1. The short question that we are called upon to answer in this reference is whether Messrs. Modern Flats Private Ltd., Bombay, the assessee, are liable to be taxed under the head 'Income from property' assessee, are liable to be taxed under the section 9 of the Indian Income-tax Act in respect of certain property at Colaba, Bombay. The history of this property is briefly as follows : On the 2nd June, 1948, one Govindji Lalji Jobanputra of Bombay entered into an agreement with the then Governor of Bombay in respect of a plot of land upon certain terms. On 16th July, 1948, he also purchased two other contiguous plots from Meherbai Nanabhai Nusserwanji Saher for a sum of Rs. 12,500. On 9th November, 1948, Jobanputra entered into a partnership with four others under the name and style of Varjivandas & Co. This partnership constructed a building on the said plots but before it could be completed they demised such rights as they had to the land and the party built property to misreads. Mehta Estates Ltd. On 4th January, 1951, for a consideration of Rs. 4,05,000. Messrs. Mehta Estates Ltd. spent further moneys towards completion of the construction of the building but when it was almost ready, they demised their rights in the land and the building to Messrs. Modern Flats Ltd., the present assessee. This was on the 9th January, 1951.
2. Messrs. Modern Flats Ltd. completed the building and on or about 29th January, 1951, they in their turn demised portions of the building or as they have been called 'flats' in the building to several persons.
3. A copy of the agreement between Messrs. Modern Flats Ltd. (herein after referred to as the 'company') and the purchasers of one flat is at annexure 'D'. It is not in dispute that though annexure 'D' is an agreement with particular joint purchasers, namely, three persons called 'Billimorias', the agreements in respect of all other flat holders were in similar terms. The original agreement between Govindji Lalji and the Governor of Bombay of 2nd June, 1948, was in the form of a licence and in it three is a stipulation that a formal lease would be granted to Govindji Lalji when certain conditions were fulfilled. On 21st December, 1959 in fulfilment of that agreement a lease came to be executed in favour of the the official Assignee of Bombay holding the estate of the said Govindji Lalji, who by then had become an insolvent. Thus Govindji Lalji having obtained the lease through the Official Assignee of Bombay, on 25th January, 1960, the Official Assignee conveyed the same rights in the land and the building to the assessee-company. This was on 25th January, 1960.
4. Now the department claims to tax the company as the owner of the building for the assessment years 1954-55 to 1958-59, the accounting year being the corresponding financial years. The Tribunal having turned down the claim made on behalf of the department, the following question has been referred for our opinion :
'Whether, on the facts and in the circumstances of the case, the assessee is liable to be assessed under the provisions of section 9 of the Indian income-tax Act, as owner of the building for the assessment years 1954-55 to 1958-59 ?'
5. In order to understand the controversy between the parties, it is necessary to go back to the original agreement between Govindji Lalji and the Governor of Bombay dated 2nd June, 1948. That agreement was in the shape of a licence, between the governor of Bombay, being the grantor, and Govindji Lalji, the licensee. By clause 1 Govindji Lalji was given a licence for a period of four years from 2nd June, 1948, whereby he had 'authority only to enter upon the piece of land described in the schedule..... and for no other purpose whatsoever and until the grant of such lease, as is hereinafter referred to, the licensee shall be deemed to be a bare licensee only of the premises at the same rent and subject to the same terms as if the lease had actually been executed'. In clause 2 it was expressly provided that nothing contained in the document shall be so construed as to give the licensee any legal interest until the lease contemplated shall have been executed and registered, but the licensee shall only have a licence upon the said land for the purpose of performing the agreement. On the part of the licensee the agreement was that he would within six months from the date of the agreement get prepared and submit for the approval of the chief Engineer to the Government specifications and plans with certain details of the building to be erected on the land and its appurtenances. There was a provision for fencing the plot of land and it was stipulated that no work was to spend not less than Rs. 3 lakhs in the construction of the building which was to be from new and sound material. While the building was under construction, the executive engineer had the right by clause 3(e) to supervise the construction and give directions from time to time which were to be carried out and in the meanwhile the building was to be kept insured and the Government kept indemnified against any claim for damages which may arise in the course of construction. It was also stipulated that the licensee was to pay all rates, taxes, charges, etc., chargeable against an owner or occupier in respect of the said land and any building or erection thereon. No part of the earth, stone or other materials from the land was to be removed except as may in the opinion of the executive engineer be necessary for the purpose of forming the foundation of the building and compound walls. Until the buildings and works were completed the Government had plenary rights. The Collector could, upon failure to observe any of the terms of the agreement, re-enter and assume possession of the land. He could either himself or through the executive or chief engineer or other servants and agents view the state and progress of the work and inspect and test the materials and workmanship. There was a stipulation for extension of the period of the licence such a contingency the terms were to apply to the extension of the period of the license and in such a contagions the terms were to apply to the extended period.
