Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income as received by M/s. Surendra Overseas Ltd. be assessed as income of the assessee from business from leasehold interest?

Counsel Appeared

Dr. Debi Prasad Pal & A.K. Roy Chowdhury with S.K. Roy, S. Roy Chowdhury & Aniruddha Ray, for the Assessee : P.K. Mallick with J.C. Saha, for the Revenue

ORDER

BY THE COURT :

On reference application under s. 156(1) of the IT Act, 1961, the Tribunal has referred the following question set out at p.10 of the application for the opinion of this Court : “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the income as received by M/s. Surendra Overseas Ltd. be assessed as income of the assessee from business from leasehold interest?”

2. The facts, in short, are that for the asst. yrs. 1975-76, 1976-77, 1977-78 and 1979-80, the ITO has questioned the assessee why the income from leasehold property, which has been subleased to M/s. Surendra Overseas Ltd. should not be taxed in the hands of the assessee and also why that income should not be taxed as income from the house property.

After hearing the assessee, the gross rent estimated in the aforesaid years was taxed in the hands of the assessee as income from house property. In appeal, the CIT(A) has directed that income from the leasehold property should be assessed under the head ‘business’.

Being aggrieved, the Revenue carried the matter before the Tribunal and the Tribunal has taken the view that as the income in question has not been assessed in the case of M/s Surendra Overseas Ltd., the income should be assessed in the hands of the assessee as income from business. It is also observed that the income which has not been assessed in the hands of M/s Surendra Overseas Ltd. and it will not be taxed in the hands of the assessee, that income will go untaxed.

On reference to this Court, this Court has considered the issue regarding ownership and held that when the assessee is not the owner of the property but only a lessee thereof, therefore, it cannot be held that the income arising from a portion of the leasehold property, which is in the possession and occupation of M/s Surendra Overseas Ltd. and rent was being realised by M/s. Surendra Overseas Ltd. was the real income of the assessee arising from its business [See Park Hotel (P) Ltd. vs. CIT (1987) 59 CTR (Cal) 228 : TC 13R.286—Ed.].

Against the decision of this Court, the matter was carried before the Supreme Court and the Supreme Court [See CIT vs. Park Hotel (P) Ltd. (1996) 131 CTR (SC) 82 : TC S40.3562—Ed.] has considered various aspects including the fact that when none of the orders of the authorities under the Act say that M/s. Surendra Overseas Ltd. had constructed multistoreyed structure in the premises subleased to it by the assessee, therefore, Their Lordships proceeded on the footing that the multi-storeyed building referred by the High Court was constructed by the assessee itself and that sublease in favour of M/s Surendra Overseas Ltd. was on certain terms. Their Lordships further observed that as no new facts can be introduced by the High Court. Their Lordships further observed that the High Court has not addressed itself to the main issue upon which the Tribunal had allowed the Revenue’s appeal inasmuch as the sublease was not effected under a registered document, the interest in the property does not pass and, therefore, the income in question continues to be the income of the assessee. Their Lordships further observed that the High Court has also not dealt with the question on the finding of Tribunal that if income is not taxed in the hands of the assessee, it can go untaxed. For these reasons, the judgment of the High Court was set aside and the matter was remitted back to this Court for a fresh disposal.

The matter was first taken up on 15th Jan., 1998. On 15th Jan., 1998, it was argued that there is no specific finding of the Tribunal regarding the ownership of the multistoreyed building and also who constructed it? Therefore, before going into the other questions, this Court deemed it proper to get the finding of the Tribunal, as who constructed the building for the purpose of ownership and the Tribunal was directed to give the finding to this effect.

In pursuance of our direction, the Tribunal has given the finding and filed the supplementary paper-book to this effect. The relevant finding of the Tribunal reads as under : “(a) That M/s. Park Hotel (P) Ltd., the assessee- company, transferred its leasehold interest in the property bearing premises Nos 3,5,7,9,11 and 15, Park Street, Calcutta to M/s. Surendra Overseas Ltd. on 30th Nov., 1970, for the consideration of Rs. 63.13 lakhs (Rs. 25.69 lakhs for leasehold land and Rs. 37.44 lakhs for the building under construction). As per the balance sheet of the assessee-company for the year ended 31st March, 1971, the entire immovable property stood transferred to M/s Surendra Overseas Ltd during the accounting year. There was no immovable property in the books of account of the assessee-company or addition thereto from 1st Oct., 1970 to 30th Sept., 1977. (b) M/s. Surendra Overseas Ltd. made further construction on the property it took over from the assessee-company and spent an additional sum of Rs. 73,43,613 from 30th Nov., 1970 till 30th Sept., 1977. During this period, the assessee-company did not incur any expenditure for construction of the property. (c) It is specifically stated by the Asstt. CIT that the assessee- company did not incur any expenditure for construction of the superstructure on the leasehold land during the period from 1st Oct., 1970 to 30th Sept., 1971. This was confirmed by the AO while passing the order under s. 254 of the Act in respect of the assessee-company for the asst. yrs. 1975-76, 1976-77 and 1977-78. This finding of the AO was also confirmed by the CIT(A), Central-I, Calcutta vide his order, dt. 23rd Sept., 1986 in Appeal No. 232/CIT(A) C-1/1985-86. (d) On 30th Sept., 1977, the entire leasehold land along with the construction on the aforesaid property was transferred to the assessee-company at a total consideration of Rs. 1,36,00,613.”

