AJIT K.SENGUPTA, J. - (1.) IN this reference under S. 256(1) of the IT Act, 1961, at the instance of the assessee, the following common questions of law arising out of the consolidated order of the Tribunal for the asst. yrs. 1978-79, 1979-80 and 1980-81 have been referred for the opinion of this Court : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was the owner of the flats within the meaning of S. 22 of the IT Act, 1961, and, as such, the annual value of the said flats should be chargeable to income-tax in the hands of the assessee ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the annual value of those flats should be determined in accordance with cl. (a) of S. 8(1) of the West Bengal Premises Tenancy Act, 1956, and it should not be taken at nil ?"
(2.) THE relevant facts are as under : The applicant, Madgul Udyog, is a registered partnership firm observing its accounting period ending on Dewali day each year. The assessee-firm is engaged in the business of construction of multi-storeyed buildings and sales of flats therein. In the course of its aforesaid business activities, the assessee-firm started construction of a multi-storeyed building at 19, Ballygunge Circular Road, Calcutta, during the previous year relevant to the asst. yr. 1975-76. In all, 24 units of flats were constructed by the assessee-firm in addition to three shops and car parking space in the ground floor. By the end of the previous year relevant to the asst. yr. 1979-80, 24 units and one shop in the ground floor, including car parking space, had already been sold to different persons under separate agreements for sale entered into with each of them. The assessee-firm received consideration from the purchasers of flats from time to time in accordance with the agreed terms and on final payment, possession was handed over to the respective buyers as indicated hereinbelow : Previous year Assessment year No. of flats Dewali 1975 1976-77 5 Two shops on the ground floor remain unsold till date. The assessee-firm was duly assessed to income-tax in respect of profits and gains arising on construction and sale of flats as aforesaid in the years in which the construction was completed and the possession of the flats in question was handed over to the purchasers concerned notwithstanding the fact that the deeds of conveyance had not been executed and registered in favour of the purchasers. It may be noted that save and except two flats for which the deeds of conveyance were executed and registered in the previous year relevant to the asst. yr. 1977-78, the rest of the purchasers did not come forward to pay the registration charges and get the flats registered in their respective names. The income from construction and sale of flats was assessed as business income and the assessee-firm has always treated the constructed and unsold area as stock-in-trade. The buyers of the respective flats are in full and exclusive possession of the respective units purchased by them against payment of full and valuable consideration to the assessee-firm. Each of them has been occupying and/or enjoying the rents, issues and profits of the respective units purchased by them since the date of their respective possession. The buyers are also being assessed to income-tax in respect of the notional 'actual income arising from the said flats since the date of their respective possession.
(3.) THE ITO assessed the assessee-firin on the so-called notional income in respect of the flats sold by it and for which possession was duly handed over to the respective buyers against payment of full consideration only on the ground that no deeds of conveyance had been registered in respect of these units in favour of the buyers. The assessment of notional income was made by the ITO for the first time in the assessment order for the asst. yr. 1976-77 and the same principle was followed in subsequent years too. The ITO mainly relied on the following decisions : (a) CIT vs. Zorostrian Building Society Ltd. (1976) 102 ITR 499 (Bom). (b) CIT vs. Union Land and Building Society (P.) Ltd. (1972) 83 ITR 794 (Bom). (c) CIT vs. Bhurangya Coal Company (1958) 34 ITR 802 (SC). (d) CIT vs. Ganga Properties Ltd. (1970) 77 ITR 637 (Cal). (e) East India Housing and Land Development Trust Ltd. vs. CIT (1961) 42 ITR 49 (SC).;