Bombay H.C : Whether, on the facts and in the circumstances of the case, the assessee is liable to be assessed on the income from the property in question under the provisions of s. 22 of the IT Act, 1961 ?

R. J. Joshi S. V. Naik, for the Revenue : Smt. S. H. Jagtiani, for the Petitioner

KANIA, J.:

This is a reference under s. 256(1) of the IT Act, 1961 (referred to hereinafter as “the said Act”). The question referred to us for our determination in this reference is as follows : “Whether, on the facts and in the circumstances of the case, the assessee is liable to be assessed on the income from the property in question under the provisions of s. 22 of the IT Act, 1961 ?”

2. The facts giving rise to this reference are as follows : The assessee is a private limited company. The relevant assessment year is 1965-66, for which the relevant previous year was the year ending on 31st March, 1965. The assessee was the owner of a building called Shabbir Building. The assessee agreed to sell the said property to Bhanpat Mahadeo and Shanker Hiralal Misra. On 28th August, 1959, the said purchasers paid a sum of Rs. 10,000 as earnest money to the assessee.

The balance of the consideration for the Purchase of the property was paid to the assessee on or about 22nd February, 1960. On 15th February, 1960, possession of the said property was handed over by the assessee to the purchasers and due attornments were made by informing the tenants to pay the rent to the purchasers. The said building stood on land taken on lease from the Bombay Port Trust. Due to certain difficulties, no proper conveyance of the property could be made and registered within the relevant previous year. The ITO took the view that as the deed of conveyance in respect of the said property was not complete, the assessee, being the seller, continued to be the legal owner of the said property. The ITO hence taxed the income from the said property in the amount of Rs. 3,687 in the hands of the assessee. An appeal preferred by the assessee to the AAC was dismissed by the Appellate Commissioner, who agreed with the conclusion of the ITO. The assessee then preferred an appeal to the Tribunal. The Tribunal accepted the assessee’s contention that since the property had been sold and the purchasers had been receiving rent in their own right, the income of the property could not be assessed in the hands of the assessee. It is from this decision of the Tribunal that the aforesaid question has been referred to us for determination.

We find that the question before us is practically covered by the decision of this Court in CIT vs. Zorostrian Building Society Ltd. (1976) 102 ITR 499 (Bom). In that case the assessee owned a house property which was in the occupation of several tenants. In 1956, the assessee agreed to sell the property to the trustees of the Zorastrian Building Fund and a written agreement was drawn up. In January, 1960, the consideration of Rs. 4,00,000 was paid to the assessee. The assessee thereupon wrote to the tenants requesting them to attorn their tenancies to the trustees and pay them rent from January 1, 1960. The sale deed was, however, executed only in February, 1962.

On the question whether for the asst. yrs, 1961-62 and 1962-63, for which the relevant previous years were calendar years 1960 and 1961, the assessee was liable to be assessed on the income from the property, it was held that, even though the purchaser was put into possession with all the other rights incidental thereto, in the absence of a registered sale deed, as the value of the property exceeded Rs. 100, the transferee could not be regarded as “owner”, and for asserting such, a right, s. 53A of the Transfer of Property Act, 1882, was not available. The assessee was, therefore, liable to be assessed on the income from the said house property for the asst. yrs. 196162 and 1962-63.

The aforesaid decision of the Division Bench of this Court is binding on us. Sec. 22 of the said Act deals with the question of assessment of income from house property and the said section is substantially similar to s. 9 of the Indian IT Act, 1922, which section was construed by the Division Bench in the aforesaid decision. If we are to follow the said decision of the Division Bench, as we must, it is clear that the question referred to us must be answered against the assessee.

It was, however, urged by Mrs. Jagtiani, learned counsel for the assessee, that two other High Courts have taken a different view on this question after taking into account a decision of the Supreme Court, to which we shall refer in due course. In Addl. CIT vs. U. P. State Agro Industrial Corporation Ltd. (1981) 20 CTR (All) 141 :(1981) 127 ITR 97 (All), a Division Bench of the Allahabad High Court held that the expression “building owned by the assessee” in s. 32 of the IT Act, 1961, has not been used in the sense of property, complete title in which vests in the assessee. The assessee will be considered to be an owner of the building under s. 32 if he is in a position to exercise the rights of the owner not on behalf of the person in whom the title vests but in his own right. In taking this view the Division Bench of the Allahabad High Court considered the decision of the Supreme Court in R. B. Jodha Mal Kuthiala vs. CIT (1971) 82 ITR 570 (SC), and the ratio laid down therein. In Smt. Kala Rani vs. CIT (1981) 23CTR (P&L) 17 (1981) 130 ITR 321 (P&L), it has been held by the Division Bench of the Punjab and Haryana High Court that before a person can be assessed under s. 22 of the IT Act, 1961, it is not necessary that he must be the owner of the property by virtue of a sale deed in his favour. What is being taxed under s. 22 is the income from house property or the annual value of the property of which the assessee is the owner. The focus of the section is on the receipt of income from house property. If in a given case it is found as a fact that the assessee is in occupation of the building as owner to all intents and purposes, except for the sale deed in his favour, then be is liable to tax under s. 22. The Division Bench of the Punjab and Haryana High Court also stated that they followed the decision of the Supreme Court in R. B. Jodha Mal Kuthiala’s case (1971) 82 ITR 570 in coming to this conclusion. It was submitted by Mrs. Jagtiani that in view of these decisions of the Allahabad High Court and the Punjab and Haryana High Court we should take a different view on this question from the view which was taken by the Division Bench of this Court in Zorostrian Building Society’s case (supra), although she fairly stated that it was not disputed by her that the provisions of s. 9 of the Indian IT Act, 1922, were in pari materia with the provisions of s. 22 of the said Act as far as the question before us is concerned.

It is not possible for us to accept the submission of Mrs. Jagtiani. The aforesaid decision in CIT vs. Zorostrian Building society Ltd. (supra) is a decision of a Division Bench of this Court, and we are bound to follow the same. Moreover, we find that the Division Bench of this Court has in its judgment considered the case of R. B. Jodha Mal Kuthiala vs. CIT (supra) decided by the Supreme Court as aforesaid and has based its decision on the aforesaid decision of the Supreme Court. Needless to say, the interpretation put on the aforesaid decision of the Supreme Court by the Division Bench of this Court is also binding on us. In our view, therefore, we are bound by this decision of the Division Bench of this Court, and answer the question in accordance with the same.

In the result, the question referred to us is answered in the affirmative and against the assessee. However, looking to all the facts and circumstances of the case, we direct that each party shall bear its own costs of the reference.

[Citation : 142 ITR 249]