1997 (5) TMI 2 - SC - Income Tax

Section 22: 'Owner' means person entitled to receive income; flat and parking income taxable as house property

Commissioner of Income-Tax Versus Podar Cement Pvt. Limited And Others

SC held that for section 22 'owner' means a person entitled to receive income from the property in his own right. The 1987 Finance Bill amendment was ... Scope of Section 22 - concept of 'ownership' - assessee-company not the 'legal owner' of the property in the flats - Whether Tribunal was justified in law in holding that the income derived by the assessee-company from flats from the building known as ' Silver Arch ' of Bombay is taxable under the head ' Income from other sources ' u/s 56 and not income from ' house property ' u/s 22 - Tribunal, found that the assessee is the owner of the flats as well as the parking space in question. Tribunal rejected an application for reference under section 256(1) and the High Court also rejected the reference under section 256(2). Held That:- The controversy revolves around the meaning to be given to the word ' of which the assessee is the owner' occurring in section 22 of the Act. We may point out that section 9(1) of the old Act was substantially the same as section 22 of the new Act. We may also state that the whole of section 9 of the old Act has been split up and redrafted into several separate sections, namely, sections 22 to 27 under the new Act. Section 22 of the Income-tax Act has created a charge on the income in respect of annual value of the property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax under the head ' Income from house property '. from the Memorandum explaining the Finance Bill, 1987, it is crystal clear that the amendment was intended to supply an obvious omission or to clear up doubts as to the meaning of the word ' owner ' in section 22 of the Act. We do not think that in the light of the clear exposition of the position of a declaratory/clarificatory Act, it is necessary to multiply the authorities on this point. We have, therefore, no hesitation to hold that the amendment introduced by the Finance Bill, 1987, was declaratory/clarificatory in nature so far as it relates to section 27(iii), (iiia) and (iiib). Consequently, these provisions are retrospective in operation. If so, the view taken by the High Courts of Patna, Rajasthan, and Calcutta, as noticed above, gets added support and consequently the contrary view taken by the Delhi, Bombay and Andhra Pradesh High Courts is not good law. We are conscious of the settled position that under the common law, ' owner ' means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, Registration Act, etc. But, in the context of section 22 of the Income-tax Act, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, ' to tax the income ', we are of the view, ' owner ' is a person who is entitled to receive income from the property in his own right. Issues Involved:1. Scope of Section 22 of the Income-tax Act, 1961.2. Whether rental income from flats should be assessed as 'income from other sources' under Section 56 or 'income from house property' under Section 22.3. Determination of 'owner' under Section 22.4. Impact of the amendment to Section 27 by the Finance Act, 1987.Issue-wise Detailed Analysis:1. Scope of Section 22 of the Income-tax Act, 1961:The primary issue in all cases revolves around the interpretation of Section 22 of the Income-tax Act, which deals with the taxation of income from house property. The court examined whether the income derived from flats should be assessed as 'income from house property' under Section 22 or 'income from other sources' under Section 56 of the Act. The court noted that Section 22 charges the income arising from house property and not the ownership of house property. The focus is on the receipt of income from the property.2. Whether rental income from flats should be assessed as 'income from other sources' under Section 56 or 'income from house property' under Section 22:The respondent-assessee in various cases contended that the rental income from the flats should be assessed under Section 56 as 'income from other sources' because they were not the 'legal owners' of the property. The court, however, upheld the view that the income should be assessed under Section 22 as 'income from house property.' The court emphasized that the person who receives or is entitled to receive the income from the property in his own right should be taxed under Section 22.3. Determination of 'owner' under Section 22:The court extensively discussed the concept of 'ownership' under Section 22. It referred to the judgment in Jodha Mal Kuthiala's case, which held that the owner must be the person who can exercise the rights of the owner in his own right. The court agreed with the High Courts of Punjab and Haryana, Patna, and Rajasthan, which interpreted 'owner' to include persons who have acquired possession and control over the property, even if the legal title has not been formally transferred through a registered deed. The court rejected the view that only the legal owner with a registered sale deed could be taxed under Section 22.4. Impact of the amendment to Section 27 by the Finance Act, 1987:The court examined the amendment to Section 27 by the Finance Act, 1987, which expanded the definition of 'owner' to include persons in possession of the property under certain conditions, such as under Section 53A of the Transfer of Property Act. The court concluded that this amendment was declaratory and clarificatory in nature, intended to remove doubts and clarify the meaning of 'owner' under Section 22. Therefore, the amendment had retrospective effect, supporting the view that persons in possession and control of the property should be deemed owners for tax purposes.Conclusion:The court held that the views taken by the High Courts of Allahabad, Patna, Rajasthan, and Punjab and Haryana were correct, and the contrary view taken by the Delhi High Court was incorrect. The court emphasized that the 'owner' for the purposes of Section 22 should be the person entitled to receive income from the property in his own right, regardless of whether a registered sale deed has been executed. The amendment to Section 27 by the Finance Act, 1987, was clarificatory and had retrospective effect, further supporting this interpretation. Consequently, the income from the flats should be assessed under Section 22 as 'income from house property.'