1. This is a reference at the instance of the Commissioner under section 66(1) of the Indian Income-tax Act, 1922, which relates to the assessment years 1959-60, 1960-61 and 1961-62, the relevant previous years being the years ending June 30, 1958, June 30, 1959, and June 30 1960, respectively. The assessee is a private limited company, and one of the sources of its income was from a property at Khedgalli in Bombay which, for each of the years in question, aggregated to Rs. 7,671, Rs. 9,355 and Rs. 9,611, respectively. Each of the said sums comprised three items, viz., the ground rent, rent at the rate of Rs. 5 per month in respect of the each of the 44 flats in the said building, and a further sum of Rs. 3 per month per flat towards service charges. The assessee-company was the owner of two contiguous plots of land at Khedgalli which it agreed to lease out to one D. C. Gandhi and one H. K. Rohra for a period of 99 years for the construction of a building thereon on the terms and conditions which, it is agreed between the parties before us, are those recorded in the letter dated 5th May, 1949, a copy of which is annexure 'A' to the statement of the case. Under sub-clause (a) of clause (2) set out in the said letter dated 5th May, 1949, the prospective lessees, D. C. Gandhi and H. K. Rohra, were granted a licence to enter the land for the purpose of constructing a building thereon. Under sub-clause (e) of the same clause, the buildings to be built on the said land were to be insured by the licensees, and under sub-clause (f) thereof it was provided that even during the construction the same would be kept insured. Sub-clause (k) of that clause conferred on the assessee-company the right to enter the plot in order to see the progress of the construction work thereon. Sub-clause (1) of that clause is somewhat material for the purpose of this reference and the relevant portion of it is in the following terms :
'If the licensee shall commit a default in carrying out the terms herein and of the formal agreement to be entered into, you will have the right to terminate the licence and re-enter upon and resume possession of land, and all the materials and construction thereon and to terminate the licence.'
2. The licensees started construction work on the said plots of land and intimated to the assessee-company that the said work was being carried on by a partnership run in the name of Jai Bharat Construction Corporation, 44 persons came forward to purchase the flats in the said building, and each of them contributed the amount due from him towards the construction of the structure that was, in course of time, built on the said land. By the middle of June, 1952, the construction of the building had already been completed as stated by the Income-tax Officer in para. 12 of his order dated 25th March, 1961.
3. It appears that as a result of disputes between the partners of the builders, viz., Jai Bharat Construction Corporation, there were breaches of the covenants of the agreement entered into between the assessee-company and the said D. C. Gandhi and H. K. Rohra with the result that the assessee-company terminated the licence and filed a civil suit, being Suit No. 1245 of 1953, in this court. In that suit, a consent decree was passed on the 7th of March, 1957, a copy of which is annexed to the statement of the case and marked 'C'. By that consent decree, it was declared that the agreement contained in the letter dated 5th May, 1949, had been validly terminated, and the said D. C. Gandhi and H. K. Rohra were trespassers in respect of the said plots of land, and they were ordered to 'hand over possession of the said plots of land together with the building standing thereon' to the assessee-company forthwith.
4. By this time, however, the purchasers of all the 44 flats had entered into occupation of their respective portions, and when the assessee-company attempted to execute the said consent decree, they were obstructed by the said flat owners, with the result that the assessee-company had to take out the usual chamber summons against the obstructionists. At the hearing of that chamber summons, a compromise was arrived at between the assessee-company and the various flat-owners, in pursuance of which each of the flat-owners was granted a lease of the flat which he had purchased in the said building for a period of twenty years. A copy of one of those leases is to be found annexed and marked 'F' to the statement of the case in the present reference. One of the recitals therein is that the lessee had satisfied the lessor that she had contributed Rs. 9,375 towards the construction of the structures standing on the land, and that it was in consideration of that contribution that she had been allowed by the said D. C. Gandhi and H. K. Rohra to occupy her portion of the said building. It was further stated in another recital therein that for the purpose of the provisions of the Income-tax Act, during the term of the demise, the lessee was to be deemed to be the owner of the demised premises, and she agreed to pay the income-tax payable by her in respect of the premises occupied by her on the footing of their rateable value. Under the said lease the lessee was to pay his or her proportionate part of the ground rent payable to the assessee-company, together with a nominal rent of Rs. 50 per month for the flat, and service charges at the rate of Rs. 3 per month for the same. Sub-clause (1) of clause (2) of the said lease provided that the lessee was not to assign, re-let, sub-let or part with possession of the demised premises without the written permission of the lessor.
