G. Santhanam, Accountant Member - (1.) THESE appeals are by the assessee.
(2.) The original assessment for the assessment year 1986-87 was completed on 22-7-1987. The same was reopened under Section 147 of the IT Act to bring to tax capital gains stated to arise on the transfer of a flat at Maker Towers, Bombay to M/s. Coromandal Indag Products Ltd., Madras. The facts of the case may be stated briefly as follows : The assessee entered into an agreement on 17-7-1984 with M/s. Coromandal Indag Products Ltd. for the sale of property situate on the 18th floor of Maker Towers, Cuffe Parade. Bombay, comprising 2340 sq. ft. for a total consideration of Rs. 25,74,000. The sale consideration was to be paid by the vendor in four equal instalments due on 12-7-1984, 12-10-1984, 12-1-1985 and the last instalment was to be paid on or before 30-6-1985. Interest at 15 per cent per annum was also payable along with the instalment as above. As per Rlause 3 of the agreement, the seller, viz., the assessee would continue to be in possession of the entire property till the sale transaction was duly completed. However, the seller agreed to give a licence to the buyer to use temporarily an approximate 2,000 sq. ft. area of the flat on payment of the first instalment. It was further stated that the seller does not thereby part with the possession of the said area and that they continued to be in possession and that the use by the party of the second part is purely in the capacity as licensee and that the said licence is liable to be revoked by the seller at any time for nonpayment of the Instalment as per clause 2. A portion of the building admeasuring 240 sq. ft. was already in the occupation of one M/s. Janso Exports Pvt. Ltd. and it was agreed between the seller and the buyer that M/s. Janso Exports Pvt. Ltd. will be in the occupation of the cabin admeasuring 240 sq. ft. till the payment of the last instalment together with the interest thereon by the buyer and the sale transaction was completed and possession handed over to the buyer. It was further stipulated that M/s. Janso Exports Pvt. Ltd. should be allowed to continue to occupy the cabin admeasuring 240 sq. ft. even after the transfer of property to the buyer on payment of rent of Rs. 17 per sq. ft. of the carpet area occupied by it. There was some delay in the payment of instalment and hence disputes arose between the assessee and the buyer, as a result of which the sale deed was not executed and registered under the Transfer of Properties Act read with the Registration Act. A compromise was made which was recorded by the Bombay High Court on 5-11-1990, in terms of which the assessee is reported to have paid Rs. 40,00,000 to the company and as per the; alternative clause in the compromise the vendee paid back Rs. 30.00,000 to the assessee on 31-3-1991 as approved by the Bombay High Court. Till 31-3-1991 obviously the property was not transferred under a deed of sale. The conveyance deed was executed only after 31-3-1991. On the basis of the agreement, the learned Dy. CIT (Assessment) held that the property stood transferred to the buyer for a sale consideration of Rs. 25,74,000 and brought the same to tax. Incidentally it must be noticed that he had not allowed any deduction towards cost or cost of improvements, though he had allowed deduction under Section 80-T of the Income-tax Act. Without prejudice to his holding that the sale had taken place de facto, he brought to tax a sum of Rs. 4,08,000 under other sources as a protective measure and that was calculated at the rate of Rs. 17 per sq. ft. on 2,000 sq. ft. comprised in the agreement, assuming that the assessee was the owner of the property and further assuming that the notional inclusion was in the nature of lease rent to be assessed under other sources. In addition, she brought to tax a sum of Rs. 1,65,389 being the interest at 15 per cent received by the assessee from the buyer in respect of the instalments under other sources. This is for the assessment year 1986-87. For the assessment year 1988-89 she calculated the rent at the rate of Rs. 25 per sq. ft. on 2,000 sq. ft. and included the same under other sources as lease rent. On appeal, the CIT(Appeals) held that the agreement was entered into in respect of an immovable property and there was no conveyance by a registered deed. Hence in the absence of any registered deed it cannot be held that the transfer of the said property took place during the relevant previous year. In this view of the matter, he deleted the addition of Rs. 25,74,000 made under the head capital gains. As for the alleged lease rent computed on notional basis in a sum of Rs. 4,08,000, the learned CIT(Appeals) held that as no transfer of property had taken place during the previous year the assessee continued to be the owner and, therefore, the appellant was rightly entitled to receipt of lease rent for actual possession and in this view of the matter, he sustained an addition of Rs. 4,08,000 as income from other sources. As for the inclusion of Rs. 1,65,389 under other sources towards interest the CIT(Appeals) held that under the agreement the assessee was entitled to receive interest on the unpaid consideration and thus the addition was upheld. Further he held that as the prospective buyer had to incur expenditure on maintenance etc. the assessee was not entitled to any deduction therefrom. Thus the appeal of the assessee was partly allowed. For the assessment year 1988-89, the CIT (Appeals) following his earlier order upheld the addition of Rs. 6,00,000 as lease rent assessed under the head other sources. The department is not on appeal against the order of the CIT (Appeals). The assessee is aggrieved against the inclusion of the alleged lease rent under the head other sources for both the assessment years and inclusion of Rs. 1,65,389 under other sources in respect of interest received from the buyer in the assessment year 1986-87.
(3.) SRI Nair submitted that the assessee is not the owner and was not in receipt of any benefit and, therefore, the notional income cannot be taxed in his hands either under the head house property or under the head other sources. For this proportion he relied on a number of decisions such as (i) CIT v. Batata Trading Co. (P.) Ltd. [1989] 45 Taxman 363 (Punj. and Har.) (ii) Nawab Mir Barkath Ali Khan v. CIT [1988] 171 ITR 541 36 Taxman 317. (AP) (iii) Addl. CITv. Sahay Properties & Investment Co. (P.) Ltd. [1983] 144 ITR 357 14 Taxman 25. (Pat.) (iv) Smt. Kala Rani v. CIT [1981] 130 ITR 321 6 Taxman 226. (Punj. & Har.) He also relied on the decision of the Supreme Court in R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 and also the observations of the Full Bench of the Kerala High Court in the case of Parthas Trust v. CIT [1988] 169 ITR 334 at page 346. Further reliance was placed on the Andhra Pradesh High Court's decision in the case of CIT v. Sahney Steel & Press Works (P.) Ltd. [1989] 177 ITR 354 42 Taxman 168 (Bom.). and also the decision of the Hon'ble High Court of the Calcutta in CIT v. Steelcrete (P.) Ltd. [1983] 142 ITR 45 13 Taxman 24. SRI Nair further submitted that even assuming that the assessee is the owner of the property, inasmuch as, the agreement holder was in actual possession and enjoyment of the property, the property itself is incapable of being let out and, therefore, the computation of annual value even on notional basis cannot be done. He relied on the decision of the Bombay High Court in Shree Nirmal Commercial Ltd. v. CIT [1992] 193 ITR 694. Further he submitted that even if the assessee is considered as the owner and the asset is capable of being let out, only the standard rent could be the basis of assessment as has been held by the Supreme Court in Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435.;