Update
Ownership of life: If you don't belong to yourself, to whom ...
Q
If you have legitimately acquired property — land, an apartment, a motor vehicle — you have the right of ownership of it. No one can stop you from disposing of it as you will.But all these rights of ownership — including your hypothetical right to own a government which has been elected to office thanks to your ownership of your ballot — depend upon the most basic of all ownership rights: your right to own your own existence.
UQ
cross refer >
@xs400In a jugular vein,
Submitted by vswami on 18 June 2014 - 1:13pm.
@xs400
In a jugular vein, -
Beg your Pardon Mr ..
i remain humbled becuase of 'personal' ignorance of certain terms used in the comment replied to, - besides, such as 'spin doctor' - e.g. "e.g. pet ownership in apartments". Having made an attempt, hopefully, i guess, it is said to mean 'owning' - (and rearing a 'pet' ; be it a cat or a rat, or dog ( if inverted, wld read - 'GOD') - by an 'owner' of apartment.
Now, coming to the branch of the topic truly related, there continue to be 'imponderables' galore, for decades; those are , what is 'ownersdhip' , who is the 'owner', and last but not least , of what ? !
That has been the ultimate reality ; notwithstanding that, the men in governance have, in their utmost generosity and kindness to the hapless victims (admittedly the gullible but 'unaroused' buyers, a section of THE PEOPLE) brought into being, on the statute / rules book any number of 'laws' in a line, and the judiciary , in its turn, has been, with no less sincerity, laboring hard to enlighten, through volumes of case law handed down in a long but never ending line,
May be, not being competent enough, not have made self clear enough; if so, would, in all inborn humility, repeat the entreaty . simply pleading to read though the case law (SC) in re. Podar Cement Ltd. - settling a tax but property connected issue.
May be excused; as usual, no mind , or patience to spare, to 'edit' the above jottings !
In a jugular vein, -
Beg your Pardon Mr ..
i remain humbled becuase of 'personal' ignorance of certain terms used in the comment replied to, - besides, such as 'spin doctor' - e.g. "e.g. pet ownership in apartments". Having made an attempt, hopefully, i guess, it is said to mean 'owning' - (and rearing a 'pet' ; be it a cat or a rat, or dog ( if inverted, wld read - 'GOD') - by an 'owner' of apartment.
Now, coming to the branch of the topic truly related, there continue to be 'imponderables' galore, for decades; those are , what is 'ownersdhip' , who is the 'owner', and last but not least , of what ? !
That has been the ultimate reality ; notwithstanding that, the men in governance have, in their utmost generosity and kindness to the hapless victims (admittedly the gullible but 'unaroused' buyers, a section of THE PEOPLE) brought into being, on the statute / rules book any number of 'laws' in a line, and the judiciary , in its turn, has been, with no less sincerity, laboring hard to enlighten, through volumes of case law handed down in a long but never ending line,
May be, not being competent enough, not have made self clear enough; if so, would, in all inborn humility, repeat the entreaty . simply pleading to read though the case law (SC) in re. Podar Cement Ltd. - settling a tax but property connected issue.
May be excused; as usual, no mind , or patience to spare, to 'edit' the above jottings !
>>>>>>>>>>>>>>>>>><<<<<<<<<<<<<<<<<<<<<<<<
Top-up
September
16th, 2014
 |
S. 113 Proviso inserted by FA 2002 w.e.f. 01.06.2002 to impose surcharge in search assessments is not clarificatory or retrospective. Suresh Gupta 297 ITR 322 (SC) overruled
See Also:
The bane of retrospective amendments by N. M.
Ranka, Advocate and Interpretation of Statutes by Sorabh
Soparkar, Advocate.
No conclusiveness in inconclusive litigation; even if viewed farther upto the end of the horizon ?!
LAW and ('vs'?) CASE LAW On “FLATS” – A ... - TaxGuru
PROLOGUE
The case law chosen for a brief analytical study, mainly with a view to
having one’s own thoughts cleared, is the SC Order delivered in re CIT v Podar
Cement (reported on this website HERE ; also in 226 ITR 625). It is one of those
cases reported in recent years, in which the apex court has been called upon to
adjudicate basically taxation oriented point of issue; but specially related to
property rights. In that, the tax issue considered and decided relates to
income arising from so called house property. To be precise, it relates to
property of the kind, being ‘units’, called ‘Flats’.
Taxation of income is a fiscal matter governed by the central
legislation, ‘Flat’ is house property of a special kind, and the law applicable
to Flat is embodied in the special State legislation. Flat is, in several
respects, distinct from exclusively owned independent house property, which is
governed by the general / common law called, the Transfer of Property Act,
1882.
In the nature of things, therefore, the basic proposition requiring
necessarily to be addressed for an insightful deliberation to is this:
For examining and deciding, more so in proper light, any question of law
raised under the IT Act, due regard must necessarily be had to and taken into
consideration the provisions of the State law on Flats; in as much as the scope
and nature of peculiar characteristics of, and distinct legal rights and
interests attached to, the property in a “Flat” could conceivably be
ascertained only from, not de hors, that law.
KEY NOTE: To pithily
state upfront, the most crucial and basic point of law craving for judicial
notice and interpretation, so as to reach a profoundly proper conclusion is
this: - Whether in the instant or any such case, “possession” the
assessed is said to have had, of ‘flat’, is exactly of, or equivalent to, the
kind of “possession” as envisaged by the applicable special property law
namely, the Flats Act?
In other words, otherwise, in one’s well considered view, any conclusion
reached and decision taken, for any purpose, not barring the purposes of
taxation, more so for adjudication, cannot be considered to be founded on sound
reasoning and logic.
BACKDROP
Maharashtra was the first of the States to come out with an enactment of
such a special type. The objective is to specially vesting with rights of
‘ownership’, though not in its absolute sense, in a ‘part of a building’,
differently called ‘unit’ or ‘Flat’; further, to make it lawfully ‘heritable’
and ‘transferable’. in spite of its peculiar and distinct characteristics, As
stated in the Preamble to the enactment itself, the primary objective of the
special enactment is to regulating the activities in relation to the CONSTRUCTION
AND SALE OF FLATS (emphasis supplied). Accordingly, for ascertaining the
legal meaning of, not merely the concept of ‘owner’, but also of ‘possession’,
due regard must be had to the scheme of the provisions of the special
enactment; so also, as per the largely accepted principle, the construction /
interpretation must be purposeful and help in accomplishing the ‘objective’,
not defeat it.
TO KNOW MORE:
In the expert commentary in the book published by Bombay Law House (2003
Edition), on the above topic (law governing Flats in Maharashtra), the history
of the state legislation has been broadly set out. The manner in which it has
been so done is noted to be more than adequate for anyone concerned to
appreciate as to why the law was conceived of and brought on the statute book.
To provide a ready glimpse of it, an extract from the Notes on page 112
of the book is furnished below:
The activity of constructing and selling flats on ownership basis
attracted the attention of many entrepreneurs. But as in other business, so in
the business of construction and sale of flats unscrupulous elements entered
and tried to take undue advantage of the situation by resorting to
malpractices.
The malpractices complained of were normally of the following nature:
(1) Dishonest promoter tried
to avoid execution of documents, and where document were executed, many
important clauses were not included therein leaving the purchaser to the mercy
of the promoter.
(2) …
(3) There were inordinate
delay and even default in formation of a co-operative society or a company and
there were inordinate delay in and even default in conveying title to such
co-operative society or company.
(4) to (8)…..
(9) There was inordinate delay in putting buyer in possession of
the flats.”…..
(For more, refer the book)
As regards malpractices made a mention of as above, viewpoints
reflecting commonly aired reactions and grouses given vent by the affected
buyers’ community have been shared through popular websites; e.g. look for
flats related topics covered @Realities ; also, in published Articles.