6. Clause 6 of the licence provided as follows :
'As soon as the executive engineer has certified that a building and compound walls have been erected in accordance with the terms hereof and if the licensee shall have observed all the stipulations and conditions herein before contained the grantor will grant and the licensee will accept a lease...... of the said land and the building and compound walls erected thereon for the residue of the term of the lease dated the 4th February, 1929, between the Secretary of state for India in council of the one part and Shirinbai Merwanjee Rustomjee of the other part and commencing from the 2nd day of June, 1948, at the net yearly rent of rupees six thousand and nine hundred during the said term payable in certain terms.'
7. clause 7 provided that the lease shall be in the form annexed to the licence and the form is part of annexure 'A'. It was in fulfillment of the stipulations in clauses 6 and 7 of the licence that a lease came to be executed as we have said on 21st December, 1959, between the Governor of Bombay and the Official Assignee of Bombay representing the estate of Govindji Lalji. The preamble to the form of the lease annexed to the copy of the licence recited that fact inter alia 'Whereas by an agreement dated the... day of..... 19. ..... and made between the lessor of the one part and the lessee of the other part the lessor agreed to grant to the lessee upon the part and performance and observance by the lessee of the obligations and conditions contained in the said agreement in the manner hereinafter mentioned.' The form of the lease also shows that not merely was the piece of land being demised but 'also a building and erections now or at any time hereafter standing and being thereon'. On the part of lessee several stipulations had to be fulfilled. Clause (f) provided that he was to observe and confirm to all bye-laws, rules and regulations of the municipal corporation of the City of Bombay or other body. In clause (p) it was provided that at the expiration or sooner determination of the said term the lessee was to quietly deliver up to the lessor the demised premises and all erections and buildings then standing or being thereon. Then there was a proviso as follows upon which great reliance was placed on behalf of the assessee :
'Provided always that the lessee shall be at liberty if he shall have paid the rent then due and in addition thereto a sum equal to the rent for the unexpected period of the said term and all municipal and other taxes, rates and assessment then due and shall have performed and observed the covenants and conditions herein contained prior to the expiration of the said term to remove and appropriate to himself all buildings, erections and structured and materials from the said land but so nevertheless that the lessee shall deliver as aforesaid to the lessor leveled and put in a good order and condition to satisfaction of the lessor all land from which such buildings, erections or structures may have have been removed.'
8. It is not in dispute that it was in terms of this document that the lease was executed on 21st December, 1959, between the Governor of Bombay and the Official Assignee of Bombay.
9. The document of licence makes it clear that the parties agreed that until the construction of the building upon the land Govindji Lalji's position vis-a-vis the land was nothing more than that of bare licensee and the licence which he had obtained was merely to go upon the land in order to construct a building according to the stipulations of the licence which was for four years from 2nd June, 1948, and he was bound to spend not less than Rs. 3 Lakhs in constructing that building. Upon construction it was subject to the approval of the officers of Government and, if approved Government was to grant a certificate. It is the grant of that certificate which alone gave rise to further rights as indicated in clauses 6 and 7 of the licence. Upon the issuance of that certificate Govindji Lalji was entitled to a lease from Government and the lease was to be in the form annexed. The lease was for a period of 99 years and assignment of it was not prohibited. On the expiry of the lease the provisions of clause (p) came into effect. The substance of the provisions of that clause was that the lessee could not remove the superstructure until he had paid up all amounts due in respect of the building including the rent, taxes, rates assessments, etc. But if he cleared himself of all those dues then he had the right to remove the superstructure and give up the land in the condition in which it was demised to him.
