House property ownership and receipt-based taxation depend on pending title disputes and cash-system accounting.

Where ownership of a building depended on a lease forfeiture and title dispute still pending in civil proceedings, the assessee could not be treated as owner for section 22 until the right became finally established; the house property addition was therefore not sustainable. Where the assessee maintained the cash system of accounting, rent or compensation from the sub-tenant was taxable only on receipt, whether described as rent or as damages for wrongful use and occupation; the receipt basis applied. Both issues were answered against the Revenue.

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Issues: (i) Whether the assessee could be treated as owner of the building and assessed to income from house property where the lease forfeiture and title dispute were pending in civil proceedings. (ii) Whether the rent or compensation payable by the sub-tenant was taxable only on receipt.

Issue (i): Whether the assessee could be treated as owner of the building and assessed to income from house property where the lease forfeiture and title dispute were pending in civil proceedings.

Analysis: The ownership claimed by the assessee depended on the validity and effect of the forfeiture, and those questions were still sub judice before the civil court. Until final adjudication, the assessee's right remained inchoate and uncertain. In such circumstances, and having regard to the court's power to grant relief against forfeiture, the assessee could not be regarded as having become owner of the building for the purpose of section 22.

Conclusion: The addition as income from house property was not sustainable and this issue was decided in favour of the assessee.

Issue (ii): Whether the rent or compensation payable by the sub-tenant was taxable only on receipt.

Analysis: The assessee followed the cash system of accounting for the lease receipts. Whether the amount was described as rent or as compensation for wrongful use and occupation, it was taxable in the year of receipt. The assessee had consistently disclosed the receipt basis in the relevant returns and assessments.

Conclusion: The amount was chargeable only on receipt and this issue was decided in favour of the assessee.

Final Conclusion: Both referred questions were answered against the Revenue, and the assessment addition was not upheld.

Ratio Decidendi: Where the very foundation of ownership depends on a forfeiture dispute pending judicial determination, the assessee cannot be assessed as owner under section 22 until the right becomes finally established; receipt-based taxation applies where the assessee follows the cash system and the amount is recoverable as rent or compensation.

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