Citations of some of those Articles published in law journals:
(2003) 3 MLJ Pg.5 (journal)
(2003)(4) KAR. L.J.Pg.1
(2005)(3) KAR.L.J. pg.17
(2005)(5) KAR.L.J. pg.1
(2005) 2 MLJ Pg.1 (journal)
NOTE: In those Articles, the provisions of the Maharashtra special
legislation on Flats, of relevance herein, have been broadly explained.
The following excerpts from the last mentioned article, titled, – Our
Legal System- What is Wrong? , it may be noted, provide a background, nay
truthful picture, of field realities; and may enable anyone to readily perceive
how well those fit into the context of the Podar Cement case chosen for
discussion herein:
- To
legislate is one thing, but to put into effect is entirely
different. It is not the number of laws that a country has, but it
is the sincerity and commitment of the Government, be it at the Centre or
the State, to translate into action by enforcing and implementing them, that
really counts. In this context, when one talks of the Government, the
obvious reference is not only to its team of ministers but to the entire
Government machinery, including bureaucrats, authorities, officers and its
other agencies who are at the helm of affairs and entrusted with the
onerous responsibility of acting as the administrators or guardians of the
law.
- Human
nature being what it is, self-discipline has increasingly become a rare
quality, more so in recent times. Therefore, it has been necessary to
inculcate and impose discipline. That explains the numerous laws
found on the statute book. Though, of course, the success or
otherwise of any law, even granting that it has been rightly conceived of,
framed and structured, mainly depends on how effectively and
unscrupulously it is implemented or enforced by the concerned Government.
- The
root cause for a failure of the legal system in general, or of any law in
particular, may be found traceable to, besides others, any of the
following factors:
Want of alertness/awareness
Indifference /callousness
Selfishness
Corrupt mindsets and practices
Absence of sincere and effective monitoring by, and/or of mutual
co-ordination and interaction or persistent feedback between, the governmental
departments /concerned local authorities; namely, Registering, Income=tax, and
Municipal authorities
Last but not least, the loop holes or anomalies in the law itself
- An
investigation might reveal that for the debacle, both that in governance
and the governed are equally responsible.
Prompted by the above referred reflections on the state of affairs as
obtaining in the field of real estate, that sector and its governing laws is
chosen for a study :
In the IT Act, there is a special provision (see: clause 5 (c) of
sec.139-A, read with Rule 114-B) requiring the allotted Permanent Account
Number (PAN) to be quoted in all documents pertaining to certain specified
transactions. One of the transactions so specified is sale/purchase of any
immovable property valued at five lakh rupees or more. Obviously, the
objective is to ensure accountability for income-tax on the part of the sellers
and buyers.
It is a mandatory requirement calling for compliance by both parties to
the transaction. And failure to do so entails levy of penalty (sec.272-A(2)(d)).
Besides, there is a duty cast on the registering authority under the
Registration Act to verify and ensure that in any document received by him the
PAN have been duly and correctly stated.
To infer from the fact that one of the known significant sources of
revenue to the States is stamp duty collected on sales/purchases of immovable
properties, there must be a large number of transactions taking place and
documents in respect thereof being received by the registering officers, almost
every day. But then, whether in all such cases, or in how many of them,
the above requirement of law is complied with, and in cases of failure to do so
what action is taken, are open questions. Answers thereto could be
expected to lie only with the Government(s) and the concerned departments;
provided, of course, there are statistics regularly collected and available.
The IT Act is essentially a fiscal law. However, there are certain
provisions in the Act intended to serve, besides the purpose of levy and collection
of income-tax, also a social purpose; that is, for the welfare of the people at
large.
For instance, one may refer the Explanation under Sec.37 (1) of the Act,
newly inserted years ago, with retrospective effect. It provides to the effect
that any expenditure incurred for the purpose of any business or profession,
even if it is otherwise admissible, shall not be allowed, if the purpose for
which it is incurred is either an offence or prohibited by any law.
As has been explained by the Government, the above Explanation is
intended to prohibit allowance of the claim made by certain tax payers, of
payments on account of protection money, extortion, hafta, bribes, etc.
- Success
of any law is entirely dependent on how effective and foolproof is the
machinery set up and made responsible for its administration and
enforcement. Of course, there are quite a few factors that impact
the efficacy and efficiency of the related machinery. The Government’s
seriousness and sincerity to enforce any law plays a vital role. No
doubt, it is the duty of the Government, as its maker, to ensure proper
administration of, and compliance with, any law, both in letter and
spirit.
- Of
late, there have been talks about a proposed Central law, besides the laws
already in force in some States. The objective is to secure to the
citizens the right to information, founded on transparency on the part of
the Government(s) and its bureaucrats as the core principle. It is
hoped that, such a law, if and when enacted, will promote the public
interest in general, and prove an effective tool for the citizens in their
fight to improve the functioning of the legal system in particular.
To add: The then indicated proposed law has since been enacted, called
Right to Information Act, 2005 and has been in force since then. Yet another
central legislation for specially regulating the realty sector, -being the
sector commonly known for its notoriety and by and large admittedly
bristling grizzling with malpractices, in turn proving a breeding ground
for social evils, – corrupt practices and proliferation of corrupt monies –
since mooted long ago but is still in the pipeline, pending enactment.
By and large, it is a sad commentary that, there has been no marked
improvement in / towards the betterment of the state of affairs in the field
for decades now.
LAW ON FLATS
The special enactment for Flats (the Flats Act), in force,
is embodied in, -
The Maharashtra Ownership Flats (Regulation of the Promotion of
Construction, Sales, Management and Transfer) Act, 1963; and
Rules framed for its purposes and notified in 1964 (the Rules)
(Compendiously referred to as, – Flats Act)
It is essential that, among others, the following special features of
the special law require to be incisively noted:
The term used therein namely, ‘Flat taker’ is not defined. Moreover, the
special law, nowhere, explicitly or by implication, confers on the taker all
the rights of, or denotes the taker as,- “owner” of the Flat. The reason, is
not far to seek or not difficult to infer.
To briefly explain:
Under the scheme of the special law, if read and construed strictly,
Flat taker does not become its “owner”, in its absolute legal sense. For, the
price charged by the promoter / paid by the taker includes consideration,
besides for the area of the Flat, for an undivided interest in the “common
areas and facilities” (specially defined) appurtenant to the Flat; which is
required to be shown separately as specified in clause (m) of sub-section (2)
of Section 3 of the Act. And the Flat taker thus acquires not an absolute but
limited title, rights, and interests in the property paid for, falling short of
‘ownership’. In that, he becomes entitled to an exclusive occupation /
possession and enjoyment only of the Flat area. That this is so is obvious,
rather necessarily flows, from the fact that, it is to the society or company
formed and registered, not to the individual flat takers, that the title,
rights and interests in the entire complex (being the whole of the land and
building),- including all other areas but excluding only the Flat area,-
is mandated to be finally conveyed and transferred.
Another crucial aspect calling for special attention and mindful noting
is this:
Section 16 of the Flats Act reads as under:
“The provisions of the Act, except where otherwise provided, shall be in
addition to the provisions of the Transfer of Property Act, 1882 (Mah. IV of
1882) and shall take effect notwithstanding anything to the contrary contained
in any contract.”
The object of this provision, as interpreted by court in a decided case-
in re. Vrindavan (Borivli) Housing Society Ltd. vs Karmarkar Bros., (1982 Mah.
J. 614), is to accord the special law on Flats an overriding effect, despite it
being in addition to the provisions of the 1882 Act.
(Ref. the text book on the law on Flats published by Law Book House,
2003 Edition, Pg 113)
The view the court has taken in the referred case, as understood, is to
the effect that on all aspects of property rights in Flats, the provisions of
the special law should prevail, not the common law provisions contained in the
1882 Act; except, of course, to the extent absolutely or inevitably called for,
required or warranted.
It needs to be appreciated that, the mandated
requirements of the special law have a legal binding; and are not just empty or
hollow formalities, left open to anyone concerned, either to opt for, or out,
according to one’s own choice / convenience. On the contrary, they entail
significantly material and substantially crucial legal consequences. As such,
they are required to be strictly complied with, both in letter and spirit.