10. Now it was these rights which Govindji Lalji assigned to Messrs. Mehta Estates Ltd. by the document of 4th January, 1951. The preamble recites that the building on the land has been partly constructed on a part of the said land and the vendors, that is to say, Govindji Lalji and the partnership of Varjivandas & Co., which had come into force by then, had agreed to grant to Messrs. Mehta Estates Ltd. a lease of the plots described in the schedules for a period of 99 years from the date of the document 'and to sell to the purchasers the rights of the vendors in the said plot of land described in the schedule 'C'.... together with the said building standing on the said land duly completed at or for the price of Rs. 4,05,000 and Rs. 34,5000.' It was also hoped that on completion of the transaction vacant possession would be delivered to the purchasers of the said premises. After this document was executed by Govindji Lalji and the four partners on 4th January, 1951, Messrs. Mehta Estates Ltd. executed a similar document in favor of the assessee, Messrs. Modern Flats Private Ltd., and Modern Flats (Private) Ltd. demised individual flats in favor of individual flatholders. Now none of these documents are registered and one of the questions that was agitated before us was whether they could at all operate to convey any right, title or interest in favor of Messrs. Mehta Estates Ltd. or Messrs. Modern Flats Private Ltd.
11. Under the provisions of section 9(1) the tax payable under the head 'Income from property' is in respect of the bona fide annual value of the property consisting of buildings or lands by an assessee who is the owner of the property. The principal point urged before the Tribunal was that the assessee was not the owner of the land and the building, but if at all anyone could be said to be the owners they were the individual flat owners to whom Modern Flats Private Ltd. had subsequently granted right in respect of the respective flats as evidenced by the sample agreement, annexure 'D'. The Tribunal came to the conclusion that there was no transfer in favour of the assessee at all and, therefore, they had not become owners of the building or the land. They held that 'Therefore, in the absence of any transfer to the appellant during the material account accounting years by a registered instrument, we have to hold that the appellant before us is not liable to be assessed on the statutory (sic) income from the property as the appellant is not in law the owner of the property.'
12. Mr. Joshi on behalf of the department has attacked this finding. He has pointed out that what is sought to be taxed is the income from the flats and urged that Messrs. Modern Flats Private Ltd. actually spent money in order to construct a portion of the building after their purchase from Messrs. Mehta Estate Ltd. and, therefore, Messrs. Modern Flat's Private Ltd. must be held to be the owner of the building. He contended that the word 'owner' in section 9 should not be narrowly construed to mean an owner to whom the right, title and interest in an immovable property is strictly transferred according to the provisions of law, but that, even if a person has contributed to the construction of a building, he could be included within the meaning of the word 'owner'. He urged, therefore, that it must be held that they were, for the purpose of tax law, the owners of the building.
13. We have already indicated that such rights as Govindji Lalji obtained from the Government or Bombay by the licence dated 2nd June, 1948, he and his partners assigned to Messrs. Mehta Estate Ltd. on 4th January, 1951, and Messrs. Mehta Estate Ltd. in their turn to Messrs. Modern Flats Ltd. on 9th January, 1951. Neither document is a registered document. At the time that the right were thus assigned, part of the building had been constructed by Messrs. Varjivandas & Co. and when Messrs. Mehta Estate Ltd. assigned their right to Messrs. Modern Flats Ltd. a further part had been constructed by Messrs. Mehta Estate Ltd. We are unable to understand how any right, title or interest in the building which was already existing upon the plot could possible have been transferred to Messrs. Modern Flats Ltd. by the two documents dated 4th January, 1951, and 9th January, 1951. Section 54 of the Transfer of property Act clearly require that without a registered document such a property which is tangible immovable property cannot be transferred.
14. Mr. Kolah in this respect also relied upon three cases to show that the same principle would operate even in the matter of considering ownership under the Indian Income-tax Act. They are Commissioner of Income-tax v. Bhurangya Coal Co., Pal Chowdhury v. Commissioner of Income-tax, and Hall and Anderson (Private) Ltd. v. Commissioner of Income-tax. We are clear, in our opinion that the right, title and interest in the building which was partly constructed could not be transferred by the two documents.
15. There was some reference in the arguments to the equity of part performance. It was also referred to before the Tribunal, but before the Tribunal only section 53A of the Transfer of property Act was referred to and so far as that is concerned the Tribunal held that the equity can confer no title. It is only a defensive equity which a person is entitled to invoke in his favour if there is a risk of his losing possession for want of his losing possession for want of title, but it cannot be the foundation of a title.
