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D.C. Anand and Sons Vs. Commissioner of Income-tax, New Delhi - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax Reference No. 39 of 1974
Judge
Reported in[1981]131ITR77(Delhi)
ActsIncome Tax Act, 1961 - Sections 23
AppellantD.C. Anand and Sons
RespondentCommissioner of Income-tax, New Delhi
Cases ReferredDewan Daulat Rai Kapoor v. New Delhi Municipal Committee
Excerpt:
.....had been a diversion of income by overriding title and that the assessed was not the beneficial owner of the income after may 1, 1965. 13. that apart it has been held by this court in kartar singh's case [1969]73itr438(delhi) that even where the owner has diverted the in we have pointed out earlier that this is only a case where it can at best be said that the owner of the property has disabled himself by a contract voluntarily entered into by him from being able to receive the rent for a particular period though entitled in law to do so. he points out that the rights of the present assessed in the property are on a much better footing than those of the transferor in the case before the bombay high court. wadheera because the matter is clearly governed by the decision of this court in..........meeting held on 28-8-1963. in pursuance of the decision taken at that meeting, he had offered the property owners, viz., m/s. d. c. anand & sons, to purchase the property and the company paid a sum rs. 10,00,000 as advance on may 7, 1965, from the aid loan funds made available for this purpose. the company would stop paying rent effective from may 1, 1965, and the conveyance would be completed within a period of three months.' 4. however, as stated already, no sale deed was executed within the three months' period referred to in the resolution and the sale deed was executed only on may 31, 1966. 5. in the above circumstances, the ito rejected the assessed's contention that no income from the above property should be included in its assessment for 1966-67. he observed that it was not.....
Judgment:

Ranganathan, J.

1. This is an income-tax reference. The assessed-applicant, M/s. D. C. Anand and Sons, is an HUF. Its previous year for income-tax purposes is the financial year.

2. The assessed was the owner of a house property at Mulund in Bombay. The property had been let out by the assessed-family to M/s. Gabriel India Ltd., sometime in 1961. M/s. Gabriel India Ltd. (hereinafter referred to as 'the company') was a company in which several members of the assessed-family were directors or shareholders. The assessed was receiving a rent of Rs. 6,000 per month in respect of the above property.

3. When the assessment of the family for assessment year 1966-67 was taken up, the assessed claimed that no income from the above property could be included in its assessment. On looking into the matter, it was found that the assessed had executed a deed of conveyance in favor of the company only on May 31, 1966. It was, however, claimed that though the sale deed had been executed on May 31, 1966, the property had been sold to the company even in May, 1965, and that as per the agreement between the parties, no rent was chargeable from the company in respect of the property from May 1, 1965, onwards. No agreement of sales was produced in support of this contention. The sale deed dated May 31, 1966, which was executed in consideration of a sale price of Rs. 11,05,002 did not also make any reference to any earlier agreement between the parties. All that the assessed produced was the copy of a resolution passed by the board of directors of the company at their meeting held on May 21, 1965, to the following effect:

'Mr. D. C. Anand with the permission of the meeting took up the subject of transfer of the property presently occupied by Gabriel India Ltd. He stated that the taking over of property at Mulund was discussed at the board meeting held on 28-8-1963. In pursuance of the decision taken at that meeting, he had offered the property owners, viz., M/s. D. C. Anand & Sons, to purchase the property and the company paid a sum Rs. 10,00,000 as advance on May 7, 1965, from the AID loan funds made available for this purpose. The company would stop paying rent effective from May 1, 1965, and the conveyance would be completed within a period of three months.'

4. However, as stated already, no sale deed was executed within the three months' period referred to in the resolution and the sale deed was executed only on May 31, 1966.

5. In the above circumstances, the ITO rejected the assessed's contention that no income from the above property should be included in its assessment for 1966-67. He observed that it was not possible in the circumstances mentioned above to verify the precise terms and conditions of the agreement. The assessed continued to be the legal owner of the property till May 31, 1966, and the fact that the assessed did not receive the rent after May 1, 1965, was immaterial in making an assessment under s. 22 of the I.T. Act. He also found that the rent of Rs. 6,000 per month was the standard rent in respect of the property by virtue of the provisions contained in s. 5(1)(b)(iii) of the Bombay Rent Control Act and, thereforee, the annual letting value of the property should be taken at Rs. 72,000 as before and not on the basis of the municipal valuation as contended on behalf of the assessed. He, thereforee, included the income from the property computed on the basis of the annual letting value of Rs. 72,000.

6. The AAC confirmed the action of the ITO. The AAC observed that no specific reasons for the delay in the execution of the conveyance deed had been given and also that there was no dispute that, in 1963, when the issue was first discussed between the parties or in 1965, the sale price payable had not been stipulated.