Failing which, the Flat takers, either individually or collectively,- for that
matter even the company or society, if and when formed and registered,- cannot
be rightly considered to have acquired the property rights as envisaged by the
special law, unless and until the final conveyance in its favour comes to be
effected. On the self same premise, and logic, what must follow is that, if, in
a given case, all the formalities as mandated by the special law have NOT been
fully followed and complied, the Flat taker cannot rightly be considered to
have acquired even the limited ‘ownership rights’ in the Flat.
Nonetheless, what needs to be necessarily added is
that, the actual field realities have always been, and continue to be so even
after decades, widely at variance and invariably incompatible with the above
narrated correct legal position. Particularly, what is highly disgusting,
impacting and impairing the rights and interests of the buyers’ community in
Flats at large, is the obnoxious ongoing practice of promoter/seller giving its
occupation to buyer even at a premature stage; that is, before completing the
construction of the building complex in all respects and he is in no position
to lawfully claim to have “marketable title” and pass it on to buyers.
- In order to underscore and bring to sharp focus the fine features
of the law, but with a different stroke, though at the cost of
repetition:
Flat is a ‘unit’ of a building, and has its own but peculiar
characteristics. They are distinguishable in many respects from the
characteristics of the commonly known property i.e. an independent and
exclusively owned house property; which is a property governed by the age-old
enactment, called the Transfer of Property Act 1882 (the 1882 Act).
On the other hand, if it be a Flat, both the activities of construction,
so also ‘sale’ /conveyance thereof, are governed, as said before, by a
specially structured enactment. In Maharashtra, that is called, – Maharashtra
Ownership Flats Act (the Flats Act). Accordingly, therefore, being a special
creature of the Act, except as provided otherwise, not only the limited rights
of ‘ownership’ but also all other rights or interests, including right to
its transfer of any kind, mainly conveyance (sale), are to be taken as
those spelt out by the Flats Act. Except for the fact that, the requirement of
execution and registration of sale deed for Flats has not been specifically
covered in the Flats Act; so much so, that has to be taken to continue to be
governed, as always before, by the T P Act.
To put it differently, in order that a person can claim to have acquired
not only rights akin to ownership of, but also any other rights or interests
in, a Flat, the provisions of the Flats Act, as mandated, are required to have
been strictly followed/complied with.
‘POSSESSION’ AS PER THE FLATS ACT
As per the scheme of things as embodied in the special law, it is only
after completion of construction of the building complex in all respects, and
on / after payment of the agreed price in full, Flat taker becomes entitled to
have the sale deed executed and registered; of course, after having made
payment of stamp duty due as well. It is at that point in time he becomes entitled
to get ‘lawful possession’; that is, ACTUAL physical possession of the
‘Flat’, together with a CONSTRUCTIVE (as distinct from ACTUAL PHYSICAL)
possession of the undivided interest in the property known as “common areas and
facilities”. That, nonetheless, is required to be followed up by the most
crucial formality of all, being ‘final conveyance’ of the title to the property
in the “land and building”*, entailing its formal physical possession to
be handed over, to the legal entity, – that is, the co-operative housing
society duly formed and registered.
In short, in the nature of things, therefore, in any view, even if Flat
taker happens to have been given/allowed occupation of allotted Flat any time
before the execution and registration of ‘sale’ deed by the promoter/seller, as
in the instant case, for whatsoever be the reason or motive behind, such an
occupation cannot be rightly considered to be or equated to a lawful possession
as contemplated by the special law. On that premise, also “possession in part
performance of…” as spoken of in section 53 A of the T P Act could be of no
avail or significance, much less a criterion or deciding factor in any case
such as the instant case. To put it differently, any such occupation
prematurely allowed, in one’s conviction, ought not to be regarded as
“possession” in its profound sense, as envisaged by the TP Act provision.
Granting it to be so, and on that premise, perhaps, in the instant case it
could have been forcefully urged that the deeming provision of clause (iii a)
of section 27 cannot be rightly regarded to apply. Additionally, it could have
been urged that, the words used/continued to be used, even post 1988
amendments, firstly in section 53 A, secondly in section 27 (iiia) as well,
are, – “part thereof”, hence the said deeming provision could be of no
relevance in respect of an issue related to Flat.
“COMMON AREAS AND FACILITIES”
As specially defined in the Flats Act, the term “common areas and
facilities” means and includes the land on which the building stands, and all
other wedded but common areas or facilities. As separately defined, the term
means and includes all such areas as,- the corridors, stairs, stairways,
terrace, electric house, water pump shed, etc.; so also facilities as provided
being swimming pool, garage (for parking vehicles), club house, etc., but
physically located outside of the Flat. These are to be available to the
Flat takers, for common use and enjoyment, for the purposes for which they are
intended.
THE OTHER PROVISIONS OF THE SPECIAL LAW AND THE RELATED PROVISIONS OF
THE IT ACT OF RELEVANCE ARE DEALT WITH, IN BRIEF, HEREIN BELOW, IN APPROPRIATE
CONTEXTS UNDER THE HEAD – CASE LAW.
CASE LAW
The primary focus for analysis herein is on the SC RULING in re.
PODAR CEMENT, being one of the cases disposed of thereby; having particular
regard to the factual matrix on record of that case.
At the outset, it needs to be emphasised that, the observations and
viewpoints set out herein before, are so fundamentally important as requiring
to be of every relevance; hence must be kept in sharp focus as a useful
backdrop, for a study and understanding of the case law, in proper light.
In the instant case, in which the main dispute is a tax related issue,
the limited point of law considered and decided is whether the assessee’s
income derived from Flat(s) has to be taxed under the head of “income from
other sources”(section 56), and not as income from house property (sec. 22). To
state succinctly, it is not one of those cases where assessee is known to have
tried and taken the stance that the rental income, though admittedly received,
is not liable at all to be taxed.
It is noted from the judgment that the court has, – preferring not to go
by the contrary view taken by certain high courts, – endorsing the view some of
the other high courts have taken, held to the effect that the income has to be
assessed under and in accordance with section 22 as urged by the Revenue; not
under section 56 as contested by the assessee.
KEY NOTE: Passing here, it requires to be prudently pinpointed that as
recorded in the SC judgment, both parties to the litigation have respectively
cited and relied on a number of previously decided court cases. So far as one
could see, however, the factual matrix of each of them and the grounds of the
courts’ decisions, do not find any mention; that is, any such mention as to
enable anyone to readily appreciate whether or not, or which of those cases,
are “on all fours” with Podar Cement case, or the other cases benched together,
for disposal in one go. For, as per the well settled principle of
interpretation, as commonly understood and widely accepted, every such tax
dispute has to be examined and adjudicated, on a case by case basis. Further,
for a disputant to cite and rely on, or for court to follow, as a “precedent”
(within its legal meaning), as envisaged by law, Article 141 will not be
attracted if law is not declared or stated vocally to support the conclusion
reached for deciding the ‘lis’; because a conclusion may be on facts- it may
not and does not necessarily involve consideration of law.
It calls for a focussed mention that, even the case cited and repeatedly
referred and heavily relied in the instant case, – i.e. Jodhamal’ s case, is prima
facie not on all fours. In that, as the cryptic narration available in
Palkhivala’s text book says, that is a case in which “it was held that an
assessee whose house property vested in the custodian of evacuee property
cannot be assessed under this head, since the ‘owner’ must mean……. .” (to read
the entire comment on section 22, under the head of (a) General Law’, see pg.
616 of volume -I, Ninth Edition).
This is an aspect considered prudent to be left open to eminent
constitutional experts, besides to tax and property law advisers active in the
field. They are invited to opine independently, after a study of the related
commentary and case law cited in Palkhivala’s text book on the concept of
“PRECEDENTS”; and do so after hearing what the retired CJ, S H Kapadia, a well
known Jurist , said (HEAR) :
See the Video of the presentation
at the firm.moneycontrol.com. See also Chief Justice Kapadia’s
presentation
PODAR CEMENT CASE
For ready reference, a copy of the full text of the Court’s Order has
been annexed (ANNEXURE-A). The portions therein requiring special
attention have been specially marked (highlighted in UPPER CASE).
