Decided on December 16,1983

D.L.F. UNITED LTD. Appellant

Referred Judgements :-



S.S.CHADHA, J. - (1.)IN this reference under S. 256(1) of the INCOME TAX ACT, 1961 (hereinafter referred to as "the Act") at the instance of the assessee, the following question has been posed for the opinion of this Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 5,000 by way of annual letting value of the property, could be assessed in the hands of the assessee company as its income from house property ?"

(2.)THE statement of case relates to the asst. year 1963 -64, the accounting period ending on September 30, 1962. M/s D. L F. Housing and Construction (P) Ltd. is the assessee -company which has now been amalgamated into M/s D. L. F. United Ltd. It carried on business of colonisation and one of the colonies developed was the Kailash Colony. While developing the colony, the assessee company reserved a plot of five acres for construction of a school and for other subsidiary purposes. A school known as Summer Field School was also put up on this plot of land and the same was placed under the management of a person who was formerly a Principal of Delhi Public School. On May 13, 1953, the managing agents of the assessee company put up a proposal for the consideration of the assessee -company's board of directors. The proposal was considered by the board of directors in the meeting held on June 13, 1953, who considered that the suggestion would assist in the development of the assessee -company and would be in the interest of the company. They accordingly authorised the managing agents to give the land and building of the school to the Trust, namely, D.L.F. Lal Chand Trust, on a perpetual lease of Re. 1 per year. The board of directors of the assessee -company appointed six persons named therein as the first trustees and a formal declaration of trust was drawn up and executed on October 24, 1953. The D.L.F. Lal Chand Trust was brought into existence. A copy of the trust deed along with the annexures dated October 24, 1953, made between the assessee -company and the trustees forms part of the statement of case. On January 6,1954, a lease deed was executed by the assessee -company in favour of the Trust.
The ITO made an estimate of Rs. 5,000 representing the net (annual) income from property and included the same in the assessment. According to him, the assessee had not ceased to be its owner and could suspend the lease on the terms settled, that the assessee had leased it out as an owner and not in the capacity of a trader, that the assessee was liable to be assessed on the bona fide annual letting value of the property, that there is nothing to show that the ownership of the property has been transferred and that the property has been given on concessional rent on considerations of charity. The assessee went in appeal to the AAC. It was claimed that the establishment of the school had benefited the business and as such it must be considered as an essential prerequisite of the business, that the lease is a perpetual one, that the assessee is not the owner of the property within the meaning of S. 22, that a building capable of being used as a school can certainly have an annual letting value but a building which has been originally set apart for a trust running a school and is already used and occupied by a school, can have no annual letting value and that, relying on CIT vs. R. B. Jodha Mal Kuthiala (1968) 69 ITR 598 (Delhi) (FB), no rights of ownership could be considered as being vested in the assessee. The AAC accepted these contentions of the assessee and deleted the addition of Rs. 5,000 made by the ITO in this regard.

(3.)THE Department went in appeal before the Income -tax Appellate Tribunal (for short, called "the Tribunal"). Before the Tribunal, the assessee also relied upon the decision of the Supreme Court in R. B. Jodha Mal Kuthiala vs. CIT (1971) 82 ITR 570 (SC), to contend that the assessee cannot exercise any rights in the property on the facts and circumstances of the case and the residual benefit rights cannot be considered ownership for the purpose of S. 22 of the Act. The Tribunal also considered the other contention of the assessee that the amount spent on construction of the property as well as on the land was really an outgoing of the assessee's business though it has not been claimed as such in earlier assessments. The Tribunal repelled the latter contention for the reason that the assessee had not claimed it as such in the earlier assessments and it was not known how the expenditure incurred on the land and building in question constituted business expenditure of the assessee and the running of the school could be treated as incidental to the assessee's business of colonisation. The Tribunal held that the grant of perpetual lease of the school building to the trust which was running the school could not be described as the assessee's business of colonisation.

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