7. The assessed preferred a further appeal to the Tribunal. Several contentions were raised before the Tribunal. It was contended, relying on the decision of the Supreme Court in the case of R. B. Jodha Mal Kuthiala v. CIT : [1971]82ITR570(SC) , that even assuming that the assessed had not parted with the legal titled to the property till May 31, 1966, it could not be treated as the owner of the property, as it was bereft of all rights over the income of the property after a agreement of sale had been entered into and after it had received a substantial part of the sale consideration. Reference was also made to s. 53A of the Transfer of Property Act in this connection. It was also contended that when there was specific stipulation that rent would not be payable from May 1, 1965, it had the implication that no income whatever accrued to the assessed, and, thereforee, the property had no letting value whatsoever. Finally, it was contended that, even otherwise, rent for the period from May 1, 1965, to May 31, 1966, should be treated as having become unrealisable and, thereforee, should be deducted in the computation of the property income under s. 24(1)(x).

8. The Tribunal rejected all the contentions urged on behalf of the assessed. It was pointed out, referring to certain decisions of the Supreme Court and the High Courts (including a decision of this court in CIT v. Meatles Ltd. : [1972]84ITR37(Delhi) ), that there could be no two opinions that the assessed-family continued to be the owner of the property till May 31, 1966. The argument that this ownership has essentially to be correlated to the income enjoyable from the property was not accepted as a plain reading of ss. 22 and 23 made it clear that the actual enjoyment of the income or rent thereof has little to do with the assessability. It was held that the decision of the the Supreme Court in the case of R. B. Jodha Mal Kuthiala : [1971]82ITR570(SC) was given in an altogether different context. In that cases, under a statute, all rights and powers in respect of the property were vested in the custodian and it was held that he was the owner of the property within the meaning of the Act. In the present case, however, there was no such overriding title which had the effect of an elimination of the ownership of the true owner. In case the assessed had agreed not to charge any rent from May 1, 1965, the same was entirely a matter of mutual agreement between the company and the assessed and such an agreement could not preclude as assessment under s. 22. The claim under s. 24(1)(x), the plea that since no rent could be realised by the assessed during the previous year, the property should be treated as having no letting value, as well as the contention that the municipal value of the property alone should be taken into account were all rejected. The contention based on s. 53A of the Transfer of Property Act was rejected because there was no formal agreement of sale in writing as required under that section. The assessed's appeal was, thereforee, dismissed.

9. The assessed appealed to the Tribunal for a reference to this court of as many as five questions of law which were said to arise out of the order of the Tribunal. The Tribunal pointed out, (a) that so far as the ownership of the property was concerned, no question of law could arise for reference as the position of law in that respect was clear and settled by the decision of the Supreme Court; (b) that the question regarding the applicability of s. 53A of the Transfer of Property Act was not a question of law as the Tribunal had found as a fact that there was no agreement in writing between the assessed and the company; and (c) the question as to what was the annual value of the property was essentially a question of fact and no question of law could arise there from. The only question left for consideration was, thereforee, whether in the circumstances the assessed could be assessed on the income from the property though it had not realized any rent in respect of the year under consideration. The Tribunal pointed out that so far as this question was concerned, the statutory provision was quite clear and the view of the Tribunal was also based on the decision of the Bombay High Court in the case of D. M. Vakil v. CIT : [1946]14ITR298(Bom) . Though normally a reference on such a clear provision of law was not warranted, the Tribunal accepted the plea of the assessed that a reference might be made because there was no Supreme Court decision on that matter. The Tribunal has, thereforee, referred to this court the following only question:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 72,000 after such deduction as may be permissible under the law, could be treated as part of the assessed's total income for assessment year 1966-67 ?'

10. Mr. G. C. Sharma, learned counsel appearing for the assessed, frankly admitted that the scope of the question referred to this court is very narrow. The questions, thereforee, (a) as to whether the title to the property had passed only on May 31, 1966, (b) as to whether the provisions of s. 53A of the Transfer of Property Act have any application, and (c) as to whether the municipal value should have been adopted for the purpose of assessment, are all, thereforee, outside the purview of this court. All that this court has to consider is whether, on the basis that the assessed continued to be the owner of the property till May 31, 1966, it can claim that no property income should be taken into account for the financial year 1965-66 for the only reason that the assessed did not collect any rent from the company.

