Holding

For tax purposes, the owner under Section 22 is the person who is entitled to receive the income from the property in his own right, irrespective of registration of title.

Summary

The Supreme Court examined whether a purchaser who has taken possession of flats after full payment, but without a registered deed, is the "owner" for tax purposes under Section 22 of the Income‑Tax Act, 1961. The assessee argued that the rental income should be taxed under Section 56 as "income from other sources" because legal title had not been transferred, while the Revenue contended that the possessor is the owner and the income falls under Section 22. The Court held that "owner" means the person entitled to receive the income in his own right, i.e., the actual possessor, and that the 1988 amendment to Section 27 was declaratory/clarificatory and retrospective, supporting this view. Consequently, the revenue’s appeal (C.A. 4165/94) was dismissed and the assessee’s appeal (C.A. 4549/95) was allowed, confirming taxability under Section 22.

Issues considered

The meaning of "owner" in Section 22 of the Income‑Tax Act, 1961.
Whether rental income from flats possessed without a registered deed is assessable under Section 22 (house property) or Section 56 (other sources).
The retrospective effect of the Finance Bill, 1988 amendment to Section 27 and its impact on the interpretation of ownership.

Legislation cited

Income Tax Act, 1961s. 22, s. 27, s. 53A, s. 54, s. 55, s. 56
Registration Act, 1908
Transfer of Property Act, 1882s. 53A, s. 54

Subjects

Income TaxSection 22Section 56OwnershipHouse PropertyDouble TaxationTransfer of Property ActPart PerformanceDeclaratory AmendmentStatutory Interpretation

Judgment

C.I.T. BOMBAYv. PODAR CEMENT PVT.LTD. 395
promoters u/s 22 of the Act and the owners of the Oats being in beneficial •A
enjoyment of the respective properties will have to pay tax u/s 56 of the
Act.

The respondents submitted that the owner, the person who in his
own right can use the house property or derive income from it, has to be
taxed under the head 'income from house property' and that income from B
house property cannot be taxed doubly once in the hands of the legal owner
u/s 22 and again in the hands of actual user and recipient of income u/s
56 of the Act as permitting such assessment would be opposed to equity
and justice which is not normally allowed by the Courts.
c
Allowing the appeal, this Court

HELD : I.I. Under the common law 'owner' means a person who has
got valid title legally conveyed to him after complying with the require-
ments or 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 D
ground realities and further having regard to the object of the Income-Tax
Act, namely, 'to tax the income', 'owner', is a person who is entitled to
recei,ve income from the property in his own right. Therefore, the
promoters/contractors after parting with possession on receipt of full
consideration thereby enabling the 'purchasers' to enjoy the fruits of the E
property, even though no registered document as required u/s 54 of the
Transfer of Property Act was executed, can be • 'owner' for the purpose of
Sec. 22 of the Income Tax Act. The person in possession/enjoyment of the
property can be considered as legal owner, and can be called upon to pay
the tax u/s 22 of the Act. [425-D; 421-B]
F
1.2. Assuming that there are two possible interpretations of Section
22 of the Act, which is akin to a charging Section, it is well settled, that the
one which is favourable to the assessee has to be preferred. [419-H; 420-A]

1.3. The amendment introduced by the Finance Bill, 1988 was declara- G
tory/clarificatory in nature so far as it relates to Section 27 (iii), (iii) (a) and
(iii)(b) of the Act. Consequently, these provisions are retrospective in opera-
tion. It 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. [425-A-C]

Diwan Daulat Rai Kapur v. New Delhi Municipal Committee, 122 H
396 SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R.

A I.T.R. 700; C.J. T., Bombay City-Ill v. Zorostrian Building Society Ltd., 102
ITR 499; Balkrishna Gupta & Ors. v. Swadeshi Po(ytex Ltd. & Anr., [1985)
2 SCC 167; Narandas Karsondas v. SA. Kamtam & Anr., (1977) 2 SCR 341;
Bai Dosabai v. Mathurdar Govinddas & Ors., [1980) 3 SCR 762; Rani
Chhatra Kumari v. Mohan Bikram, (1931) 58 I.A. 279; R.B.R. Subba Rao &
B Ors. v. CIT, 30 ITR 163; (Late) Nawab Sir Mir Osman Ali Khan v. Commis-
sioner of Wealth Tax, Hyderabad, 162 ITR 888 and Keshavlal Jethalal Shah
v. Mohan/al Bhagwandas & Anr., [1968] 3 SCR 623, referred to.

