2009 (2) TMI 14 - HC - Income Tax

Ownership in Income Tax: Exclusion Key Factor

The High Court addressed the issue of ownership concerning property transfers for income tax assessment purposes, emphasizing the right to exclude others ... Whether ITAT erred in holding that the property would stand transferred only w.e.f. the date of registration of Deeds of Conveyance of flats - SC in the case of Podar Cement held that there is no requirement that there has to be a registered Deed of conveyance for a person to be treated as an owner for the purpose of Section 22 of IT Act - since relevant sale documents are not available, matter is remanded to tribunal to answer the issue in context of the law laid down in Poddar Cement case Issues:1. Interpretation of ownership for income tax purposes in relation to property transfer.Detailed Analysis:Issue 1: Interpretation of ownership for income tax purposes in relation to property transfer.The judgment of the High Court addressed the issue of ownership concerning property transfers for income tax assessment purposes. The case involved the assessment years 1976-77, 1977-78, 1978-79, 1979-80, 1980-81, 1979-80, 1984-85, and 1985-86. The primary question before the court was whether the Appellate Tribunal erred in holding that the property would be considered transferred only upon registration of the Deeds of Conveyance of flats. The court examined the concept of ownership under the Income Tax Act, specifically focusing on Section 22 of the Act of 1963. Reference was made to the Supreme Court judgment in Commissioner of Income Tax Vs. Podar Cement Pvt. Ltd. 226 ITR 625, which emphasized the importance of the right to exclude others as a key element of ownership.The court further discussed the case of Podar Cement, where the Supreme Court clarified that ownership, for the purpose of income tax assessment, does not necessarily require a registered Deed of conveyance. The court highlighted that the key factor is whether the person in possession can exclude others from the property. The judgment emphasized that the objective of the Income Tax Act is to tax income, and ownership, in this context, refers to a person entitled to receive income from the property in their own right. The court also addressed the amendment to Section 27 of the Act by the Finance Act, 1987, stating that it was declaratory/clarificatory in nature and had retrospective operation.Based on the legal principles established in the Podar Cement case, the High Court analyzed the facts of the current case. It was noted that although the flats were sold and possession was transferred to buyers, the Assessing Officer assessed rental income in the hands of the assessee due to the lack of registration of conveyance deeds. The court concluded that the assessee should not be considered the owner based on the principles laid down by the Supreme Court. However, as the relevant sale documents were not available, the court decided to remand the matter back to the tribunal for further assessment in line with the legal precedents discussed in the judgment.In conclusion, the court answered the question referred in the affirmative in favor of the assessee and against the revenue, emphasizing the importance of understanding ownership in the context of income tax assessment without strict reliance on registered conveyance deeds.