11. As pointed out by the Tribunal, the assessment of property income under the I.T. Act stands of a slightly different footing from the assessment in respect of other categories of income. So far as property income is concerned, once it is established that the assessed is the owner of the property, he is assessable on the annual value of the property as determined under ss. 23 to 27 of the Act. Under s. 23 the annual value of the property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year. It has been pointed out in a series of decisions that the section brings to charge what may in one sense be described as a notional income which may not necessarily correspond with the actual income which the owner might receive in respect of the property. Property income can also be determined and assessed in a case where the owner of the property occupies the property himself and so derives no income there from. It is unnecessary to set out the earlier decisions on this point and it is sufficient to refer to the decisions of this court in Kartar Singh v. CIT : [1969]73ITR438(Delhi) and the discussion in CIT V. H. P. Sharma [1980] 122 ITR 675, though the actual decision in that case might need reconsideration in view of the subsequent decision of the Supreme Court in Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee : [1980]122ITR700(SC) overruling a Full Bench decision of the court which had been followed by the Division Bench. The short point made by Mr. Sharma in view of the above decision is that, though the assessed was the owner of the property, he had been placed in such a situation that he could not derive any income from the property for the financial year 1965-66 except for April, 1965. He contends that the assessed and the company had agreed that, though the sale deed was to be executed only subsequently, the sale should be deemed to be effective from May 1, 1965, and that no rent need be paid after that date by the company. Learned counsel contends that this amounts to a deversion of the income from house property at source and, thereforee, the income could not be included in his assessment.

12. We are unable to accept the contention of the learned counsel for two reasons. In the first place, there is nothing to show that the income from the property had been diverted from the assessed by any overriding title. As pointed out by the ITO and the AAC all that is shown is that the company had intended to purchase the property, that discussions took place in 1963 and 1965, that an advance of Rs. 10 lakhs had been paid to the family on May 7, 1965, and that a sale deed was executed for a consideration of Rs. 11,05,002 on May 31, 1966. So far as the non-payment of rent is concerned, the only facts available on record are that the company had not paid the rent and had resolved not to do so on May 21, 1965. It is very difficult to spell out from this resolution and the fact that no rent has been specifically shown as received by the assessed that there was any such agreement, as alleged by the learned counsel. The facts are quite consistent with the position that the assessed agreed to sell and sold that property to the company only with effect from the date of the sale deed. There is nothing to indicate that the offer referred to in the resolution of the company was accepted by the family. The resolution was based on an understanding that the sale deed would be executed within a short period but this was not done and there is nothing to show that the family had agreed to waive the rent despite the delay. As point out by the Tribunal in the statement of case, the copy of the resolution produced had been signed by D. C. Anand only in his capacity as the director of the company and there is nothing to show that the assessed had agreed to waive the rent after and from May 1, 1965. In this context, it is significant to note that there was no written agreement preceding the sale and that the sale deed itself does not make any reference to the sale being, so to say, retrospective. It is also significant that a sum of Rs. 10,00,000 was paid on May 7, 1965, but the actual sale deed was executed for Rs. 11,05,002 and as pointed put by the AAC there is no evidence as to the price that had been agreed upon between the parties when the discussions took place in 1963 as well as in 1965. Taking all these circumstances into account all that can be said is that for the reasons best known to it, the assessed does not appear to have received the rent as such on or after May 1, 1965. It has, however, not established that there was any agreement between the company and itself to waive the rent, and, much less, that it was an agreement which it was compelled to make as part and parcel of the terms of a sale which was really effective from May 1,1965. The facts proved are not sufficient to spell out a contention that there had been a diversion of income by overriding title and that the assessed was not the beneficial owner of the income after May 1, 1965.

13. That apart it has been held by this court in Kartar Singh's case : [1969]73ITR438(Delhi) that even where the owner has diverted the income from house property at source, he would continue to be liable to pay income-tax on the annual letting value subject to specific deductions given in the Act. The situation in the case R. B. Jodha Mal Kuthiala : [1971]82ITR570(SC) was also considered by this decision though at the time the case was decided, the decision of the Supreme Court affirming the Full Bench decision of this court (reported in : [1968]69ITR598(Delhi) -(CIT v. R. B. Jodha Mal Kuthiala) was not available. The Supreme Court has since held having regard to the provisions of the Evacuee Property Act that the so-called owner of the property was not the real beneficial owner of the property in the light of the provisions contained in the statute. That situation is totally different from the situation in the present case. We have pointed out earlier that this is only a case where it can at best be said that the owner of the property has disabled himself by a contract voluntarily entered into by him from being able to receive the rent for a particular period though entitled in law to do so. Even if such an agreement can be construed as resulting in a diversion of the income by overriding title, the contention cannot be accepted in view of the above decision of the court.

14. Learned counsel for the department invited our attention to the decision of the Bombay High Court in the case of CIT v. Zorastrain Building Society Ltd, : [1976]102ITR499(Bom) , where the owner was held liable to be assessed in respect of the income from the property even though the property had been transferred in such circumstances as attracted the application of s. 53A of the Transfer of Property Act and although the assessed had written to the tenants requesting them to attorn to the transferees with effect from a date anterior to the date of execution of the sale deed. He points out that the rights of the present assessed in the property are on a much better footing than those of the transferor in the case before the Bombay High Court. We do not, however, think it necessary to dilate on this case or the other decisions referred to by Mr. Wadheera because the matter is clearly governed by the decision of this court in the case of Kartar Singh : [1969]73ITR438(Delhi) .

15. For these reasons, we answer the question referred to us in the affirmative and in favor of the department. The department will be entitled to its costs: Counsel's fee Rs. 300.


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