Addi. CIT v. U.P. State Agro Ind/. Corporation, 127 ITR 97 (All); Smt.
Kala Rani v. CIT Patiala-I, 130 ITR 321 (P&H); Addi. CIT, Bihar v. Sahay
C Properties & Investme/11 Co. (P) Ltd., 144 ITR 357 (Pat.); Saiffuddin v. CIT,
156 ITR 127 (Raj.); Madgul Udyog v. CIT, 184 ITR 484 (Cal.); Maharani
Yogeshwari Kumari v. CIT, 213 ITR 574 (Raj.); CITv. General Mktg. & Mfg.
Co. Ltd., 222 ITR 574 (Cal.) and CIT v. Klishna Lal Ajmani, 222 ITR 653
(Pat.), approved.

D Sushi/ A11Sa[ v. CIT, Delhi-III, 160 ITR 308, overruled.

R.B. Jodha Mal Kuthiala v. CIT, Pun., J&K & HP, 82 ITR 570; Mohd.
Noor & Ors. etc. v. Mohd. Ibrahim & Ors. etc., [1994) 5 SCC 562; Keshavlal
Jethalal Shah v. Mohan/al Bhagwandas & Anr., [1968) 3 SCR 623 and State
E v. S.J. Choudhary, [1996) 2 sec 428, relied on.

Crawford's Statutory Construction at 107; Francis Bennion Statutory
Interpretation (2nd Edn.) 1992, 105,Justice G.P. Singh's (6th Edn.1996) and
Principles of Statutory Interpretation, referred to.

F CIVIL APPELLATE JURISDICTION: Tax Reference Case Nos.
9-10 of 1986.

Arising out of l.T.A. Nos. 3390 (Born.) and 3391 (Bom.)/1981.

Assessment Years: 1975-76 and 1976-77.
G
K.N. Shukla, R. Sathish, K.N. Nagpal and Mr. B. Krishna Prasad for
the Appellants.

Harish N. Salve, G.C. Sharma, Sanjeev Puri, N. Ganpathy, Vinay
Yaish, Santosh K. Agarwal, B.S. Ahuja and A. Subba Rao for the Respon-
H dents.
C.l.T. BOMBAYv. PO DAR CEMEl\T PVT. LTD. [K VENKATASWAMI, J.] 397

M.S. Syali and Ms. Geetanjali for the lntervenors. A

The Judgment of the Court was delivered by

K. VENKATASWAMI. J. In all these cases the scope of Section 22
of the Income Tax Act, 1961 (hereinafter called the 'Act') arises for
consideration. B
Brief facts are necessary to appreciate the question that arises for
our consideration.

The respondent' in Tax Reference Case Nos. 9-10/86 is a company C
and an assessee under the Act (hereinafter called the 'assessee'). It owns
four flats bearing Nos. 231, 232, 241 and 242 in a building call as "Silver
Arch" on Nepeansea 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 D
assessee. The possession of the flats was taken after payment of considera-
tion in full some time 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, 1975-76 and 1976-77. It was the case of the assessee that the rental E
income from the flats was 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 Co-operative society which was
formed by the purchasers of the flats and that so long as the ownership F
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).

One other subsidiary question was also raised by the assessee that G
the rental income should be calculated on the bonafide 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 H
398 SUPREME COURT REPORTS [1997] SUPP. l S.C.R.

. A flats should be assessed under Section 56 of the Act.
Aggrieved by the orders of the Income Tax Officer, the assessee
preferred appeals to the Commissioner of Income Tax (Appeals), who by
an order dated 9.4.81 upheld in toto the views as slated above by the
Income Tax Officer. After receiving the orders from the appellate
B authority, the assessee filed Miscellaneous Applications dated 14.9.81
before 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 Diwan Dau/at Rai Kapur v. New Delhi Municipal
Committee, 122 l.T.R. 700, the authorities were bound to take the annual
C 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 asscssee's Miscellaneous
Applications by Order dated 17.3.82 and rectified its earlier order dated
9.4.81. Still not satisfied with the appellate order, the assessee preferred
two appeals against the order of the appellate authority contending that
D the income from the four flats should have been assessed under Section 56
o~ the Act and not under Section 22. The Revenue preferred two appeals
against the rectification order dated 17.3.82.

Those four appeals were considered by the Income Tax Appellate
E Tribunal, (Bombay Bench "A"), Bombay, and the Tribunal by a common
order dated 8.5.86 purporting to follow several decisions of the Bombay
High Court accepted the case of the assessee and held that lhe income
from the flats could not be taxed as 'income from house properly' under
Section 22, but should be taxed as 'income from other sources' under
Section 56 of the Act. The Tribunal, however, did nol decide the other
F question, namely, whether the actual rental income should be taken into
account for the computation or the chargeable rental value. We are not
concerned with the latter question here.