5. The Income-tax Officer sought to assess the assessee-company in respect of the income received by it from the 44 flat owners under the said lease, under section 9 of the Indian Income-tax Act, 1922, on the footing that the assessee-company was the owner of all those flats. On appeal to the Appellate Assistant Commissioner, the decision of the Income-tax Officer was, however, reversed and the view taken was that the assessee-company was not the owner of the flats which had been let out to the various parties, at any rate for a period of 20 years. On further appeal by the department to the Tribunal, the Tribunal also took the view that the fact that the flats were constructed on a piece of land owned by the assessee-company did not lead to the conclusion that it had become thereby the owner of the flats or of the super-structure so as to be assessable under section 9 of the Act. In the opinion of the Tribunal, since the assessee-company did not become the owner of the flats, the income therefrom was taxable not under section 9 of the Act, but under section 12 thereof. It is from that order of the Tribunal that the present reference arises in which the following question has been referred to us for determination :
'Whether, on the facts and circumstances of the case, the income from the Khedgalli property was assessable to tax under section 9 of the Income-tax Act ?'
6. In order that section 9 of the Indian Income-tax Act, 1922, may be attracted, it is necessary that the income which is sought to be taxed thereunder should be from property consisting of building or lands appurtenant thereto of which the assessee 'is the owner', and the short question that we have to determine in this reference, therefore, is, whether the revenue, on whom the onus entirely lies in that respect, has proved that the assessee-company was the owner of the building in question, there being no dispute in regard to the ownership of the land.
7. On the first day of the hearing of this reference, Mr. Joshi advanced three contentions in support of the revenue's stand that the assessee-company is the owner of the building, and they were : (1) the provision contained in sub-clause (1) of clause (2) of the terms of the licence granted by the assessee-company to D. C. Gandhi and H. K. Rohra mentioned in the letter dated 5th May, 1949, which, he submitted, was in the nature of an express clause providing that the title to the building constructed on the said land was to vest in the assessee-company on the termination of the licence; (2) there was a presumption that the licensor is the owner of the building even during the continuance of the licence; and (3) that none other than the assessee-company could be the owner of the building which had been put up on the land. At the very commencement of the hearing on the next day, Mr. Joshi, however, stated to the court that he did not press the second contention mentioned above, with the result that it is not necessary for me to deal with the same.
8. Two questions really arise for our determination, and they are : (1) who was initially the owner of each of the flats and collectively of the whole building; and (2) if the assessee-company was not initially the owner thereof, has the legal title subsequently become vested in the assessee-company. As far as the first of those questions is concerned, in my opinion, there can be no doubt that the assessee-company was at all times the owner of the land, but at the same time that initially it was not the owner of any of the flats, or collectively, of the building which had been put up on the said land. This would appear to be the undisputed position, once the argument based on the presumption that the licensor of the land would be the owner of the building put up thereon is given up, as Mr. Joshi has given up in the course of the hearing before us. It is well settled by now that, unlike in England, in India, there can be dual ownership in the sense that the land may belong to one person and the building standing thereon to another. Reference may be made, in that connection, to the decisions of the Supreme Court in the case of Dr. K. A. Dhairyawan v. J. R. Thakur : 1SCR799 , and in the case of Bhatia Co-operative Society Ltd. v. D. C. Patel : 4SCR185 in which there was an appeal to the Supreme Court, but the view taken by the Bombay High Court on this point was not disturbed by the Supreme Court. It appears to me that, in the absence of anything else, the person at whose cost or on whose behalf a building is constructed on land belonging to another would initially be the owner thereof, and that person need not necessarily be the builder who constructs that building, even though he may happen to be the licensee of the land on which he builds. It is an admitted position, in the present case, that the building was constructed by the Jai Bharat Construction Corporation out of the contributions made by each of the 44 flat owners towards the cost of the construction thereof, and that when the construction of that building was completed the flat owners actually went into possession of their respective portion. On these facts, it cannot be said that the revenue, on whom onus in that regard rests, has proved that Jai Bharat Construction Corporation or its partners, D. C. Gandhi and H. K. Rohra, were the owners of the said flats or collectively speaking of the said building. It is not necessary for me for the purpose of this reference to pronounce a definite opinion as to whether or not the flat-owners are the owners of their respective portions. Suffice it to say, that the assessee-company was not initially the owner of the said flats or of the said building.