AN ANALYSIS:
Some selected portions of the judgment, abridged for sake of brevity so
also for better perception, are reproduced below:
FACTS (in brief)
The Respondent (in Tax References Cases Nos. 9-10 of 1986) is a company.
It owns four flats in a building called “Silver Arch” on Nepean Sea Road,
Bombay. The builders are Malabar Industries Pvt. Ltd. Two were directly
purchased 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 1975-76
and 1976-77. It was the case of the assessee that the rental income was
assessable as “income from other sources” under section 56 of the Act in as
much as the assessee-company was not the “legal owner” of the property in the
flats. mainly on the ground that the title to the property (the four flats) had
not been conveyed to the co-operative 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).
The Tribunal by a common order dated May 8, 1986, purporting to follow
several decisions of the Bombay High Court accepted the case of the assessee
and held that the income should be taxed as “income from other sources”
When moved by the Revenue under section 256 (1) of the Act, the Tribunal
referred the case straightaway to this court under section 257 of the Act in
view of the conflicting decisions between the High Courts.
“It will be seen from the narration of facts in all these cases that a
common question of law arises as regards the scope of section 22 of the Act
vis-a-vis section 56 of the act.”
ARGUMENTS, COURT’S REASONING AND VIEWs (Extracts)
Mr. Sharma, counsel, advanced the leading arguments, and according to
him, section 22 of the Act charges the income arising from house property and
not the ownership of house property. Such income from house property can be
real or notional. He also argued that income under the head “house property”,
real or notional, cannot escape taxation whoever may be regarded as the owner,
but certainly it cannot have two owners at the same time. According to learned
counsel, the owner is the person who in his own right can use the house
property or derive income from it. Only such owner has to be taxed under the
head “income from house property”. He alone has to be taxed under this head. If
he cannot be taxed under this head, he cannot be taxed at all. In other words,
he cannot be taxed under the head “income from other sources”
Mr. Sharma, in support of his arguments, while placing heavy reliance on
the judgment of this court in Jodha Mal Kuthiala’s case [1971] 82 ITR
570, also cited numerous judgments of the High Courts which have applied the
principles enunciated in the judgment of this court in Jodha Mal Kuthiala’s
case [1971] 82 ITR 570.
Mr. Syali, counsel, submitted that the Income-tax Act is a
self-contained code, exhaustive of all matters dealt with therein and its
provisions show an intention to depart from the common rule. In support of
that, he placed reliance on a judgment of this court in Rao Bahadur Ravulu
Subba Rao v. CIT [1956] 30 ITR 163. According to learned counsel,
the meaning of the word “owner” occurring in section 22 has to be understood
contextually, purposively and only within the four corners of the Income-tax
Act. Adopting a wider meaning, according to him, will not and cannot lead to
rewriting the civil law. in a way, he supported the stand taken by Mr. Sharma,
learned senior counsel, and he also placed heavy reliance on the judgment of Jodha
Mal Kuthiala’s case [1971] 82 ITR 570 (SC).
The learned judge observed that “it is true that equitable
considerations are irrelevant in interpreting tax laws. But, those laws, like
all other laws, have to be interpreted reasonably and in consonance with
justice”.
We may usefully extract certain passages from the judgment of the Patna
High Court.
The learned judges observed at page 361:
“The emphasis, therefore, in this statutory provision is that the tax
under the section is in respect of ownership. But this matter is not as simple
as it looks. This leads us to a more vexed question as to what is ownership.
Should the assessment be made at the hands of the person who has the bare husk
of the legal title or at the hands of the person who has the rights of an owner
of a property in a practical sense? Enjoyment as an owner only in a practical
sense can be attributed to the term ‘owner’ in the context of this section — a
person who can exercise the rights of the owner and is entitled to the income
from the property for his own benefit. It is well-settled, and learned counsel
for either side were not at loggerheads, that the section cannot be so
construed as to make it an instrument of oppression, to use the language of
Hegde J., in the case of Jodha Mal Kuthiala’s case [1971] 82 ITR 570
(SC).
ONE OF THE MOST IMPORTANT OF THESE POWERS IS THE RIGHT TO EXCLUDE
OTHERS. The property right is essentially a guarantee of the exclusion of other
persons from the use or handling of the thing…but every owner does not possess
all the rights set out above—a particular owner’s powers may be restricted by
law or by an agreement he has made with another’ (refer to G.W. Paton on Jurisprudence,
4th Edn., pp. 517-18)”.
ACTUAL POSSESSION IMPLIES A RIGHT TO RETAIN IT UNTIL THE CONTRARY IS
PROVED, AND TO THAT EXTENT A POSSESSOR IS PRESUMED TO BE OWNER.
In the instant case, having reference to clause 5 of the Agreement, it
would be seen that the option was given to the assessee to demand at its
pleasure a conveyance duly registered being executed in its favour by the Sahay
family (the Vendor) and to get its name mutated in the official records. The
assessee has not exercised its option for reasons best known to it—presumably
to have a double weapon in its hands to be used as and when circumstances so
demanded. Can it yet be said that for the default on the part of the assessee
itself it would be entitled to say that it is not the owner of the property for
all practical purposes, receiving the rent all the time, appropriating the
usufructs for its own purposes all the time and having no interference at the
instance of the Vendor? Can that be a practical and logical approach to the
true construction and purport of the substance and spirit of section 22 of the
Act? The answer, in our view, is clearly in the negative and against the
assessee.
WE DO NOT THINK THAT IT IS NECESSARY TO SET OUT EXTRACTS FROM THE
JUDGMENTS OF OTHER HIGH COURTS TAKING A SIMILAR VIEW.
The contrary view taken by the other High Courts was mainly based on the
fact that unless there is a registered deed conveying the property, the person
in possession / enjoyment of the property cannot be considered as legal owner
and, therefore, he cannot be called upon to pay the tax under section 22 of the
Act.
The law laid down by this court in Jodha Mal Kuthiala’s case
[1971] 82 ITR 570, according to us, has been rightly understood by the High Courts
of Punjab and Haryana, Patna, Rajasthan, etc., the requirement of registration
of the sale deed in the context of section 22 is not warranted.
At this juncture, we can also refer to the judgment cited by Mr. Syali
regarding updating construction of the words used in the statute. In State
(through CBI /New Delhi) v. S.J. Choudhary, AIR 1996 SC 1491,
1494; [1996] 2 SCC 428, this court has quoted the following passage with
approval in support of updating construction (page 433 of [1996] 2 SCC):
Statutory interpretation by Francis Bennion, 2nd Edn. section 288, with
the heading ‘Presumption that updating construction to be given’ states one of
the rules thus (page 617):
It is presumed that Parliament intends the court to apply to an ongoing
Act a construction that continuously updates its wording to allow for changes
since the Act was initially framed (an updating construction). While it remains
law, it is to be treated as always speaking. This means that in its application
on any date, the language of the Act, though necessarily embedded in its own
time, is nevertheless to be construed in accordance with the need to treat it
as current law.
In the comments that follow it is pointed out that an ongoing Act is
taken to be always speaking. It is also, further, stated thus (pp. 618-19):
In construing an ongoing Act, the interpreter is to presume that
Parliament intended the Act to be applied at any future time in such a way as
to give effect to the true original intention. Accordingly the interpreter is
to make allowances for any relevant changes that have occurred, since the Act’s
passing, in law, social conditions, technology, the meaning of words, and other
matters.
THE VIEW EXPRESSED SUPRA BY US IS STRENGTHENED /SUPPORTED BY A
SUBSEQUENT AMENDMENT TO SECTION 27 OF THE ACT.
