P.V.B. Rao, Vice President (NZ) -
(1.) THE question whether the assessees should be assessed under the head 'Income from house property' or under the head 'Income from other sources' may look simple but the answer is not easy to find especially in view of the provisions of the Income-tax Act, 1961 ('the Act'), coupled with myriad of decisions. THE difficulty is further aggravated by the inelegantly drafted documents bearing on the question. To understand the implications of the question and to find out an answer thereto, it is necessary to state the facts in detail.
(2.) Shri Dewan Chand and Shri Badri Nath were joint lessees of a plot of land, measuring about 4,628 sq. yds., plot No. 24, Barakhamba Road, New Delhi, under a registered perpetual lease deed dated 17-9-1937. Thereafter, the property came into the hands of Shri Prem Nath by a registered conveyance deed dated 16-5-1938. Shri Prem Nath constructed a dwelling house on the said plot and this property was treated as the property of the family of Shri Prem Nath of which he was the karta. He had three sons, Sarva Shri Rajeshwar Nath, Vishwa Nath and Jatinder Nath. His wife was Smt. Indra Devi. A family arrangement was entered into among the members of the family and the same was registered by a document dated 2-8-1941. 50 per cent of the property was allotted to Smt. Indra Devi and the remaining moiety was allotted to Shri Prem Nath himself according to, the family arrangement. Shri Prem Nath died intestate on 15-6-1949 leaving behind him his three sons and his widow Smt. Indra Devi. Subsequently, Smt. Indra Devi disclaimed all her rights and interest in the said property and she conveyed her undivided half share by a registered gift deed dated 11-9-1957 in favour of her three sons in equal shares. The result was that the three sons of Shri Prem Nath became joint owners of the entire property. They treated this property as the property belonging to the respective families. On 1-3-1972 there was an oral partial partition of the said property by the three families of three sons of Shri Prem Nath respectively. The property was divided in 12 equal parts and they were allotted to 12 persons of the families (we are not concerned with the names). Shri Rajeshwar Nath filed a declaratory civil suit-cum-partition suit in the Hon'ble Delhi High Court at New Delhi and by a decree of the Hon'ble High Court dated 17-5-1971, it was declared that each of the 12 parties was the owner of the undivided interest in the said property and that Smt. Indra Devi had no right therein. The decree was subsequently registered on 13-6-1971. Even before the division of the said property among the 12 persons aforesaid, the kartas of the three families approached Dewan Chand Builders (P.) Ltd. (hereinafter referred to as 'builders') of 33-B, Pusa Road, New Delhi, for the construction of a multi-storeyed building and on 22-6-1970, a tentative arrangement had been duly arrived at between the parties for the said purpose. Some of the parties had transferred their interest to other family members and in this manner ultimately the property vested in all the 17 co-owners. These 17 co-owners entered into a formal written agreement on 1-3-1972 with the builders for the construction of the said multi-storeyed building which was already taken up. The consideration for this transaction was that 30 per cent of the built up area should be left to the 17 co-owners pro rata and that the balance of 70 per cent should be left for the benefit of the builders. There was a further arrangement by which the 17 co-owners transferred their entire rights, title and interest in the property (land) to a private limited company, named, Ashoka Estate (P.) Ltd., by registered conveyance deeds. Ashoka Estate (P.) Ltd. was evidently formed for the purpose of taking over the maintenance of the entire multi-storeyed building and with a view to make the several owners of the flats contained in the multi-storeyed building as shareholders. It is at this stage it is relevant to take note of the written agreement dated 1-7-1972 which incorporated the tentative arrangements arrived at between the 17 co-owners and the builders. Most of the preamble of this agreement traced the history of the title of the property from time to time, which has already been mentioned earlier and, therefore, it is not necessary to repeat the same. The consideration money for the conveyance of the entire property of land in favour of Ashoka Estate (P.) Ltd., which was to come into existence, was fixed at Rs. 18 lakhs. Clause 4 of the said agreement is relevant as much of argument was advanced on this, especially by the revenue :
4. Nothing contained herein was however, to be construed to confer upon the second party, or allottees of the space, any right, title or interest of any kind, whatsoever, into or over the said land or building or any part thereof.
There are various clauses as to the manner in which the consideration was to be paid but as already indicated 70 per cent of the built-in-area was left for the benefit of the builders. Clause 10 again is relevant for our purpose and it reads as follows :
10. That the second party was to be free to transfer and dispose of flats, offices, showrooms and garages, covered or uncovered, pertaining to its 70 per cent share of the multi-storeyed building plus 3,000 sq. ft. transferable area on the second floor, and as hereinafter mentioned to any party and in any manner it thought fit without any interference from the vendors or any person claiming through any of them.
Clause 14 may also be noticed :
14. That all persons to whom the second party was to transfer any specified area in the building were to be allotted the said areas under perpetual, heritable and transferable licenses to be granted to the said persons by the said Ashoka Estate (P.) Ltd., in whom the title to the plot No. 24, Barakhamba Road, New Delhi, and the multi-storeyed building to be constructed thereon was to vest at all times. Each of the said persons to whom any such built area was to be allotted was also to be given fully paid share, against payment of the face value of the share. It was also agreed and understood that initially the said allottees were only to be granted. 'Agreement for Licences' and regular licence deeds along with requisite share-scrips were to be handed over to the allottees at the time when the building was completed in all respects arid the possession of the allotted area was handed over to the concerned allottees. It was also agreed and understood between the parties that in case the number of allottees exceed fifty (50), then the said company, known as Ashoka Estate (P.) Ltd., was to be converted into a public limited company to permit the transfer of its shares to more than fifty (50) allottees, ft was also agreed that the allottee of any space in the multi-storeyed was to be a natural person or a juristic person or an otherwise statutory person.