9. That brings me to the next question as to whether the title to the said flats or the said building has subsequently become vested in the assessee-company. Title to immovable property can pass only in one of the following ways :
(a) By a registered document or a registered consent decree, or a decree of a competent court;
(b) By virtue of an express clause in a registered lease providing for what is to happen on its termination;
(c) By operation of law;
(d) By adverse possession for the statutory period; and
(e) By inheritance or bequest, followed by a grant of probate or letters of administration.
10. It is nobody's case that the assessee-company has acquired title to the building in either of the last two ways and the same must, therefore, be omitted from consideration.
11. It will be convenient to consider together the first two of the modes mentioned above by which title to immovable property can be acquired, as it will involve consideration of some documentary evidence. The documentary evidence which has been referred to for that purpose in the course of the argument consists of the original licence granted by the assessee-company to D. C. Gandhi and H. K. Rohra, the terms of which are recorded in the letter dated 5th May, 1949; the consent decree dated 7th March, 1957, in Suit No. 1245 of 1953, as between the assessee-company on the one hand and the said D. C. Gandhi and H. K. Rohra on the other; and the lease executed between the assessee-company and each of the occupants of the flats. Dealing first with the terms of the licence granted by the assessee-company to D. C. Gandhi and H. K. Rohra, Mr. Joshi sought to place strong reliance on sub-clause (1) of clause (2) embodied in the said letter dated 5th May, 1949, and sought to contend that as a result of the said sub-clause (1), on the termination of the licence, the possession as well as the title to the buildings standing on the said land would pass to the assessee-company. There are several answers to that contention of Mr. Joshi. First and foremost, a title to immovable property cannot pass by a document which is not registered. Secondly, the said clause does not even purport to convey title, but merely speaks of resumption of possession of the land and of the materials and construction standing thereon. Thirdly, construed in the context of the succeeding clause, it is quite clear that sub-clause (1) refers to the stage at which the building thereon is still incomplete, and it is for that reason that it uses the word 'construction' in contrast with the use of the word 'building' in the succeeding clause, and in juxtaposition with the word 'material' in the said sub-clause (1) itself. It is true that the possession of the 'construction' which the assessee-company would get on the termination of the licence under the said sub-clause (1) might, in course of time, ripen into a title but in order that that should happen, the statutory period of prescription must run out, which has admittedly not yet happened in the present case. The said sub-clause (1) cannot therefore, in any view of the matter, be of assistance to the revenue in the present case. There is nothing else in the terms of that licence which can help the revenue, and, indeed, nothing else therein has been relied upon Mr. Joshi. In fact, Mr. Dastur has sought to contend that the provision for insurance of the building by the said D. C. Gandhi and the said H. K. Rohra, as well as the reservation of a right in the assessee-company to enter the land in order to see the progress of the construction work thereon, would indicate that the ownership of the building was to be with the said D. C. Gandhi and the said H. K. Rohra. In my opinion, however, these clauses are merely indicative of such a conclusion, but cannot lead to it, without anything more.
12. That brings me to a consideration of the consent decree dated 7th March, 1957. The same infirmities, which attach to the licence discussed in the preceding paragraph, also apply to this consent decree. The consent decree is also admittedly not registered. The subject-matter of the suit was the termination of the licence in respect of the land, and unless the consent decree passed therein was registered, it could not operate to convey title to the building which, by that time, was standing thereon in view of the provisions of section 17(1)(b) read with section 17(2)(vi) of the Indian Registration Act, 1908. Apart from that, a perusal of the terms of the said consent decree leaves no room for doubt that it only directs the said Gandhi and the said Rohra to hand over possession of the land, together with the building standing thereon, to the assessee-company and does not even purport to convey to the assessee-company the title to the said building. As I have observed in regard to sub-clause (1) referred to in the preceding paragraph, it might be that the possession of the building would, in course of time, ripen into a title by prescription but that is not the case before us. The said consent decree cannot also, therefore, be of any assistance to Mr. Joshi in the present reference.