In our view, the circumstances under which the amendment was brought
into existence and the consequences of the amendments will have a greater
bearing in deciding the issue placed before us. In other words, if after
discussion we come to a conclusion that the amendment was clarificatory /
declaratory in nature and, therefore, it will have retrospective effect, then
it will set at rest the controversy finally.
Perhaps, as suggested by this court in CIT v. Hans Raj Gupta
[1982] 137 ITR 195, the time has even come for legislative amendment, if
necessary, possibly with retrospective effect.
In the Memorandum Explaining the Provisions in the Finance Bill, 1987,
concerning section 27 reads as follows (see [1987] 165 ITR (St.) 161):
Simplification and Rationalisation of provisions”
Enlarging the meaning of ‘owner of house property’
27. Under the existing provisions of section 22 of the Income-tax Act,
any income from house property is chargeable to tax only in the hands of the
legal owner. As per section 27 of the Income-tax Act, certain persons who are
not otherwise legal owners are deemed to be the owners for the purposes of
these provisions.
Under the Transfer of Property Act, the transfer of ownership can be
affected only by means of a registered instrument. However, in recent times
various other devices are sought to be employed for transferring one’s
ownership in property. As a result, there are situations in which the actual
owner, say, of an apartment in a multi-storied building, or a holder of a power
of attorney is not the legal owner of a property. In some cases, pending
resolution of disputes, the legal as well as the beneficial owners are assessed
to tax in respect of the same income.
AS A MEASURE OF RATIONALISATION, THE BILL SEEKS TO ENLARGE FURTHER THE
MEANING OF THE EXPRESSION ‘OWNER OF HOUSE PROPERTY’, GIVEN IN CLAUSE (III)
OF SECTION 27 BY PROVIDING THAT A PERSON WHO COMES TO HAVE CONTROL OVER THE
PROPERTY BY VIRTUE OF SUCH TRANSACTIONS AS ARE REFERRED TO IN CLAUSE (F)
OF SECTION 269 UA WILL ALSO BE DEEMED TO BE THE OWNER OF THE PROPERTY. THE
AMENDMENT ALSO SEEKS TO ENLARGE THE APPLICABILITY OF THIS CLAUSE TO A MEMBER OF
A COMPANY OR OTHER ASSOCIATION OF PERSONS.
Corresponding amendments have also been proposed in regard to the
definition of ‘transfer’ in section 2(47) of the Income-tax Act, section 2(m)
of the Wealth-tax Act defining ‘net wealth’ and section 2(xii) of the
Gift-tax Act defining ‘gift’.
THESE AMENDMENTS WILL TAKE EFFECT FROM APRIL 1, 1988, AND WILL,
ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 1988-89 AND SUBSEQUENT
YEARS”.
From the circumstances narrated above and from the Memorandum explaining
the Finance Bill, 1987 (see [1987] 165 ITR (St.) 161), 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, 1987, WAS DECLARATORY/CLARIFICATORY IN NATURE
SO FAR AS IT RELATES TO SECTION 27(III), (IIIA) AND (III B).
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 law.
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 the 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.
OWN OBSERVATIONS / COMMENTS:
A) The real purport or intended import of the
last sentence in the judgement (highlighted above) is not clearly understood;
particularly in the context of the long drawn process of reasoning as set out
in the whole of the judgment. For, according to one’s understanding of the law,
howsoever limited that be, so long as asseessee is in receipt of income of a
revenue nature, and that is not disputed, or doubted, is even under the
general scheme of the law, clearly taxable. In other words, that is the
admitted position regardless of, and without having to go into the aspect of
whether or not any such income is derived from any property (or source) owned
by assessee, or under what head of income it has to be taxed. As, in any case,
it appears, the last mentioned aspect concerning ‘head of income’ calls for an
altogether independent examination. Pithily stated, the same conclusion could
have been reached even sans the discussion pivoted on ‘ownership’ as in the instant
case. Nonetheless, the fact remains that, as per the admitted facts as narrated
and understood, it is not the case of the assessee that the subject rental
income cannot at all be taxed.
B) Besides, as admitted, there has been no
‘Sale’ deed executed and registered, Occupation of the Flats has been given in
pursuance of ‘Agreement to sell’, not ‘sale deed’; that is, not on / after
execution and registration of sale deed, and payment of stamp duty due.
Further, there has been no formal conveyance of the entire property comprising
the land and building in the housing complex to the housing society (CHS),
which is said to have been formed by the Flats takers.
The line (s)
of arguments advanced, consequently so also the observations and the court’s
Ruling, are primarily confined to/focussed on the question whether or not, even
without a duly registered sale deed, and also without a formal conveyance of
the building complex to the CHS, the taker of Flats could be considered to have
become ‘owner’, in its conceptual connotation. What needs to have been
appreciated, but not seen to have been done, is that, the related
provisions of the IT Act themselves are ‘deeming provisions’; so much so, the
limited point for consideration of court was whether at all, those could
be regarded to apply to the facts and circumstances of the case on hand.
C) More importantly, so far as one could see, there has been no
reference made, even remotely or otherwise, to the special enactment of the
State governing ‘sale of Flats’. Hence the legal implications thereof have not
been gone into and considered, as warranted.
D) As may be readily observed from the leading Palkhivala’s text book,
with useful commentary based on a plethora of case law cited, besides a couple
of principles / rules of interpretation found a mention and considered in the
judgment, there are many others, which prima facie are of direct
relevance. Had they been referred to and relied on, perhaps, that would have
been of immense assistance to court for adjudicating the issues in proper or
better light. Intended reference is to some of those principles and rules of
relevance dealt with under the heads of, such as, -Rule of Strict
Interpretation, Deeming Provisions and Legal Fictions, Legal Presumptions, and
Legislative History and Background.
(E) The material points principally made, on the grounds of which the
Ruling is founded, broadly stated, are these:
- ONE OF
THE MOST IMPORTANT OF THESE POWERS IS THE RIGHT TO EXCLUDE OTHERS.
- ACTUAL
POSSESSION IMPLIES A RIGHT TO RETAIN IT UNTIL THE CONTRARY IS PROVED, AND
TO THAT EXTENT A POSSESSOR IS PRESUMED TO BE OWNER.
- WE
HAVE, THEREFORE, NO HESITATION TO HOLD THAT THE AMENDMENT INTRODUCED BY
THE FINANCE BILL, 1987, WAS DECLARATORY/CLARIFICATORY IN NATURE SO FAR AS
IT RELATES TO SECTION 27(III), (IIIA) AND (III B).
CONSEQUENTLY, THESE PROVISIONS ARE RETROSPECTIVE IN OPERATION.
- 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.
VIEWPOINTS BASED ON OWN CONVICTION
1.Retrospective Operation
According to case law, the rule against retrospective operation of a
statute unless so provided in the statute either expressly or by necessary
implication is well settled. For one such court ruling, may refer the decision
of the apex court in re. Govinddas v. ITO (103 ITR 123). To quote:
“Now it is well settled rule of interpretation hallowed by time and
sanctified by judicial decisions that unless the terms of a statute expressly
so provide or necessarily require it, retrospective operation should not be
given to a statute so as to take away or impair an existing right or create a
new obligation or impose a new liability otherwise than as regards matters of
procedure. The general rule as stated by Halsbury in volume 36 of the Laws of
England (third edition) and reiterated in several decisions of this Court as
well as English courts is that all statutes other than those which are merely
declaratory or which relate only to matters of procedure or of evidence, are
prima facie prospective and retrospective operation should not be given to a
statue so as to affect, alter or destroy an existing right or create a new
liability or obligation unless that effect cannot be avoided without doing
violence.”
In the instant case, therefore, one could have been validly urged that,
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In the instant case, therefore, one could have been validly urged that,
the 1988 amendments cannot be so construed, by imputing intention, as requiring
to be given a retrospective effect. For, there is nothing in its terms or
language to suggest or imply even remotely the need to do so. On the contrary,
the legislature has, in its wisdom, spelt out, leaving no room for any
controversy, , that those amendments shall take effect from 1st
April 2008, and for the assessment years 2008-2009, and onwards.
