Notional income from shareholder occupancy of company flat cannot be shifted to other sources on an unsupported free-benefit assumption.

Occupancy of a company-allotted flat by a shareholder was treated as linked to the shareholder's investment, not as a free benefit giving rise to notional income from property or to assessment under the residuary head. The Bombay HC accepted the Tribunal's view that the Commissioner had proceeded on an unsupported assumption of free use, and therefore could not recharacterise the amount under section 12 as income from other sources. The reference was answered in favour of the assessee, and the assessment under the property head was restored.

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Issues: Whether the notional income attributable to the assessee's occupation of the flat was assessable as income from property under section 9 of the Indian Income-tax Act, 1922, and whether the Commissioner could invoke section 33B to assess it under the head "Other sources".

Analysis: The assessee occupied the flat as a shareholder of the company that had allotted it to him, and the occupancy was linked to his investment in the company rather than any free benefit. The Commissioner proceeded on the erroneous premise that the assessee was enjoying free use of the flat and on that basis brought the income under the residuary head. That assumption was not supported by the facts. The Tribunal was justified in rejecting the attempt to assess the amount under section 12 and in restoring the assessment under the head "Property".

Conclusion: The reference was answered in favour of the assessee, and the Tribunal's order setting aside the Commissioner's order was upheld.

Final Conclusion: The disputed amount could not be shifted to "Other sources" on the footing of free use of the flat, and the assessee succeeded in the reference.

Ratio Decidendi: A tax authority cannot recharacterise a receipt under the residuary head on an assumption of free benefit where the assessee's occupation of property is supported by consideration traceable to his investment and the factual basis for the jurisdictional action is or unsupported.

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