Taxable owner principle: substance over form determines property income liability, so reduction allowed where transferee had practical entitlement.

For taxation of property income the operative test is beneficial ownership and practical entitlement: the taxable owner is the person who, in substance, can exercise ownership rights and is entitled to receive income, not merely the legal title-holder. Applying that principle, control and management of the industrial undertaking and immovable properties had vested in the transferee under pre-assessment sale and assignment agreements, leaving the transferor with only formal title and no real entitlement to property income for the year. Consequently, the Tribunal correctly allowed the reduction of the stated property income amount in favour of the assessee.

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Issues: Whether the Appellate Tribunal was right in law in allowing reduction of Rs.2,69,194 on account of property income for the assessment year 1979-80.

Analysis: The decision applies the legal principle that for the purpose of taxation of property income under Section 9 of the Income-tax Act, 1922, the relevant owner is the person who can exercise the rights of ownership in his own right and who receives or is entitled to receive the income in his own right. Prior authoritative decisions establish that a property cannot be treated as owned by two persons each having independent and exclusive rights; the person who has the practical and legal entitlement to receive income bears the tax liability.

Analysis: On the facts, although formal legal title remained with the assessee until registration, control and management of the industrial undertaking and the immovable properties vested in the vendee pursuant to sale and assignment agreements executed prior to the assessment period. Consequently, the assessee retained only technical or formal ownership without the real entitlement to receive property income for the relevant period.

Conclusion: The Tribunal's allowance of reduction of Rs.2,69,194 on account of property income is correct; the question is answered in favour of the assessee and against the Revenue.

Ratio Decidendi: For taxation of property income under Section 9 of the Income-tax Act, 1922, the taxable owner is the person who, in substance, has the right to receive income in his own right and can exercise ownership rights, not merely the person with formal title.

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