16. Recognising this objection to the operation of section 53A in his favour so as to clothe Modern Flats with semblance of ownership, Mr. Joshi attempted to spell out a lease on the basis of the original licence granted to Govindji Lalji and he particularly relied upon clause 6 and 7 in that licence which we have already referred to entitling Govindji Lalji to a lease in his favour when the building was completed and a certificate was obtained by his from the executive engineer. He pointed out that a certificate had been obtained from the executive engineer and, therefore, under the licence Govindji Lalji or his assigns would be entitled to a lease. In fact subsequently on 21st December, 1959, such a lease was actually executed in favour of the official assignee representing the estate of Govindji Lalji. Under these circumstances, Mr. Joshi urged that if Govindji Lalji and his assigns had a clear right in their favour to a lease from Government, then it must be held the despite the want of a registered document in their favour, the assignee was in the same position as if he had obtained the lease. He relied upon a passage from Halsbury's Laws of England, Simond's edition, vol. 23, page 481, paragraph 1107, which states, ' Upon the completion of such part of the works as entitles the builder to call for a lease, his rights and liabilities become the same as if a lease had been granted; consequently he ceases to hold on the terms of the building agreement, and holds on the terms of the lease to which he is entitled'. This statement in Halsbury's volume is based upon the decision in Lowther v. Heaver. That was a case, however, which was decided on the basic of the well known decision in Walsh v. Lonsdale, as would appear from the judgment of Lord Justice Cotton at page 264 where in terms the learned judge relied upon the equity in Walsh v. Lonsdale, and observed, 'He is entitled only in equity it is true to a lease, but being entitled in equity to have a lease granted, his rights ought, in my opinion, to be dealt with in the same way as if a lease had been granted to him, and do not depend upon its actually been granted'. Now, no doubt, so far as the English law is concerned, the equity of Walsh v. Lonsdale would continue to operate but, so far as India is concerned, we are governed by the express provisions of section 53A of the Transfer of Property Act and as has been pointed out by Mulla at page 298 in his 5th edition of the Transfer of Property Act, '... no equitable rule could override the express provisions of this Act or the Registration Act. The enactment of his section has only altered that position by creating the limited right conferred under the section, and it is settled law that no other equitable right can supersede the provisions referring to writing or registration' and the learned author has observed 'It follows, therefore, that there's no scope in India for applying the equity of Walsh v. Lonsdale, except in the limited class of cases where an interest in land can be created without registration, e.g., a lease for less than one year, or a sale for less than Rs. 100'. Therefore, it seems to us that the principle upon which the decision in Lowther's case was based will not apply to the present case, nor will the passage from Halsbury's Laws of England relied upon by Mr. Joshi.
17. Reference was next made to section 27A of the Specific Relief Act. That section also confers an equitable right of a very limited nature. It, of course, applies only to a contract to lease immovable property made in writing and signed by the parties thereto or on their behalf and, in such a case, notwithstanding than the contract, though required to be registered, is not registered, the parties thereto have the right to sue each other for specific performance of the contact. It does not create any title in favour of either party nor does it cover up any defective title. It only gives the party a right to sue for specific performance. Apart from that, it only applies to leases of immovable property and we very much doubt if to original right granted to Govindji Lalji by the Governor of Bombay by the document dated 2nd June, 1948, can possibly be termed a lease of immovable property. It was called a licence and the express terms of the document are that only a licence is created in favour of Govindji Lalji.
