Case: Podar Cement (P) Ltd Vs. CIT

2. Brief facts are necessary to appreciate the question that arises for our consideration3. The respondent in Tax Reference Cases Nos.of 1986 is a company and an assessee under the Act (hereinafter called "the assessee"). It owns four flats bearing Nos. 231, 232, 241 and 242 in a building called "Silver Arch" on Nepean sea Road, Bombay. The builders of the said building are M/s. Malabar Industries Pvt. Ltd. Out of the four aforesaid flats, two were directly purchased by the respondent Company from the builders and the other two were purchased by its sister concern and subsequently by the assessee. The possession of the flats was taken after payment of consideration in full sometime in August 1973. It is common ground that all these flats have been let out to various persons. The rental income from these flats was included in the return for the assessment years in question, namely,7. It was the case of the assessee that the rental income from the flats were assessable as "income from other sources" under Section 56 of the Act inasmuch as the assessee Company was not the "legal owner" of the property in the flats. Such a claim was put forward before the Assessing Officer mainly on the ground that the title to the property (four flats) had not been conveyed to the Cooperative Society which was formed by the purchasers of the flats and that so long as the ownership was not transferred in the name of the assessee the rental income from the flats could not be assessed as "income from house property" (under Section 22 of the Act)4. One other subsidiary question was also raised by the assessee that the rental income should be calculated on the bona fide annual value and not the actual rent received. As a matter of fact, the assessee has shown Rs. 49, 800 as chargeable rent. The Income Tax Officer, however, has taken the annual letting value of those flats at Rs. 1, 31, 268 on the basis of rent receivable in respect of flats from an adjoining building. The Income Tax Officer also rejected the claim of the assessee that the income from the flats should be assessed under Section 56 of the Act5. Aggrieved by the orders of the Income Tax Officer, the assessee preferred appeals to the Commissioner of Income Tax (Appeals), who by an order datedupheld in toto the views as stated above by the Income Tax Officer. After receiving the orders from the appellate authority, the assessee filed miscellaneous applications datedbefore the appellate authority purporting to be under Section 154 of the Act. It was contended before the appellate authority that in view of the decision of this Court in Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee the authorities were bound to take the annual letting value of those flats on the basis of standard rent chargeable and in any case not on the basis of the actual rent receivable with regard to some other flats. The appellate authority accepted the assessees miscellaneous applications by order datedand rectified its earlier order datedStill not satisfied with the appellate order, the assessee preferred two appeals against the order of the appellate authority contending that the income from the four flats should have been assessed under Section 56 of the Act and not under Section 22. The Revenue preferred two appeals against the rectification order datedThose four appeals were considered by the Income Tax Appellate Tribunal, (Bombay Bench "A"), Bombay, and the Tribunal by a common order datedpurporting to follow several decisions of the Bombay High Court accepted the case of the assessee and held that the income from the flats could not be taxed as "income from other sources" under Section 56 of the Act. The Tribunal, however, did not decide the other question, namely, whether the actual rental income should be taken into account for the computation of the chargeable rental value. We are not concerned with the latter question here7. The Tribunal when moved by the Revenue under Section 256(1) of the Act referred the case straightaway to this Court under Section 257 of the Act in view of conflicting decisions between the High Courts

Reasoning:
52. The above summing up is factually based on the judgments of this Court as well as English decisions53. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas, while considering the nature of amendment to Section 29(2) of the Bombay Rents, Hotel and Lodging Houses Rates Control Act as amended by Gujarat Act 18 of 1965, observed asThe amending clause does not seek to explain anylegislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived from Section 115, Code of Civil Procedure, and the Legislature has by the Amending Act attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act."From the circumstances narrated above and from the memorandum explaining the Finance Bill, 1987 (supra) it is crystal clear that the amendment was intended to supply an obvious omission or to clear up doubts as to the meaning of the word "owner" in Section 22 of the Act. We do not think that in the light of the clear exposition of the position of a declaratory/clarificatory Act it is necessary to multiply the authorities on this point. We have, therefore, no hesitation to hold that the amendment introduced by the Finance Bill, 1988 was declaratory/clarificatory in nature so far as it relates to Section 27(iii),). Consequently, these provisions are retrospective in operation. If so, the view taken by the High Courts of Patna, Rajasthan and Calcutta, as noticed above, gets added support and consequently the contrary view taken by the Delhi, Bombay and Andhra Pradesh High Courts is not good law55. We are conscious of the settled position that under the common law owner means a person who has got valid title legally conveyed to him after complying with the requirements of law such as Transfer of Property Act, Registration Act etc. But in the context of Section 22 of the Income Tax Act having regard to the ground realities and further having regard to the object of the Income Tax Act, namely, "to tax the income", we are of the view, owner is a person who is entitled to receive income from the property in his own right