13. That brings me to the terms of the leases that were executed by the flat-owners separately with the assessee-company. Mr. Joshi strenuously contended that the very fact that leases were executed by the flat-owners with the assessee-company would show that the assessee-company was the owner of the said building. There is, in my opinion, a fallacy clearly inherent in that argument of Mr. Joshi, for it fails to distinguish between estoppel which is merely a rule of evidence, and the conveyance of title which must be in one of the modes laid down by law. It appears to me that the said leases were executed by the assessee-company with the respective flat-owners in order to remove the cloud that hung over the title in respect of the said building, but, in the absence of a substantial title already existing in the assessee-company, which may not be free from doubt, the mere removal of that could cannot confer a title on it. In the view which I have taken, the assessee-company did not have even a vestige of title to the said building, and the mere fact that a document is executed in order to settle outstanding disputes, cannot be of any assistance to the revenue for the purpose of contending that, by reason of that document, a title which the assessee-company did not till then have, came to be vested in it. The only effect of the execution of the said leases by the flat-owners was that, since they assumed the character of lessees of the assessee-company they would thereafter be estoppel from denying that the said company had a title to the property, by virtue of the provision of section 116 of the Indian Evidence Act. In fact, Mr. Dastur sought to rely on the recital contained in the said lease whereby each of the lessees was to be deemed to be the owner of the demised premises for the purpose of the provisions of the Income-tax Act as showing that the lessees must, therefore also be held to be the real owners of these premises. In my opinion, no conclusion can be drawn either way from what, at the highest, is expressed as a 'deeming fiction'. I am, therefore, of the view that the said leases can only operate to create an estoppel against the flat owners from disputing the assessee-company's title to the building in question, but that they cannot create a title in the assessee-company which did not exist till then. In the course of his arguments on this point Mr. Joshi cited the decision of the Calcutta High Court in the cases of Ballygunge Bank Ltd. v. Commissioner of Income-tax : 14ITR409(Cal) and Sri Ganesh Properties Ltd v. Commissioner of Income-tax : 44ITR606(Cal) as well as the decision of the Supreme Court in Dhairyawan's case : 1SCR799 already cited above another context. In each of those cases, however, there was an express clause in the leases providing that the structures constructed were to be the absolute property of the lessor (see clause 14, at page 412, clause 11(4) at page 610, and clause 5 in para. 8, respectively). None of the said decisions can, therefore, be of any assistance to Mr. Joshi in the present case. I hold that there is, in the present case, no registered document, nor is the consent decree registered, nor is there any express clause in the registered lease, as a result of which the assessee-company could be held to have become the owner of the building constructed on their land.
14. Mr. Joshi, however, contended that the assessee-company should, in any event, be held to have become the owner of the building by operation of law having regard, particularly to the provisions of section 108(h) of the Transfer of Property Act. Reference was made by Mr. Joshi to the decision of the Supreme Court in the case of R. B. Jodha Mal Kuthiala v. Commissioner of Income-tax : 82ITR570(SC) , but that was clearly a case in which the statutory provision contained in section 6(1) of the Pakistan (Administration of Evacuee Property) Ordinance provided for the vesting of all the property of the evacuee in the Custodian. In such a case, obviously, the property would vest in the Custodian by operation of law, but that affords no analogy to the position that entails in the reference before us. Section 108(h) of the Transfer of Property Act, on which Mr. Joshi relied, enacts that the lessee has the right, after the determination of the lease to remove, at any time whilst he is in the possession of the property but not afterwards, all things which he has attached to the earth, and the commentary of Sir Dinshah Mulla states in Transfer of Property Act, 1882, 6th edition, page 701, that if the lessee once quits possession, he cannot return and the fixtures become the property of the lessor. Strong reliance was sought to be placed by Mr. Joshi on that observation of Sir Dinshah Mulla which, he has pointed out, has been referred to in certain authorities, which I will presently discuss. In the case of Jagat Ram Sethi v. D. D. Jain : AIR1972SC1727 , without referring to the commentary of Sir Dinshah Mulla, the proportion set out is that under section 108(h) of the Transfer of Property Act the lessee could, after the determination of the lease, remove while in possession the construction made by him, but if he failed to do so and the property reverted to the lessor, the fixtures, etc., would become the property of the latter. As Mr. Dastur rightly pointed out, this statement which is to be found in paragraph 5 of the judgment of the Supreme Court does not, however, appear to be a statement of the law by the Supreme Court, but the whole of that paragraph only gives a resume of what the Additional Civil Judge had decided in the earlier proceedings in the said case. This appears to be clear in view of the fact that paragraph 6 and 7 of the same judgment thereafter proceed to deal with the arguments advanced on behalf of the other side, and it is only at the end of paragraph 7 that the Supreme Court's own view of the matter is stated in these words - See : AIR1972SC1727 :
'The lessee had the right under section 108(h) of the Transfer of Property Act to remove the constructions while he was in possession.'