18. But we do not propose to dispose of this matter only upon this point. It seems to us that there is a further point upon which the contention on behalf of the department must be negatived. We have already said that Messrs. Modern Flats., the assessee, got such right in the property as Govindji Lalji possessed through Messrs. Mehta Estate Ltd. by the assignment to them on 9th January, 1951. After the assessee obtained the rights by the document dated 9th January, 1951, they, in their turn, separate documents. A sample documents is at annexure 'D' (a copy of the agreement dated 29th January, 1951). A perusal of that agreement clearly shows that the assessee assigned their entire right, title and interest, such as it was, to each purchaser of a flat. The agreement refers to the Modern Flats Ltd. as the 'company' as opposed to the transferee of the flats who is called the 'purchaser' and throughout the document the person to whom the rights are being transferred is referred to as the purchaser. Clause 1 of the agreement further puts the matter beyond any doubt. Clause 1 say 'The company agrees to assign and transfer and the purchase agrees to take and accept the undivided interest in the said property (so far as it relates to the flats agreed to be taken jointly with the other purchasers) together with the rights of use and occupation of a particular and separately numbered flat No. 12 on the 2nd floor in the building on the said property for the unexpired residue of the said term of 99 years at or for the prices of Rs. 23,000 for the full amount whereof the purchase is entitled to receive shares of the company.' In clause (2) provisions made for the payment of this amount in certain installments and the amount is referred to as the 'price of the flat'. In clause (14) the purchaser is given the liberty 'to sell, assign or otherwise deal with his interest in the said property, provided however that the company's interest and rights in the said property created under this agreement are not in any way affected or prejudiced.'
19. From these provisions it is clear that the assessee has sold whatever right, title and interest it had to the individual flat owners who are called the purchasers under the document. What is more, the purchase is given the right in his turn to sell or assign the rights given to him by the document. The proviso does not in any way fetter that right. The proviso is only incorporated in order to safeguard the company's interest which is that the company continues to exist for the purpose of management of the entire property, but it has no other right, title or interest in the building as such after the transfer of the rights to the individual flat holders.
20. Mr. Joshi pointed to some clause in this agreement to suggest that all right had not been transferred - particularly to clause (7) which contains an undertaking on the part of the purchaser to co-operate with the company and/or other purchaser to co-operate with the company and/or other purchasers in the observance and performance of the rules and regulations that he said company may adopt at its inception and from time to time conforming to the building rule and the municipal bye-law and the strict observance of the various stipulations and conditions laid downs by the said company respecting the use and occupation of the particular tenements by particular member for the unexpired residue of the said term of 99 years. These are in no sense limitation upon the right, title and interest in the property which the flat holders had acquired. These are stipulations entered into by each flatholder had acquired by the flat holders. They do not in any way restrict the rights acquired by the flat holders nor their right to sell or assign their right to others given by clause (14). Such stipulation are necessary in the common interest of all the flatholder and are stipulations which are usually found in all agreements where ownership flats exist in one building.
21. He next referred to clause (17) which prohibits the purchaser from demolishing or causing to be demolished the existing structure on the said property or any part there of or from making any new construction of whatever nature on the said property. Here again, we do not think that this stipulation affects the right or title in the property in any way. It is a necessary stipulation in the common interest of all the flatholders. If one or the other flat holders were at liberty to break down any part of the common building or to make constructions in the building, it may jeopardize the right of other flats holders. The stipulation goes no further than preventing such risk to other flatholders. We do not think that any of these stipulations can be said to be such as to indicate that the right, title or interest in the property did not vest in the flatholder. If then such right, title and interest as the assessee had by virtue of the document dated 9th January, 1951 are transferred to each one of the flatholders, we can hardly say that the assessee, the Modern Flats Ltd. have any further ownership left in them. It is impossible, in view of the agreement dated 29th January, 1951, and other like agreements which were admittedly entered into with other flatholders, to hold that the assessee were the owners of any part of the building. Such stipulations as are contained in the various clauses of the agreement limited or curbing as the full enjoyment of the property are only limitations which were necessary to ensure the common good of all the flatholders. On this second ground, therefore, we must hold that the assessee, Modern Flats Ltd., were not the owners during the relevant assessment periods.
22. It was urged by Mr. Joshi that the agreement could not transfer any right, title or interest in the immovable property in favour of the purchaser flat holders because they are not registered. If registration is the ground for holding that no transfer took place from Modern Flats Ltd. to those flatholders, then it seems to us that on that very ground Modern Flats Ltd. to those flatholders, then it seems to us that on that very ground Modern flats Ltd. could never have become the owners of the property by the transactions between Varjivandas & Co. and Mehta Estates Ltd. in favour of Modern Flats Ltd., since every documents involved in the case was unregistered. Upon that argument, the first point would get further reinforced.
23. In conclusion, we answer the question referred in the negative. The Commissioner shall pay the costs of the assessee.
Question answered in the negative.