With the above arrangements, the builders started to 'book' the flats and collected moneys. Evidently the flats are from out of 70 per cent area allotted to them. The assessees are such allottees. The assessees paid the required amount as demanded by the builders by instalments. Except a receipt for the payment, there, was no formal agreement. The terms and conditions are printed at the back of the receipt. It was stipulated that licence deed would be executed in favour of the licencee within a reasonable time after the entire building is completed. Then came the articles of agreement dated 1-7-1976 wherein Ashoka Estate (P.) Ltd., who became the owner of the plot of land by virtue of the registered conveyance deeds executed by the 17 co-owners in its favour, on one part, builders on the second part and the allottees of the fiat on the third part. This is a tripartite agreement executed between the concerned parties. Apart from tracing the history by which the title in the plot of land passed to Ashoka Estate (P.) Ltd., there are various conditions and stipulations regarding the flat which is allotted to a person. The assessees are the allottees of the flats in the multi-storeyed building. The agreement itself has come into being after the full payment of the consideration for the flats by the allottees and after the completion of the building. Clause 5 of the said deed clearly mentions that after the completion of the building, possession shall be handed over by the seller and the builders to the allottees, who is described as a buyer. Clause 6 is very relevant:
6. Transfer of legal title - The buyer upon delivery of possession will be entitled to the use and occupation of the said office, showroom/storage space/parking space without any hindrance, but subject always to the stipulation and restrictions contained herein, provided always that nothing contained in these shall ever be construed to confer upon the buyer any right, title or interest, grant, lease, demise or assignment in the land of the said office/showroom/storage space or over the said land or building or any part thereof; such conferment to take only subject to such conditions, as are herein contained or as may be imposed by any authority, and then also upon the execution of such deed or deeds as may be required to be executed in favour of the buyer/buyers. The buyers, shall, however, make payment of all amounts due and payable to the builder/seller before being entitled as aforesaid to the execution of any deed or deeds in favour of the said buyer. All necessary charges including stamp duty, New Delhi Municipal Committee transfer duty, registration charges and all other out of pocket expenses, outgoing and charges in connection with the execution and registration of the aforesaid deeds in favour of the buyer/buyers shall be paid by the buyers in proportion to the area acquired by the concerned buyer/buyers.
The seventeen co-owners referred to above and the buyers of the remaining approximately 70 per cent built or unbuilt area of the said multi-storeyed building shall all become members of the Ashoka Estate (P.) Ltd. in proportion to their holdings in the said Ashoka Estate building. The decision of the seller with regard to the amount of share capital to be taken or allotted to any of the aforesaid parties, comprising the said seventeen co-owners and the said buyer/buyers shall be final and binding on the said co-owners and the said buyer/buyers.
There are conditions by which the buyer has no other right in respect of any space other than his own flat. By Clause 19 there is a restriction on the buyer to let or sub-let, transfer, convey, mortgage, charge, or in any way encumber or deal with or dispose of the property until the full payment is made. Clause 20 deals with the assignment of the rights of buyer and it reads :
20. Transfer charges - The buyer shall not assign his rights under this agreement in the office/showroom/storage space to any individual without obtaining the prior approval in writing of the seller. The transferor shall pay to the seller the transfer charges as prescribed by the seller from time to time.
Once the buyer takes possession, he shall have no claim as per Clause 22 of the agreement. Clause 26 reads :
26. Right of the buyer - The seller covenants with the buyer that on the buyer paying the dues and performing the terms of the agreement and stipulations here in on their/his/her part contained, they/he/she shall peaceably hold and enjoy the said office/showroom without any interruption by any person rightfully claiming under or in trust for the seller.
Since the building is a multi-storeyed one, containing number of flats, certain common obligations are stipulated in the agreement, which shall be the obligations of the limited company, Ashoka Estate (P.) Ltd., who became the owner of the land. By clause 31 all costs, charges and expenses in connection with the transfer of the title to the buyer or formation of the limited company, namely, Ashoka Estate (P.) Ltd., shall be borne by the buyer. The assessees being allottees, have taken possession of the flats after the payment of the full consideration. They have been in enjoyment of the property and have let out the property to lessees on monthly tenancy basis.
(3.) IN the above background of the facts, the question as already stated is whether the income in respect of the flats taken over by the assessees should be assessed as 'income from house property' or as 'income from other sources'. The ITO took a very simple stand stating that the assessees are not the owners of the property, since there is no legal title vested in them and as such the rental income that they receive should be assessed under the head 'INcome from other sources'. The AAC has taken a different view. According to him, the income is to be assessed under the head 'INcome from house property'. The revenue is, therefore, in appeal and the matter has been referred to the Special Bench in view of the conflicting views expressed by different Benches at Delhi.;