2. On an independent analysis, the related provisions of the IT Act,
having in mind the special law on Flats, requiring a perspective and an
in-depth consideration are set out below:
(A) Clause (iiib) of Section 27 reads:
“a person who acquires any rights by way of….or with respect
to any building or part thereof by virtue of any
such transaction as is referred to in clause (f) of section 269 UA, shall
be deemed to be the owner of that building or part
thereof.” > (highlighting supplied for added emphasis)
(B) Definitions
2. In this Act, unless the context otherwise requires, – …..
(47) “transfer”, in relation to a capital asset,
includes,—
(i) …
(vi) any
transaction (whether by way of becoming a member of, or acquiring shares in, a
co-operative society, company or other association of persons or by way of any
agreement or any arrangement or in any other manner whatsoever) which has the
effect of transferring, or enabling the enjoyment of, any immovable property.
[Explanation
1].—For the purposes of sub-clauses (v) and (vi),
“immovable property” shall have the same meaning as in clause (d)
of section 269UA.
269UA. In
this Chapter, unless the context otherwise requires,—
(a) …
(d) “immovable property” means—
(i) any land or any building or part of a
building, and includes, ….
Explanation.—For the
purposes of this sub-clause, “land, building, part of a building, machinery,
plant, furniture, fittings and other things” include any rights therein;
(ii) any rights in or with respect to any
land or any building or a part of a building (whether….) which
has been constructed or which is to be constructed, accruing or arising from
any transaction (whether by way of becoming a member of, or acquiring shares
in, a co-operative society, company or other association of persons or by way
of any agreement or any arrangement of whatever nature), not being a
transaction by way of sale, exchange or lease of such land, building or part of
a building ;
(f) “transfer“,—
(i) ….
(ii) in relation to any immovable property of the nature
referred to in sub-clause (ii) of clause (d), means the doing
of anything (whether by way of admitting as a member of or by way of transfer
of shares in a co-operative society or company or other association of
persons or by way of any agreement or arrangement or in any other manner
whatsoever) which has the effect of transferring, or enabling the
enjoyment of, such property.
The ‘Notes on Clauses’ and ‘Explanatory Statement’ annexed to the
relevant Finance Act of 1987, explain to the effect that these provisions by
way of amendments are being made with a view to setting at rest the then far
obtaining controversies and in court litigation. Likewise, if one were to care
to diligently go through the case law settling those issues, none can fail to
notice that, the issues pertained to transactions in Flats. Further that, the
1988 amendments came to be considered necessary and hence brought on the
statute book, the reason behind being that, because of the erstwhile wording
used, – ‘part of a building’ was too inadequate to cover ‘units’ of a building
(known as Flats /Apartments), and that gave rise to disputes and led to
prolonged court litigation, and in the result, income arising from or out such
property of special kind happened to escape the tax net.
For readily locating the citations of related case law, reference be
made to published articles in Taxmann Journals with particular reference to
those amendments.
According to a harmonious reading of the related sections, as warranted,
it must be more than clear that the 1988 amendments all aim at bringing within
the ambit of taxation the income from, as well as from transactions giving rise
to income, in respect of Flats.
To believe or opine to the contrary or any differently will, to put it
mildly, be tantamount to offending own intelligence or wisdom; besides, of course,
the wisdom of the legislature itself in conceiving of and enacting the 1988
amendments.
It is to be also noted that Section 26 separately and specifically deals
with “Property owned by co-owners”. That, one would validly urge, bears on its
sleeves the basic distinction in law, between the concepts of “co-owners” and
“joint owners”.
To explain the distinction spoken of: A property comprising land and
building, if acquired by purchase or otherwise by more than one person- as in
the case of say, a HUF or jointly purchased property, comes to be co-owned by
all of them. On the contrary, in the case of building comprising Flats, it
is the individuals who acquire, independently; and it is only later they become
‘joint’ holders of the complex, on being admitted as members of the housing
society formed and registered. And, in evidence, shares are issued to them by
the housing society.
Aside: Pointed attention may be drawn to one of the mentioned articles
published by Taxmann, titled – DEVELOPMENT AGREEMENT OF PROPERTY AND
DEEMED TRANSFER UNDER SECTION 2 (47) (v). It discusses the order dated 9-9-2011
of the Appellate Tribunal in re. Ms. K.Radhika (13 taxmann.com 92).
The article is seen to make for an interesting reading, for more than
one reason:
The issue dealt with relates to a JDA for construction of flats, for
eventual transfer to buyers.
The provisions of the Act gone into were one of the 1988 amendments;
that is, the newly inserted clause (v) of section 2 (47), which for ready
reference is reproduced below:
“(v) any transaction involving the allowing of the possession of
any immovable property to be taken or retained in part performance of a
contract of the nature referred to in section 53A of the Transfer of Property
Act, 1882 1 (4 of 1882 ) “
The case law strongly relied on by the Revenue in that case is of the
apex court SC in re. Bharat Co-op. Bank Ltd. v. Co-op. Bank
Employees Union (Mar. 22, 2007).
In that case, the Court in the observations in paragraph 14 of its
judgment has highlighted two important concepts, often imbibed and followed by
the legislature, for sake of convenience. Those are, “a mere reference”,
and “reference by citation of one statute in another and
incorporation”. The referred article, so also the case law cited, may
have to be usefully gone through, for own enlightenment.
Now, turning to the other 1988 amendments, the point deserving a pointed
focus is that, unlike in the said clause (v) in Section 2 (47), the
legislature, for reasons not known, in its wisdom or lack of it, has not
chosen, or has failed, to adopt any of the above mentioned two concepts, in
framing those other clauses. Albeit, the government has to be taken to having
been fully aware that for a proper appreciation of the fact that the types of
transactions those all refer are transfers of units, being flats or
apartments specially dealt with only in the State enactments (not in the
IT Act) . If so, one is left loudly wondering, why, for sake of clarity,
instead of a bare reference, the government ought not to have adopted either of
the above referred two concepts; preferably, the concept
of “reference by citation of one statute in another and incorporation”.
3. There is an
additional point requiring to be separately brought out:
Section 269 UA, for construing its purpose so also the purpose of the
other 1988 amendments, have to necessarily be read and understood keeping in
sharp focus the applicable provisions of the law on Flats. If so done, it is
bound to be realised that the language employed is too clumsy to enable one to
see clearly the said intended purposes.
To dilate: The provision reads, -
“(f) “transfer“,—
(i) ….
(ii) in relation to any immovable property of the nature
referred to in sub-clause (ii) of clause (d), means the doing
of anything (whether by way of admitting as a member of or by way of transfer
of shares in a co-operative society or company or other association of
persons or by way of any agreement or arrangement or in any other manner
whatsoever) which has the effect of transferring, or enabling the
enjoyment of, such property.
On an insightful reading, however, contrary to the impression sought to
be given, it might turn out to be, to say the least, incomplete hence requiring
to be interpreted differently , for the reasons stated:
As per the scheme of the special law, the sequence of events is this: It
is the Flat takers who, on payment of the agreed price, and on execution of
sale deed and payment of stamp duty and registration, first acquire rights in
Flats. Only subsequently, a society is formed and registered. It is the society
which formally admits the flat takers as its members, and in evidence, issues
share certificates.
4. One of the rules / principles of interpretation said to have been
brought up in the course of arguments is that referred as – ‘updating
construction’. The scope of the said rule has been explained thus:
“It is presumed that Parliament intends the court to apply to an ongoing
Act a construction that continuously updates its wording to allow for
changes. The interpretation must keep pace with changing concepts and
values and should undergo adjustments to meet the requirements of the
developments in the economy, law, technology and the fast changing social
conditions.”