The Tribunal when moved by the Revenue under Section 256(1) of
G the Act referred the case straight away to this Court under Section 257 of
the Act in view of conflicting decisions between the High Courts.

The question referred to reads as follows :-

"Whether on the facts and in the circumstances of the case, the
H Tribunal was justified in law in holding that the income derived by
C.l.TBOMBAYv. PODARCEMENTPVf.LID.(K VENKATASWAMI,l] 399

the assessee-company from flats from the building known as "Silver A
·' Arch" of Bombay is taxable under the head 'income from other
sources' under Section 56 of the Income Tax Act and not income
from "house property" under Section 22 of the Income Tax Act,
1961?"

Civil Appeal No. 4165/94: B

In this case the respondent-assessee, an individual, returned for the
assessment year 1983-84 the rental income from two flats bearing Nos. 406
and 407 at Kailash Building, Curzon Road, New Delhi, and also parking
space and claimed that the said income must be assessed as 'income from C
house property'. However, the Income Tax Officer took the view that the
assessee only had tenancy rights and, therefore, the income could be
assessed under the head "income from other sources namely, under Section
56 of the Act.

Aggrieved by the order of the Assessing Officer, an appeal was D
preferred to the Commissioner of Income Tax (Appeal), New Delhi, who
has accepted tht: case of the assessee and directed the assessment under
Section 22 of the Act.

The Revenue aggrieved by the appellate order preferred an appeal E
to the Tribunal. The Tribunal held that the appellate authority was right
in holding that the income from the flats should be assessed as income from
house property and not as income from other sources. For coming to this
conclusion, the Tribunal, as a matter of fact, found that the assessee is the
owner of the flats as well as the parking space in question. The Tribunal
rejected an application for reference under Section 256(1) and the High F
Court also rejected the reference under Section 256(2). Hence, the present
appeal by special leave by the Revenue.

Civil Appeal No. 4549/95

The appellant in this case is an individual and the relevant assessment G
year is 1970-71. The appellant is the owner of three flats in a multi-storeyed
building known as 'Akash Deep'. This multi-storeyed building has been
constructed on a piece of land at Barakhamba Road which belongs to
Government but has been given under perpetual lease. The name of the
original lessee was not known. However, the company known as Ansal and. H
400 SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R.

A Sehgal Pvt. Ltd. entered into an agreement with the lessee and constructed
a multi-storeyed building on the said piece of land. The assessee claimed
and it was not disputed that he has paid the entire price thereof and got
possession of the three flats. It is also the claim of the appellant that he
had absolute rights of disposal over them and that he had let out these flats
B to different tenants and he was deriving the income from the flats and was
paying the municipal taxes in respect thereof. In the Income Tax Return
for the assessment year in question the appellant has shown a net income
of Rs. 18,403 from these flats by way of rent. The said net income was
arrived at after deducting municipal taxes as well as the statutory deduction
of one-sixth of the annual value on account of repairs as provided in
C Section 24 of the Act. The Income Tax Officer while accepting the Return
denied the deduction for repairs claimed by the assessee on the ground
that the income must be assessable under the head 'income from other
sources' under Section 56 of the Act.

D Aggrieved by that, the appellant preferred an appeal to the Appellate
Assistant Commissioner who was convinced by the claim of the appellant
directed the ITO to assess the income under the head 'income from house
property' and to allow statutory relief on account of repairs.

The Revenue preferred an appeal before the Tribunal. The Tribunal
E found as a fact that there was no sale deed as such in respect of flats in
favour of the assessee. There was only an agreement to sell coupled with
the payment of the purchase price and the handing over of occupation or
possession. The Tribunal further found that the super-structure of the
multi-storeyed building including the flats vested originally with the com-
p pany which had constructed the same and the assessee had only entered
into an agreement to purchase the flats, though actually the assessee had
paid all the instalments of purchase price. The Tribunal was of the view
that till regular sale deeds were executed in favour of the assessee the title
in the flats remained vested in the company and, therefore, the assessee
could not in law claim as legal owner of those flats. The Tribunal applying
G a decision of the Delhi High Court upset the view taken by the Appellate
Assistant Commissioner and restored the order of the Income Tax Officer.
The appellant was successful in getting a reference under Section 256(1)
of the Act and the High Court in detail considered the matter. However,
the High Court in view of its earlier decisions confirmed the view taken by
H the Tribunal and held that the income in question was assessable under
Cl.T. BOMBAYv. PODARCEMENf PVT. LID.[K VENKATASWAMI,J.] 401

Section 56 of the Act as income from other sources. Aggrieved by that, the A
present appeal is by the appellant by special leave.

