THE COMMISSIONER OF INCOME-TAX BOMBAY ETC vs. M/S PODAR CEMENT PVT.LTD.

CIVIL APPEAL No. 9/1986Supreme Court1997 INSC 51527 May 1997Bench: 3 JudgesAuthor: K.S. PARIPOORNAN, K. VENKATASWAMI, B.N. KIRPAL32 pages
AI SummaryAllowed

What were the facts?

The assessee, Podar Cement Pvt. Ltd., owned four flats in Bombay. The company purchased two flats directly from the builders, M/s Malabar Industries Pvt. Ltd., and the other two were acquired from a sister concern. Possession was taken in August 1973 after full payment. The flats were let out, and the rental income was offered for assessment for assessment years 1975-76 and 1976-77. The assessee contended that the rental income should be taxed under Section 56 ('income from other sources') as they were not the 'legal owner' due to the title not being conveyed to the co-operative society formed by purchasers. The Assessing Officer and Commissioner (Appeals) rejected this, assessing the income under Section 22 ('income from house property'). The Income Tax Appellate Tribunal, following Bombay High Court decisions, ruled in favour of the assessee, holding the income taxable under Section 56. The Revenue appealed this decision.

What did the Supreme Court hold?

The Supreme Court, allowing the appeal, held that for the purpose of Section 22 of the Income Tax Act, 'owner' is a person entitled to receive income from the property in their own right, considering ground realities and the object of taxing income. This interpretation extends to promoters/contractors who have parted with possession upon receiving full consideration, enabling purchasers to enjoy the fruits of the property, even without a registered document. The Court found that the amendment introduced by the Finance Bill, 1988, concerning Section 27(iii), (iiia), and (iiib), was declaratory and clarificatory in nature, making it retrospective. Consequently, the provisions were held to be retrospective in operation. The Court overruled the contrary view taken by the Delhi, Bombay, and Andhra Pradesh High Courts, approving the view of the Patna, Rajasthan, and Calcutta High Courts. The question referred to the Court was answered in the negative, in favour of the Revenue. The Court did not explicitly address the subsidiary question regarding the basis of rental income computation (bonafide annual value vs. actual rent received).

What were the issues?

1. Whether the rental income from the four flats owned by the assessee is taxable as 'income from house property' under Section 22 of the Income Tax Act, 1961, or as 'income from other sources' under Section 56, given that the legal title to the property had not been formally conveyed to the assessee. Assessee's contention: The assessee argued that since the legal title had not been conveyed to them, they were not the 'legal owner' for the purpose of Section 22. Therefore, the rental income should be assessed under Section 56. They relied on decisions of various High Courts, including the Bombay High Court, which held that for income to be taxed under Section 22, the assessee must be the legal owner. Revenue's contention: The Revenue contended that the assessee, having taken possession and being entitled to receive income from the property in their own right, should be considered the 'owner' for the purpose of Section 22. They likely argued that the intention of the Income Tax Act is to tax income, and the definition of 'owner' should be interpreted broadly to achieve this object, especially considering the ground realities.

Which sections of the Income-tax Act were involved?

Section 22,Section 56,Section 27(iii),Section 27(iiia),Section 27(iiib)

AI-generated summary — verify with the full judgment below

C.I.T. BOMBA Yv. PODAR CEMENT PVT.LTD. 395 promoters u/s 22 of the Act and the owners of the Oats being in beneficial •A enjoyment of the respective properties will have to pay tax u/s 56 of the Act.

The respondents submitted that the owner, the person who in his own right can use the house property or derive income from it, has to be taxed under the head 'income from house property' and that income from B house property cannot be taxed doubly once in the hands of the legal owner u/s 22 and again in the hands of actual user and recipient of income u/s 56 of the Act as permitting such assessment would be opposed to equity and justice which is not normally allowed by the Courts.

Allowing the appeal, this Court c HELD : I.I. Under the common law 'owner' means a person who has got valid title legally conveyed to him after complying with the require- ments or 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 D ground realities and further having regard to the object of the Income-Tax Act, namely, 'to tax the income', 'owner', is a person who is entitled to recei,ve income from the pr

The order continues below.

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