest in the land. Under S. 107 of the Transfer of Property Act a lease of immovable property for a period exceeding one year can only be created through a registered instrument; these agreements could not create any lease in favor of Shri Jain or M/s. Indraprastha Builders (P) Ltd. It, therefore, follows as a necessary corollary that there brothers continued to be owners (long lessees) of plot without parting with any interest. Shri Jain or M/s. Indraprastha Builders (P) Ltd. did not become lessee or sublessee of the land. Learned counsel for the assessed referred to S. 53A of the Transfer of Property Act but as per the settled law doctrine of part performance embodied in the above section has limited application and can be used only as a good defense to protect possession. It cannot create right, title or interest in immovable property. We, therefore, agree with the Assessing Officer that three brothers did not part with any interest in land to Shri Jain or to M/s. Indraprastha Builder (P) Ltd.
The dispute before us relates to income derived from building and not from land. It was, therefore, necessary to address to the question as to who was the owner of the multi-storeyed construction let out to the bank. The Assessing Officer on the basis of authority of Sushil Ansal (supra) treated the three brothers as owner of the superstructure also. He applied the rule that whatever is fastened to the land goes with the ownership of the land. In other words, ownership of superstructure must follow ownership of land over which it is built. But this rule which is applicable in England is not applicable in India. The rule in India in this respect is different and here a person may build a superstructure on the land of another and remain owner of superstructure without being owner of land or any interest therein. A mere license or simple permission to construct over land is good enough. The permission or license to construct may be expressly given in writing or implied from act and conduct of the parties. Thus, Shri Jain or M/s. Indraprastha Builders (P) Ltd. could be the owner of superstructure without having lease or any other interest in the land. Our above view is support by decision of Madras High Court in the case of CIT vs. Madras Cricket Club (1934) 2 ITR 203 (Mad), the Bombay High Court in CIT vs. Fazal Bhoy Investment Co. Ltd. (1977) 109 ITR 802 (Bom) and Rajasthan High Court in the case of Saiffuddin vs. CIT (1985) 156 ITR 127 (Raj). The observation in the case of Sushil Ansal (supra) with reference to company M/s. Ansal & Sehgal (P) Ltd. who had constructed multi-storeyed building on a land belonging to somebody else and were held to be owner of the building by the Tribunal also supports our above view.
15. The question of ownership of superstructure depends upon question of investment in the superstructure. It also depends upon terms and conditions of agreement between the parties. The assesseds throughout contended that construction in question was made by Shri Jain or by M/s. Indraprastha Builders (P) Ltd., but as they failed to produce Shri Jain an inference was drawn that they constructed the superstructure. But, in our view, for non-production of Shri Jain, it could not follow that investment in the construction was made by the three brothers. The question of investment in the construction of superstructure was required to be decided on the relevant material. This, unfortunately was not done by the Assessing Officer. When this issue was taken in appeal, the learned CIT(A) disposed of the same with the following observation :
“At the outset it may be mentioned that though the ITO has observed that Shri Satish Chand Jain was not produced before her to establish that the investment in the construction of the property was made by him, she has not given any positive finding on the question of investment. In any case, the question of investment not being an issue in this appeal, no comments are called for.”
We have great difficulty in subscribing to the above view. The question of ownership of building could not be disposed of without considering question of investment in the superstructure as the person making investment in the superstructure is to be treated as owner of building. The assessment of income being under the head “house property”, it is imperative to determine question of ownership. The learned CIT(A) while deciding the appeal in favor of assesseds relied upon decision of Calcutta High Court in the case of Park Hotels (P) Ltd. (supra) and on the theory of real income. As already noted, the theory of real income has its limitation and cannot effect accrual of income or deemed income assessable on ownership basis under the statutory provisions. The case of Park Hotels (P) Ltd. (supra) has no application to the facts before us. In the said case Calcutta High Court held that rental income was not “business” income and there was no question of adding any national income under the above head. But, in the present case it is an undisputed position that income is to be assessed under the head “house property” and “business”. It is impossible to contend that national income be not assessed under the head “house property”. The questions that assesseds are owners only of 50 per cent share is different question. Thus, on facts of case, we are of the view that both the authorities below have not dealt with the relevant question of ownership of superstructure while disposing of the matter.
16. Learned counsel for the assessed placed strong reliance on the fact that three brothers let out only 50 per cent of share to the bank. The balance 50 per cent was let out by M/s. Indraprastha Builders (P) Ltd. and the said concern was actually Realizing 50 per cent of the total rent. But, this fact, in our view, does not advance the case of the assessed. The letting out to bank would only show possession of M/s. Indraprastha Builders (P) Ltd. but no inference of ownership can be drawn. As observed in the case of Sushil Ansal (supra) “tax under the head “Income from house property” is in respect of ownership of the property and not the occupation, possession or other kind of rights over house property”. Thus, the question has to be determined with reference to ownership. It is further to be shown that M/s. Indraprastha Builders (P) Ltd. were competent to let out to bank 50 per cent share of building. After all, a transfer cannot confer a better title he possesses. The facts and agreements which gave rights to Shri Jain or to M/s. Indraprastha Builders (P). Ltd. to let out to the bank, have not been brought before us and, therefore, the relevant question cannot be finally determined. Therefore, in the above circumstances, we have no option but to set aside the order of learned CIT(A) and restore the matter to the file of the Assessing Officer for fresh determination of question in accordance with law and in the light of our observations made above.
17. In the cross-appeals, assessed has challenged the directions of CIT(A) to assess rental income from M/s. Indraprastha Builders (P) Ltd. @ Rs. 3 per sq. ft. per month. According to the CIT(A) the assesseds were entitled to receive the above rent from M/s. Indraprastha Builders (P) Ltd. in respect of 50 per cent share of the building. The learned CIT(A) while deleting addition of 50 per cent share of rent received from bank directed that this letting value be assessed in their hands. In cross-objections while challenging the aforesaid directions, the learned counsel for the assessed contended that no rent was, in fact, received by the assessed and, therefore, nothing can be assessed. In the alternative, it was claimed that deduction for the unrealised rent be allowed under S. 24(1) (x) of the IT Act. The objections raised by the assessed are to be determined with reference to agreements between the parties. For applying cl. (x) of S. 24(1) the question of satisfaction of conditions prescribed under r. 4 of IT Rules is to be considered. None of the lower authorities addressed themselves to aforesaid relevant questions. The relevant material is not available to us. This issue, in our view, is also linked with the main issue of ownership of property. In the circumstances, order of CIT(A) on this issue is also set aside and the matter is restored to the file of the Assessing Officer for fresh disposal in accordance with law.
18. In the result, all the appeals and cross abjections are allowed for statistical purposes.