The Tribunal gave the finding of fact that the building in question has been constructed by M/s Surendra Overseas Ltd. As per direction of the apex Court, we have to consider the issue whether for ownership, registration of the sale deed/lease deed is necessary and if it is not necessary, then income should be assessed in the hands of the assessee or in the hands of M/s Surendra Overseas Ltd. and if income was not assessed in the hands of Surendra Overseas Ltd. by mistake can it be assessed in the hands of the assessee, if no provision permits to do so?

Mr. P.K. Mullick, learned counsel appearing for the Revenue heavily relied on the decision of the apex Court in the case of S.G. Mercantile Corpn. (P) Ltd. vs. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC) : TC 13R.906 and submits that the registration is necessary, without that the transfer is not effected. Therefore, when the deed was not registered, the income should be assessed in the hands of the assessee.

Dr. Pal, learned counsel appearing for the assessee submits that after the property was subleased to M/s Surendra Overseas Ltd., Surendra Overseas Ltd. has taken over the possession of the property and received the rent from that multistoreyed building, which has been constructed by M/s Surendra Overseas Ltd. That income cannot be taxed in the hands of the assessee. He placed reliance on the decision of the apex Court in the case of CIT vs. Poddar Cement (P) Ltd. & Ors. (1997) 141 CTR (SC) 67 : (1997) 226 ITR 625 (SC) : TC S40.3564. Now, the facts are not in dispute that the property in question has been subleased by the assessee to M/s. Surendra Overseas Ltd. The possession has been taken over by M/s. Surendra Overseas Ltd. The rent has been received after that sublease by M/s. Surendra Overseas Ltd. of that property from 1st Oct., 1972 to 30th Sept., 1997, which includes the previous years to the relevant years under consideration.

We have gone through the decision of the apex Court in the case of S.G. Mercantile Corpn. (P) Ltd. (supra). In fact, there was no dispute before the apex Court in that case regarding the ownership. The dispute was whether the income from that property should be taxed as income from business or not? At p. 705 their Lordships categorically observed that there was no finding in the present case that the appellant-company is the owner of the property in question. Even both the parties agreed this fact and when the assessee-company was not the owner of the property, the income from that property cannot be assessed in the hands of the assessee-company. The relevant portion of the observation of Their Lordships as p. 705 reads as under : “There is no finding in the present case that the appellant-company is the owner of the property in question or any pat thereof. As such, no reference was made to s. 9 of the Act in the assessment proceedings. The learned counsel for both the parties agree, and in our opinion rightly that the question of making the assessment against the appellant, in the circumstances, under s. 9 of the Act does not arise.”

After the assessment of this case by the apex Court, Their Lordships have occasion to consider the issue regarding the ownership for the purpose of IT Act in Poddar Cement (P) Ltd. & Ors. (supra). Their Lordships has considered the definition of ownership under s. 27 and Their Lordships observed at p. 653 as under : “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 s. 22 of the IT Act, having regard to the ground realities and further having regard to the object of the IT 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.” Their Lordships made it clear that they 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 provisions of Transfer of Property Act and Registration Act, but for the purpose of IT Act, for taxing the income, the assessment should be made with the object of the IT Act, i.e., to tax the income”. Their Lordships also clarified that though the amendment relates to s. 27(iii),(iiia) and (iiib) was made by the Finance Bill, 1987, but, considering the object and background behind the amendment, the provisions are retrospective in operation and, therefore, Their Lordships upheld the view taken by the High Courts of Patna, Rajasthan and Calcutta and held that, contrary view taken by Delhi, Bombay and Andhra Pradesh is not good law. Respectively following the view of the apex Court in their latest decision on the issue, we hold that once the property was subleased, the possession has been handed over to M/s Surendra Overseas Ltd and M/s Surendra Overseas Ltd is collecting the rent of that property, which M/s. Surendra has constructed the multistoreyed building, there is no question of taxing that income in the hands of the assessee upto the date when the property was retransferred to the assessee by M/s. Surendra Overseas Ltd. Their Lordships also observed that the Tribunal has given one of the reasons to tax this income in the hands of the assessee, as that has not been taxed in the hands of M/s Surendra Overseas. We put a query to Mr. Mullick, learned counsel for the Revenue to show us any provision in the IT Act which authorised the AO that when the income is not taxed in the hands of the assessee who is liable to pay tax under the Act, can that be taxed in the hands of any other person, only on the ground that the income has not been taxed in the hands who is liable to pay tax under the Act, 1961? He failed to show any provision to this effect. Considering this factual position and provisions of the law, we found no substance in the view taken by the Tribunal that if income has not been taxed in the hands of ‘A’ who is liable to pay tax under the Act, that can be taxed in the hands of ‘B’ cl. 2 under the provisions, that is not taxable in the hands of ‘B’.

In the result, we answer the question in negative, i.e., in favour of the assessee and against the Revenue for the period uptil 30th Sept., 1977, and thereafter it be taxed in the hands of assessee.

The application is accordingly disposed of.

[Citation : 243 ITR 514]