The court is seen to have gone on to consider and drawn an inference
from the above referred rule of construction differently. The
suggestion/reasoning is to the effect that the 1988 amendments, such as Sec 27
(iiib) of IT Act, though, as legislated, in terms, introduced and made
effective only from 1st April, 1988, could nonetheless be considered to be of a
declaratory or clarificatory nature, so as lend scope to give it a
retrospective effect. If one’s independent understanding is right or better,
then the referred suggestion/view seems to offend the very basic common
understanding and belief all along, with support also from case law,- that any
such amendment or modification of a substantive nature, enacted specifically
wef the first day of an assessment year can only apply to that assessment year,
and onwards; not backwards. More so, when such a stance, none of the parties to
the dispute seem to have taken or pressed for.
In so construing the above referred rule of interpretation, in one’s
humble opinion, one very vital principle well accepted and settled once for all
appears to have been glossed over or over sighted. That has something to do
with the clear demarcation between the powers vested by the Constitution in the
two important institutions/ functionaries namely, the legislature and the
judiciary. For, if looked at perceptively, as understood by one, the result of
so construing the rule (of interpretation), the purport and import of the
provisions of the IT Act , as amended in 1988, have come to be rewritten or
overwritten.
4. To further elaborate:
One’s own understanding,- same appears to be also the common
understanding in legal circles,- of the circumstances in which the 1988
Amendments of the IT Act came to be made may be explained thus:
As is commonly known, transactions in units came in vogue dating back to
over 5 decades. But it was not until in the late 1980s that the concerned
Ministries -Finance and Law- happened to wake up to the realities. That was so
stands evidenced by the fact that the requisite amendments of the law came to
be thought of, realised and given shape in the form of new insertions in the
Income-tax Act, as late as in 1988; and, not until 1996, that similar
amendments were made,-which could rationally have been thought of at that point
in time itself, that is 1987/88, and been made in the Wealth Tax Act as well.
Attention may be invited to two Articles published not long ago on this
website,-
The subject matter of study therein is the newly introduced TDS
requirement under section 194 IA, inserted in the Act wef 1st June 2013. It has
been pointed out that, the provision suffers from certain lacunae,
Further that, unless and until suitably amended, the requirement cannot be considered
to cover within its purview the special kind of property, being ‘units’ of a
building , known as Flats / Apartments. It might be worthwhile to go through
those articles; albeit, in the instant discussion some of the contents thereof,
being of direct relevance, have been made use of, by incorporation or otherwise
to the extent considered necessary. What needs to be pinpointed is this: As may
be seen, on the line of reasoning therein, the 1988 amendments were intended to
rope within the tax net, ‘units’ of a building, being flats or apartments. The
r
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The reason was that the erstwhile expression, – ‘part of a building’ was
realised, having regard to the long drawn controversies and litigation that
gave rise to, to be inadequate for the purpose.
In short, so far as one could see, or even visualise, there is no scope
for supporting a view that the 1988 amendments are intended to enlarge the
scope of the legal meaning of the concept of ‘owner’. For, if at all, the
intention behind those amendments is to accord a modified meaning to the
wording- “part of a building”, so as to accomplish the purpose of covering
‘units’ of a building (Flats /Apartments) within the ambit of the related
deeming provisions.
5. To fit into
the context of the discussion herein, special attention needs to be invited
necessarily to two other recently reported leading / landmark SC cases:
*
Nahalchand SC on Car Parking.
Hill
Properties Hill Properties Ltd. SC
The issues adjudicated by the apex court in those cases are in civil law
appeals; and the disputes are related and connected to the special kind of
property rights, being in Flats, same as in the instant case.
To narrate:
- In the
case of Nalachand, the dispute mainly pertained to a few stilt car parking
slots within a co-operative housing society (CHS) complex, retained by the
promoter, planning to sell them separately. The issue raised by the CHS
was that the spaces demarked for parking cars, be it by way of stilt
parking or open space parking formed part of the “common areas and facilities”,
and as such, promoter/ seller was, as per the Flats Act, obligated to
transfer /convey the entire property comprised in the land and building
within the complex to the CHS. The apex court, accepting the CHS’s
arguments, has held in its favour. In the judgment the court has
considered in detail the implications of the Flats Act and the Rules,
which will come in handy for understanding the judicial view on the
special law in proper light.
The legal or legitimate implications of the issues adjudicated in those
cases call for a similar analytical study, for anyone’s own enlightenment. That
alone should help in understanding, in comparison, the line of arguments
advanced and the grounds of the SC Ruling discussed above.
To be precise, what needs to be essentially noted is the utmost
significance and importance underlined by the court in Nalchand’s case on two
aspects: -
The legal duty /responsibility of promoter/ seller of flats, -
(a) To strictly comply with the clear mandates of the law, which require
him to execute a proper ‘sale deed’ and its registration; and
(b) To effect the final conveyance to housing society formed by the
buyers, truthfully and in as complete a manner as envisaged by the Flats Act
> In Hill Properties case, the issues adjudicated by the SC are of a
different kind. Nonetheless, that is an instance in which the court ruling
seems to have, though not specifically said so, proceeded, in its
interpretation of the law, preferring to go by the ‘substance’, as distinct
from the ‘form’. For a brief discussion and own viewpoints, the write-up @ HILL PROPERTIES SC TaxGuru may be gone
through.
The SC Ruling in the sensational but infamous decades old episode,
against so called GPA sales, has also necessarily to be kept in full view.
EPILOGUE
In the foregoing discussion, has been brought to focus an inescapable
reality. That is,- for all practical purposes none can deny but has to proceed
on the admitted premise that the field practice in the realty sector cannot
simply be wished away or brushed aside. Even so, the intriguing poser, or a highly
disturbing question, that inevitably arises is this: Could that, by any sound
logic, or rhyme or reasoning, be taken as a valid or tenable ground or excuse
for, besides the other executive and quasi judicial authorities, the apex court
to be so provoked as to be influenced or inspired to take a view, other than
the one founded on the seemingly correct or in any view, a better position
under the law. Going by one’s lifelong own conviction, the right answer, in any
view the better answer, one would submit, should be “YES”.
May add, it is, nonetheless, open to law – tax or common law – experts
active in field practice to, if so minded, to deliberate and come out in the
open, with own independent opinion, particularly should that be any different.
6. It may not be out of context to draw attention to certain realities
or facts of life as brought out in an expert committee report; that is the one
lately focussed on for discussion, – Damodaran Committee Report: Impact on
Impulsive Law Making
As commented:
Pending a close reading of the subject report, the special committee is
seen to have pinpointed and sharply focused on, quite rightly so, as to why
‘Consultative approach for law making’ is imperative.
Following /
taking cues from an out-of-box view, wish to stress that, likewise, but in no
small measure, ‘Impulsive adjudication’ is strongly objectionable and hence
requires to be eschewed in the overall public interest, – not only in the
interests of the individual parties to any case taken up to a court for
adjudication’ . To be precise, in one’s well – thought -out / logically founded
long conviction, extraneous individual human nature such as ‘emotions’ ought
not come into play in the fields of not only legislation and
administration of ‘law’, but more so, desirably, in the matter of judicial
‘interpretation of law’.
As is recalled, there has been a growing thinking and belief that old
case law must be given a quietus/ ignored, if that is justified should regard
be had to the so called ‘modern day’ practices and life style, – not barring
such practices as are not compatible with what the law, in letter and spirit,
clearly / unequivocally ordains.
IN QUEST OF A SOURCE FOR RIGHTEOUS INSPIRATION AND DIRECTION
7. Last but not
least, it might be worthwhile, for one and all concerned, to take a conscious
note of and try and be guided by what a renowned legal legend, also a widely
acknowledged outstanding humanitarian, of our own times, backed up by his
lifelong wisdom and expertise, said:
- The
moment of truth has arrived. The era of chicanery and
disingenuousness, of obfuscation and slogan-mongering, is over.
Reality has at last overtaken us, shattering our illusions, exposing our
outdated ideologies and leaving us with no option but to tread the path of
pragmatism, in retreat from populism.
- Time
and again the Government has to make those hard decisions which are essential
for the maintenance of order. The making of such decisions cannot be
avoided by shifting the responsibility to the judiciary.
