IMPORTANT POINT
In the context of Section 22 of the Income Tax Act, 1961, ‘owner’ is a person who is entitled to receive income from the property in his own right and even in the absence of a registered deed conveying the property, the person in possession/enjoyment of the property can be considered as legal owner and he can be called upon to pay the tax u/s 22 of the Act.

Headnote:Taxation—Income Tax Act, 1961—Sections 22, 27 and 56—Income from house property—Definition of ‘owner of house property’—In context of Section 22, ‘owner’ is a person who is entitled to receive income from the property in his own right—Promoters/contractors after parting with possession on receipt of full consideration thereby enabling ‘purchasers’ to enjoy property—No registered document as required u/s 54 of Transfer of Property Act executed—Purchasers can be ‘owners’ for purpose of Section 22 of the Act—Amendment introduced by Finance Bill, 1988 was declaratory/clarificatory in nature so far as it relates to Section 27(iii), (iiia) and (iiib)—These provisions are retrospective in operation—Jodha Mal’s case, 82 ITR 570 (SC) : Relied on.
       Held that under the common law owner means a person who has got 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. (Para 40)
       The law laid down by this Court in Jodha Mal’s case, according to us, has been rightly understood by the High Courts of Punjab and Haryana, Patna, Rajasthan, etc. The requirement of registration of the sale-deed in the context of the Section 22 is not warranted. (Para 30)
       Further held : Assuming that there are two possible interpretations on Section 22 of the Act, which is akin to a charging Section, it is well settled, that the one which is favourable to the assessee has to be preferred. Even on that principle the view taken by the High Courts of Patna, Punjab and Haryana, etc. has to be preferred rather than the contrary view taken by the High Courts of Delhi and Andhra Pradesh. (Para 32)
       The view expressed supra by us is strengthened/supported by a subsequent amendment to Section 27 of the Act. The said amendment was introduced to Section 27 of the Act by the Finance Act, 1987 by substituting clauses (iii), (iiia) and (iiib) in the place of old clause (iii) w.e.f. 1.4.88. (Para 35)
       From the circumstances narrated above and from the Memorandum explaining the Finance Bill, 1987 (supra), it is crystal clear that the amendment was intended to supply an obvious omission or to clear up doubts as to the meaning of the word “owner” in Section 22 of the Act. We do not think that in the light of the clear exposition of the position of a declaratory/clarificatory Act it is necessary to multiply the authorities on this point. We have, therefore, no hesitation to hold that the amendment introduced by the Finance Bill, 1988 was declaratory/clarificatory in nature so far as it relates to Section 27(iii), (iiia) and (iiib). Consequently, these provisions are retrospective in operation. If so, the view taken by the High Courts of Patna, Rajasthan, and Calcutta, as noticed above, gets added support and consequently the contrary view taken by the Delhi, Bombay and Andhra Pradesh High Courts is not good law. (Para 39)
       (ii) Statutory Interpretations Declaratory Acts—Amendment introduced by Finance Bill, 1988 was declaratory/clarificatory in nature so far as it relates to Section 27(iii), (iiia), and (iiib) of Income Tax Act, 1961. (Paras 38 & 39)

JUDGMENT

K. Venkataswami, J.—In all these cases the scope of Section 22 of the Income Tax Act, 1961 (hereinafter called the ‘Act’) arises for consideration.

2. Brief facts are necessary to appreciate the question that arises for our consideration.

The respondent in Tax Reference Case Nos. 9-10/86 is a company and an assessee under the Act (hereinafter called the ‘assessee’). It owns four flats bearing Nos. 231, 232, 241 and 242 in a building called as “Silver Arch” on Nepeansea Road, Bombay. The builders of the said building are M/s. Malabar Industries Pvt. Ltd. Out of the four aforesaid 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. It is common ground that all these flats have been let out to various persons. The rental income from these flats was included in the Return for the assessment years in question, namely, 1975-76 and 1976-77. It was the case of the assessee that the rental income from the flats was assessable as ‘income from other sources’ under Section 56 of the Act inasmuch as the assessee-company was not the ‘legal owner’ of the property in the flats. Such a claim was put forward before the Assessing Officer mainly on the ground that the title to the property (four flats) had not been conveyed to the Co-operative Society which was formed by the purchasers of the flats and that so long as the ownership was not transferred in the name of the ownership was not transferred in the name of the assessee the rental income from the flats could not be assessed as ‘income from house property’ (under Section 22 of the Act).

3. One other subsidiary question was also raised by the assessee that the rental income should be calculated on the bonafide annual value and not the actual rent received. As a matter of fact, the assessee has shown Rs. 49,800 as chargeable rent. The Income Tax Officer, however, has taken the annual letting value of those flats at Rs.1,31,268/- on the basis of rent receivable in respect of flats from an adjoining building. The Income Tax Officer also rejected the claim of the assessee that the income from the flats should be assessed under Section 56 of the Act.

4. Aggrieved by the orders of the Income Tax Officer, the assessee preferred appeals to the Commissioner of Income Tax (Appeals), who by an order dated 9.4.81 upheld in toto the views as stated above by the Income Tax Officer. After receiving the orders from the appellate authority, the assessee filed Miscellaneous Applications dated 14.9.81 before the appellate authority purporting to be under Section 154 of the Act. It was contended before the appellate authority that in view of the decision of this Court in Diwan Daulat Rai Kapur v. New Delhi Municipal Committee1, the authorities were bound to take the annual letting value of those flats on the basis of standard rent chargeable and in any case not on the basis of the actual rent receivable with regard to some other flats. The appellate authority accepted the assessee’s Miscellaneous Applications by Order dated 17.3.82 and rectified its earlier order dated 9.4.81. Still not satisfied with the appellate order, the assessee preferred two appeals against the order of the appellate authority contending that the income from the four flats should have been assessed upon Section 56 of the Act and not under Section 22. The Revenue preferred two appeals against the rectification order dated 17.3.82.

5. Those four appeals were considered by the Income Tax Appellate Tribunal, (Bombay Bench “A”), Bombay, and the Tribunal by a common order dated 8.5.86 purporting to follow several decisions of the Bombay High Court accepted the case of the assessee and held that the income from the flats could not be taxed as ‘income from house property’ under Section 22, but should be taxed as ‘income fro

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1997 Supreme(SC) 876

Cases Referred (6)