Per K.P.T. Thangal, Vice President. - This Special Bench has been constituted by the Hon’ble President under section 255(3). The issue referred to the Bench for the assessment year 1990-91 is as under: —

"Whether right to occupy premises belonging to a co-operative housing society are taxable assets under section 40 of the Finance Act, 1983 in the case of a private limited company?"

2. The facts, leading to the dispute, briefly, are as under :

Assessee has filed its Return of Wealth on 9-5-1991 declaring a net wealth of Rs. 1,20,400. Assessee is a company. Assessing Officer noticed that the assessee-company has not offered the value of the flat at Sterling Bay Co-operative Housing Society Limited for wealth tax purpose. In response to notice under section 17 of the Wealth-tax Act, assessee filed the Return on 5-5-1994 declaring a net wealth of Rs. 1,20,373. Assessee made repeated contention that the flat is not includible in the net wealth of the assessee. This is because the land and building belonged to the society and not to the assessee since it is merely an occupier of the flat. Assessing Officer rejected the above contention. He held that assessee being member of a co-operative society, enjoys full power and transferable rights in the flat allotted to the assessee like any other member. Hence he held, flat is exigible to tax and Rs.47,33,745 was the acquisition value of the property as on 15-3-1990. Aggrieved by the above order, assessee approached the first appellate authority.

3. Before the CIT(A), assessee contended that the flat held by the assessee in the co-operative housing society is not an asset includible in the net wealth. Assessee relied upon the decisions in the case of Nowrosjee Wadia & Sons (P.) Ltd. [WT Appeal Nos. 1885, 2213 to 2215 (Bom.) of 1989 dated 19-3-1991] for the assessment years 1984-85 to 1986-87. Assessee also relied upon a connected case of an associate concern, M/s. Cyrus Investments Ltd. for the same proposition. CIT(A) held, even when a person is not the legal title holder of a property, but only acquires a right stated in section 4(7) and 4(8), for the purpose of wealth tax, such assessees are to be considered as owner. CIT(A) relied on the decision of the Hon’ble Supreme Court in the case of CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625¹ for the above proposition. He held, the Hon’ble Supreme Court, hopefully set at rest the position as to who should be considered as an owner for the purpose of tax liability. He also considered section 22 of the Income-tax Act, 1961. It reads as under :—

"22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions 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’."

4. CIT(A) placed further reliance on section 27 of the Income-tax Act, 1961, which defines ‘owner of house property’, ‘annual charge’, etc. for the purpose of sections 22 to 26. Reference also made to section 27(iii). It reads as under:—

"27. For the purposes of sections 22 to 26—

(i)and (ii)******

(iii)a member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof;"

5. After discussing the issue in the light of subsequent changes brought in by Finance Act, 1987, with effect from 1-4-1988, whereby section 27(iii) was amended to increase its scope and clauses (iiia) and (iiib) were inserted, CIT(A) came to the conclusion that the person who is entitled to exercise the right of an owner, viz., a person who has possession of the property and who is free to earn from it at his own free will, should be considered