- The
Supreme Court as well as the High Courts of India are vested with the
widest possible powers. I am not aware of any constitution of the world
which confers wider powers on its higher judiciary.) But the courts can
decide only questions of fact or of law. They cannot decide, and
should never be called upon to decide, questions of opinion or belief or
political wisdom. It is not the court’s role to be an extended arm
of the executive. Public opinion or public beliefs may weight with
the executive in shaping governmental policies. But it is not for
the court to decide whether there are cogent grounds for opinions or beliefs
which the people may choose to entertain.
It is true that many questions which arise before a court can, in a
sense, be regarded as political questions or questions of policy. But this is
where perception and clarity of mind should come into play. Diamonds are
nothing but carbon, but on that account those who deal in diamonds are not
called carbon merchants.
- ‘Constitutional
Morality’
When laws offend constitutional limitations, they can be invalidated by
the Courts. But when they offend against the basic notions of justice and
proceed upon a total disregard of constitutional morality, in many cases they
can be rectified only by a strong, mobilized public opinion. There are several
amendments of law resorted to with a marked regularity which have no truck with
constitutional morality.
- The
balance between the conflicting claims of public interest represented by
officialdom and the public interest flowing from the administration of
justice often calls for a delicate assessment into which perforce must
enter considerations vital to the operations of Government on the one hand
and the demands of adjudication on the other. The responsibility
fixed on the Court is a serious one, and there is no need to warn that
this power which now vests in the Court can have grave consequences if he
content of its potential is not truly appreciated and realized by those
who wield it. Whenever a Court breaks new ground, the development
and recognition of new rights is often accompanied by the birth of
problems surfacing also for the first time. New doctrines must be
cautiously applied and no Court can shirk its duty if it finds that the
power has been rightly invoked.
- Referring
to a certain statute, Lord Reid said that he found it impossible ‘to
discover or even surmise what the draftsman can have had in mind’.
Commenting on the language in which different Acts or Parliament were
couched, various authorities have expressed their deep dissatisfaction.
“Laxity or ambiguity of expressions…’ was the verdict of the Statute Law
Commissioners in 1835. ‘There is at least on passage in it which is
absolute nonsense,’ observed Vice-Chancellor Kindersley in 1854. “Verbose
and tautologous,” was the comment of the Master of the Rolls in 1834.
“That chaos of verbal darkness,” was how Lord Justice McKinnon described a
British statute in 1944. “Absurd,.. “ said justice Harman about another
law in 1958.
- The
administration of justice has become so obsolescent that most people
regard the law as an enemy rather than as a friend. The law may not be an
ass but it is certainly a snail: the operation of our legal system is not
merely slow but is susceptible to the most shameless delaying tactics, and
resort to the courts has become a costly lottery which takes years in the
drawing.
- The
Ideal of Excellence:
Lord Devlin pointed to three major defects in the present legal system
in Britain: the availability of legal services depends upon wealth rather than
need, mitigated only marginally by legal aid, which rightly has a low priority
among the social services: justice is defined by an adversary system which is
costly and primarily protects only the better-offs; and the focus of the system
on protecting property tends to obliterate the social responsibility of
lawyers. Those words apply equally to the situation in India. Though the
problem of the administration of justice is so vast and so urgent, we have not
even started nibbling at it.
- There
can be no excellence in the law without excellence in lawyers.
- ‘Professionally
speaking’
The legal profession at the highest level develops absorptive and
analytic capacities of the human mind and offers great intellectual stimulus.
It is no small service to be called upon to defend life, liberty and the other
fundamental rights.
But a large degree of equipment is needed to discharge such duties
properly. A lawyer with a well- furnished mind alone can be truly a counsellor
at law; he alone can, not merely look up precedents, but guide his client along
the path of wisdom, even of generosities which may appear irrelevancies to the
preoccupied client. in the hands of such a lawyer, the law represents the
application of reason to noble and purposeful ends.
(Above are memorable excerpts, making for a delightful and enlightening
reading hence randomly selected from the popular published speeches and
articles of N A Palkhivala- Source: Books – WE, THE PEOPLE and We, the Nation
THE LOST DECADES.)
To Sum Up
I. In the
ultimate analysis, there can be no denying that, it is too late in the day for
anyone to sanely contest, and seriously argue against, the taxability of any
income from receipts – be it revenue or capital -from ‘units’ (Flats or
Apartments) of a building’. In particular, to do so, after the coming into
force of the 1988 amendments of the law, might prove an imprudent act; for,
that is certain to involve / entail an inconclusive litigation not necessarily
confined to anyone’s own lifetime.
II. If
anyone cares to search for, can surely find copious useful material in public
domain in the form of experts’ exposition, et al, on the concepts of
‘possession’, ‘ownership’ and ‘occupation’. On a quick look at that, it will be
realised that those are mutually varying concepts, with different legal
significance, entailing mutually varying and contradicting results. Albeit
there is a common tendency even among the legal circles to bypass unwittingly
or otherwise the subtle but hidden differentiation between one and the other,
so much so to easily yield to the temptation of using them interchangeably. For
more useful insight, it is recommended to look up the material similarly
available on the topic of long forgotten topic, – “Adverse Possession”.
III.
It is noted that, the apex court has taken the opportunity of the
instant case, to suggest and recommend to the executive, further amendments of
its direct tax laws with a view to avoiding recurrence of such in-fructuous
litigation in future. One may not wish to go into the significance or objective
behind the referred suggestion/recommendation the apex court has been inspired
to volunteer and offer. Even so, instead, one thinks that, preferably and
ideally, first and foremost, any such suggestion or recommendation needs to be
addressed to the state governments to suitably amend their respective
enactments in place, governing flats. So that, thereby, the objective of
obviating, if not avoiding, the woe-some litigation in courts, in civil,
criminal or tax matters, including the consumer courts, be it at the state or
central level, could be better accomplished. What requires to be realised is
that most of the ongoing disputes and litigation would have been considerably
avoided / mitigated, had the State governments thought of and effected
amendments for plugging in the necessary correctives to inter alia the gaping
loopholes presently obtaining for long in the law on flats. There is no
gainsaying in that, court litigation on issues arising are principally because
of non compliance by most of the promoters / sellers; and as such, it is high
time that the concerned governmental authorities, including the local
authorities such as the municipal corporations make sincere efforts aimed at
implementation and enforcement of the laws that happen to have remained for so
long (decades) simply on paper.
Download the
Above Article in PDF Format - Download
Download the
case law CIT vs M/S. Podar Cement Pvt. Ltd.
Etc. (SC) Duly highlighted in PDF Format – Download
Disclaimer: The analytical study undertaken herein, for satisfying
nothing else but own academic interest, is mainly with a view to having one’s
thoughts cleared, and, incidentally, sharing with equally interested others own
viewpoints. The object is to thereby try and stimulate ideas and thoughts that
hopefully will help others in aiming at an independent contribution of some
value in its true sense but altruistically for the common good in its profound
sense.
ADD-on
In Palkhivala's leading Textbook, the Tenth Edition (2014), Volume I, (released by its new Editor Arvind P Datar, an eminent Senior Advocate, Madras High Court), it is observed, the Podar Case has been annotated, but only briefly commented on, at pages 13,15,17, 48, 648, 651. However, surprisingly, rather disappointingly, none of the most crucial aspects of the SC judgment subjected to a critical analysis and focused on herein above, are noted to have been gone into, but been simply glossed over.
* lci
Citations of some of those Articles published in law journals:
ADD-on
In Palkhivala's leading Textbook, the Tenth Edition (2014), Volume I, (released by its new Editor Arvind P Datar, an eminent Senior Advocate, Madras High Court), it is observed, the Podar Case has been annotated, but only briefly commented on, at pages 13,15,17, 48, 648, 651. However, surprisingly, rather disappointingly, none of the most crucial aspects of the SC judgment subjected to a critical analysis and focused on herein above, are noted to have been gone into, but been simply glossed over.
* lci
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