It will be seen from the narration of facts in all these cases, a common
question of law arises as regards the scope of Section 22 of the Act vis-a-vis
Section 56 of the Act.
B
Mr. K.N. Shukla, the learned senior counsel appearing for the
Revenue, has advanced the arguments in general, in view of the fact that
the Revenue had not taken an uniform stand in assessing the owners of
flats as seen from the facts given above. He submitted that the owners of
flats as well as promoters are liable to be truced under Sections 56 aad 22 C
respectively of the Income True Act. In other words, the promoters are the
legal owners and income from house property will have to be truced at the
hands of the promoters under Section 22 of the Act and the owners of the
flats being in beneficial enjoyment of the respective properties will have to
pay true under Section 56 as 'income from other sources'. He invited our D
attention to a decis10n of this Court in R.B. Jodha Mal Kuthiala v. Com-
missioner of Income Tax, Punjab, J & Kand Himachal Pradesh, 82 ITR 570
rendered under the Income True Act and also a recent judgment reported
in Mohd. Nllor & Ors., Etc. v. Mohd. Ibrahim & Ors., Etc., [1994] 5 SCC
562, rendered under the Rajasthan Tenancy Act, 1955. He also invited our
attention to a judgment of the Bombay High Court in C.l. T. Bombay E
City-Ill v. Zorostrian Building Society Ltd., 102 ITR 499. In general, he left
to the ultimate decision of the Court on the issue in question without finally
expressing his point of view in view of the conflicting stand taken by the
Revenue while making the assessments under challenge.
F
Mr. Sharma, the learned senior counsel, advanced the leading argu-
ments and according to him, Section 22 of the Act charges the income
arising from tb.e house property and not the ownership of the house
property. Such income from the house property can be real or notional.
He also argued that income under the head 'house property' real· or
notional cannot escape taication whoever m'ay be regarded as the owner but G
certainly it cannot have two owners at the same time. According to the
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 truced ·' ·•
under the head 'income from house property'. He alone has to be truced
under this head. If he cannot be truced under this head, he cannot be truced H
402 SUPREME COURT REPORTS (1997) SUPP. 1 S.C.R.

A at all. In other words, he cannot be taxed under the head 'income from
other sources' under Section 56 of the Act. He also contended that income
from house property cannot be taxed doubly once in the hands of the legal
owner under Section 22 and again in the hands of actual user and recipient
of income under Section 56 of the Act. Permitting such assessment would
B be opposed to equity and justice which is not normally allowed by the
Courts. As a corollary from the last contention he submitted that it is well
settled that the interpretation, which would avoid hardship and double
taxation, should be preferred rather to the interpretation which would
result in hardship and double taxation. Lastly, it was contended by Mr.
Sharma that the Parliament wherever found necessary had provided for
C avoidance of double :axation expressly like Sections 64(2), 69D, 93(2) and
94(4) but no such express provision was considered necessary as regards
Sections 22 to 27 as they thought in their wisdom that no authority of
Income Tax would assess the same income twice, once in the hands of the
legal owner on notional basis and again in the hands of buyer on actual
D receipt of rent.
Mr. Sharma, learned senior counsel, in support of these arguments
while placing heavy reliance on the judgment of this Court in Jodha Mal's
case (supra) also cited numerous judgments of the High Court which have
applied the principles enunciated in the judgment of this Court in Jodha
E Mal's case. The judgments on which reliance was placed are the following

1. Addi. C.I. T. v. U.P. State Agro Ind!. Corporation, 127 ITR 97,
(Allahabad).

F 2. Smt. Kala Rani v. C.l. T. Patiala-1, 130 ITR 321 (Punjab &
Haryana).

3. Addi. C.l.T., Bihar v. Sahay Properties & Investment Co. (P)
Ltd., 144 ITR 357 (Patna).
G Saiffuddin v. C.l.T., 156 ITR 127 (Rajasthan).
4.
. ,.
5. Madgul Udyog v. C.l.T., 184 ITR 484 (Cal.).

6. Maharani Yogeshwari Kumari v. C.I. T., 213 ITR 541 (Rajas-
H than).
C.J.T.BOMBAYv. PODARCEMENTPVf.LTD.[K VENKATASWAMl,J.] 403

7. C.I.T. v. General Mktg. & Mfg. Co. