1975 (12) TMI 31 - HC - Income Tax

Ownership dispute: Court rules income from flats not assessable under tax law

The court ruled that the assessee-company was not the owner of the building and flats constructed on its land, as ownership initially resided with the ... Burden Of Proof Issues Involved:1. Ownership of the building and flats.2. Applicability of section 9 of the Indian Income-tax Act, 1922.3. Legal implications of the consent decree and leases executed by flat-owners.Summary:1. Ownership of the Building and Flats:The primary issue was whether the assessee-company was the owner of the building and flats constructed on its land at Khedgalli, Bombay. The court examined the terms of the licence granted to D. C. Gandhi and H. K. Rohra, the consent decree, and the leases executed by the flat-owners. It was determined that the assessee-company was at all times the owner of the land but not initially the owner of the flats or the building. The building was constructed by Jai Bharat Construction Corporation with contributions from the 44 flat-owners, who went into possession of their respective flats upon completion. The court concluded that the assessee-company did not acquire ownership of the building through the licence, the consent decree, or the leases executed by the flat-owners.2. Applicability of Section 9 of the Indian Income-tax Act, 1922:The Income-tax Officer sought to assess the income received by the assessee-company from the 44 flat-owners u/s 9 of the Indian Income-tax Act, 1922, on the basis that the assessee-company was the owner of the flats. The Appellate Assistant Commissioner and the Tribunal both held that the assessee-company was not the owner of the flats and that the income was taxable u/s 12 of the Act. The court upheld this view, stating that the revenue failed to prove that the assessee-company was the owner of the building, and thus, the income could not be assessed u/s 9.3. Legal Implications of the Consent Decree and Leases Executed by Flat-Owners:The court examined whether the title to the building had subsequently vested in the assessee-company through the consent decree or the leases executed by the flat-owners. It was determined that the consent decree, being unregistered, could not convey title to the building. The leases executed by the flat-owners only created an estoppel against them from disputing the assessee-company's title but did not confer ownership to the assessee-company. The court also rejected the revenue's contention that the assessee-company became the owner by operation of law u/s 108(h) of the Transfer of Property Act, as this section applies to leases and not licences, and the building was constructed with the flat-owners' funds.Conclusion:The court answered the question in the negative, ruling that the income from the Khedgalli property was not assessable to tax u/s 9 of the Indian Income-tax Act, 1922. The Commissioner was directed to pay the assessee's costs of the reference.