15. It is pertinent to note that at that stage the further statement that, if the lessee does not do so, the lessor thereby becomes the owner of the constructions does not occur in the judgment of the Supreme Court. In any event, it does not state when the lessor would become the owner of the fixtures which the lessee fails to remove before giving up possession. That the lessor would by lapse of the statutory period ultimately become the owner thereof cannot be questioned, as already stated above. Both on the ground that the said statement does not appear to be a statement of the law by the Supreme Court, as well as on the ground that is does not lay down when the lessor would become the owner of fixtures which the lessee has failed to remove before giving up possession, this decision cannot be of any help to Mr. Joshi in the present case. In the case of Khimjee Thakarsee v. Pioneer Fibre Co. Ltd. : AIR1941Bom337 , Blackwell J., sitting as a single judge, has stated (at page 339) that if the defendants in that case chose to leave the structures on the property of the lessors, then they lost all right, title and interest in those structures, and further stated the result of such a course would be that it becomes the right of the lessors to do what they liked with those structures - to destroy them, or leave them there as they chose. It is, however, significant to note that Blackwell J. did not lay down in his judgment in the said case that the lessor becomes the owner of those structures by reason of the failure of the lessee to remove them within the time allowed to him. The learned judge has, in his judgment, stopped short of saying so, perhaps, advisedly. It is true that the learned judge has mentioned in his judgment the commentary of Sir Dinshah Mulla on this point, but in the absence of his imprimatur to the same, it cannot be said that it is part of his decision. In the case of Sakarchand Chhaganlal v. Controller of Estate Duty : 73ITR555(Guj) the commentary of Sir Dinshah Mulla on this point has been quoted (at page 563) by the learned Chief Justice of the Gujarat High Court, but in that case also what the court held was only that 'by reason of his failure to remove the structures within the time provided to him, the lessee lost his right to the super-structure'. Since the court was in that case considering the position from the point of view of the lessee, it did not proceed to lay down whether or not the lessor had thereby become the owner of the superstructure, and this decision also, therefore, cannot be of any assistance to Mr. Joshi for propounding the view which he submitted in regard to the true interpretation of section 108(h) of the Transfer of Property Act. We have not been referred to any decision which categorically lays down the proposition that, by reason of the failure of the lessee to remove the fixtures which he has made on the demised premises before he gives up possession, the lessor immediately becomes the owner thereof, even before the statutory period of adverse possession has expired.
16. Apart from the decision referred to above, even as a matter of plain reading, it is apparent that section 108(h) applies only to the case of a lease and not to the case of a licence. I see no reason why, in the absence of any express provision to that effect, the principle of that section should be extended to a licence. Section 63 of the Indian Easements Act which deals with the licensee's rights, on revocation, does not contain a provision similar to section 108(h) of the Transfer of Property Act. On the contrary, it indicates that the lessee has the right to remove any goods which he has been allowed to place on the property, but does not prescribe any time limit within which he is required to do so. The second reason for rejecting Mr. Joshi's contention in regard to section 108(h) of the Transfer of Property Act is that, in any event, it cannot apply to a case like the present one in which it has not been proved by the revenue that the licensee had itself any title to the building which it constructed on the assessee-company's land. What appears to have happened is that the Jai Bharat Construction Corporation, of which the original licensees were partners, were merely builders who built on the land of one, with moneys of others on whose behalf they constructed the building, and it is hard to conceive of any right on the part of the Jai Bharat Construction Corporation to remove the building on a principle analogous to section 108(h) of the Transfer of Property Act, even if any such principle was applicable to the same. That would do so, particularly because the building had been constructed with the moneys of the flat-owners who were in actual possession of the respective flats in the building. I have, therefore, come to the conclusion that neither section 108(h) of the Transfer of Property Act, nor any principle analogous thereto, can be of any assistance to the revenue for the purpose of contending that the assessee-company is the owner of the building standing on its land. I would, therefore, answer the question referred to us in favour of the assessee.
S.K. Desai, J.
17. I agree, and have nothing to add.
18. The question referred to us is answered in the negative, and in favour of the assessee. The Commissioner to pay the assessee's costs of the reference.