1985 (1) TMI 104 - AT - Income Tax

Tribunal rules on income share from property in Calcutta based on registered deeds

The Tribunal determined that the assessee held a one-third interest in the income from a property in Calcutta based on registered deeds, but did not ... Ownership by registered deed - presumption of equal shares among vendees - distinction between loan and capital contribution - income attributable to land versus building - proportionate inclusion of income based on investment - relevance of surrounding circumstances in ownership enquiries - treatment of advances in light of S.P. JaiswalOwnership by registered deed - presumption of equal shares among vendees - relevance of surrounding circumstances in ownership enquiries - Extent of the assessee's ownership interest in the property at Diamond Harbour Road. - HELD THAT: - The Tribunal found that the conveyance, mortgage and redemption deeds were registered documents in which the assessee was named as one of three vendees/mortgagors. As registered instruments conferred and recorded the assessee's interest, his verbal denial or other informal evidence could not displace that title. Where a conveyance does not specify individual shares among multiple vendees, the legal presumption is that the shares are equal. Applying these principles, the Tribunal concluded that the assessee acquired a one-third interest in the land. However, having examined municipal records, rent collection practice and the factual matrix, the Tribunal found no evidence that the assessee acquired any ownership interest in the superstructure; the amount advanced by the assessee was treated as a loan used for construction and did not carry with it an acquired share in the building. [Paras 5, 10, 11]Assessee is one-third owner of the land only; he has no ownership interest in the building (the advance was a loan and did not confer part-ownership of the structure).Income attributable to land versus building - proportionate inclusion of income based on investment - distinction between loan and capital contribution - Quantum and method of including the assessee's share of income from the let-out property in his hands. - HELD THAT: - Because the assessee was held to be owner of one-third of the land but not of the building, the Tribunal directed that only that portion of the net income attributable to the land be brought to tax in the assessee's hands. The proper computation is to multiply the net income from the house property by the fraction whose numerator is the cost of the land and whose denominator is the total cost of land plus construction; the resulting amount represents income attributable to the land. Thereafter that sum is divisible into three equal parts and only one-third (the assessee's proportionate share in the land) is includible in the assessee's income. The assessments for the years in question are to be modified accordingly. [Paras 6, 12]Include in the assessee's income only one-third of the income attributable to the land, calculated as net income x (cost of land / (cost of land + cost of construction)), and modify assessments accordingly.Final Conclusion: The Tribunal allowed the appeals in part: the assessee is held to be one-third owner of the land but not of the building, the advance is treated as a loan, and only one-third of the income attributable to the land (computed by the prescribed fraction) is to be included in the assessee's income; assessments are to be modified accordingly. Issues Involved:1. Extent of the assessee's interest in the income from the property at 23A/418, Diamond Harbour Road, Calcutta.2. Quantum of income to be included in the hands of the assessee.Summary:Issue 1: Extent of the assessee's interest in the income from the property at 23A/418, Diamond Harbour Road, Calcutta.The assessee contended that he had no interest in the income from the property, while the ITO held that the assessee had a one-third interest. The Commissioner (Appeals) held that the assessee's interest extended only to one-third of the income attributable to the cost of the land vis-a-vis the cost of construction. The Tribunal concluded that the assessee did become one-third owner of the land due to several registered deeds of conveyance and mortgage. However, there was no evidence to hold that the assessee acquired any interest in the superstructure built on the land. The Tribunal noted that the assessee gave a loan for the construction of the house but did not acquire any right in the income resulting from the house.Issue 2: Quantum of income to be included in the hands of the assessee.The Tribunal directed that the net income from the house property should be multiplied by a fraction, the numerator of which is the cost of the land and the denominator of which is the total cost of land and construction of the house. The amount so arrived at should be divided into three parts, and only one part thereof should be included in the assessee's income, as he is the owner of only one-third portion of the land and no part of the house. The assessments for all the years were to be modified accordingly.