COMMISSIONER OF INCOME-TAX vs. SARABHAI CHEMICALS PVT. LTD.

ITR/100/1988HC GujaratGJHC24013176198824 September 2001Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
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What did the High Court hold?

The High Court held that the Appellate Tribunal was correct in allowing the reduction of Rs. 2,69,194/- on account of property income. The Court's reasoning was based on the principle that property cannot be owned by two persons with independent and exclusive rights. For the purpose of Section 9 of the Income Tax Act, 1922, the owner is the person who can exercise the rights of ownership in their own right, not on behalf of another. Therefore, the liability to pay tax on property income rests with the person who receives or is entitled to receive the income in their own right. Applying the ratio of the Apex Court's decision in CIT vs. Podar Cement Pvt. Ltd. & Ors. and the Full Bench decision of their own court in CIT vs. Mormasji Mancharji Vaid, the Court found no infirmity in the Tribunal's order. The question was answered in the affirmative, in favour of the assessee.

What were the facts?

The assessee, Sarabhai Chemicals Pvt. Ltd., is in appeal against the order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 1979-80. The dispute concerns the assessment of property income. The assessee entered into an agreement for sale of its industrial undertaking and business on February 28, 1977, with Elscop Pvt. Ltd., and a deed of assignment was executed on June 28, 1977. Immovable properties, part of the undertaking, were transferred via a registered document on February 2, 1978. The Income Tax Officer (ITO) assessed proportionate property income of Rs. 6,69,194/- for the period July 1, 1977, to February 2, 1978, in the hands of the assessee, considering it the legal owner until registration. The CIT(Appeals) deleted this addition, and the ITAT confirmed the deletion.

What were the issues?

1. Whether the Appellate Tribunal is right in law in allowing reduction of Rs. 2,69,194/- on account of property income? (Question of law) Assessee's Contention: The judgment does not explicitly record the assessee's arguments. However, it implies the assessee contended that it had only technical or formal ownership of the immovable property after the sale agreement and assignment, with control and management vested with the vendee, thus precluding assessment of proportionate income in its hands. Revenue's Contention: The revenue contended that as the assessee was the legal owner of the property until conveyance was duly registered, proportionate property income should be assessed in its hands. The revenue relied on the fact that the ITO brought to tax Rs. 6,69,194/-, being the proportionate ALV for seven months.

Which sections of the Income-tax Act were involved?

Section 9

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 100 of 1988

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO ------------------

The order continues below.

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