Legal ownership controls property income tax where an unregistered gift to a trust does not pass title.

An unregistered agreement of gift purporting to transfer immovable property to an existing trust did not divest the transferor of title, because a completed inter vivos transfer requires compliance with the Transfer of Property Act and the Registration Act. The document itself contemplated a later registered gift deed, showing that no final transfer had been completed. On that basis, income from the properties remained taxable in the hands of the legal owner, and Indian law does not recognise beneficial ownership for this purpose. The plea that income had been diverted by overriding title was rejected because ownership continued with the transferor until execution of the registered deed.

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Issues: Whether the income from immovable properties said to have been transferred to an existing trust by an unregistered agreement of gift could be excluded from the assessee's assessable income for the assessment year in question.

Analysis: The agreement of gift itself contemplated execution and registration of a formal gift deed at a later stage after stamp-duty exemption was obtained, showing that the parties did not treat the document as a completed transfer. Where immovable property is transferred inter vivos to trustees of an existing trust, the transfer must satisfy the requirements of the Transfer of Property Act and the Registration Act. Even if the document is treated as evidencing the transaction, want of registration prevents title from passing. The court also held that Indian law does not recognise beneficial ownership for this purpose: income from house property is taxable in the hands of the legal owner, irrespective of who actually receives the rent or enjoys the income. The plea of diversion of income by overriding title was rejected because the assessee remained the owner until the registered gift deed was executed.

Conclusion: The income from the properties was rightly assessed in the hands of the assessee; the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: For assessment under the head income from property, tax liability attaches to the legal owner, and an unregistered instrument cannot pass title in immovable property to an existing trust so as to shift the income away from the transferor.

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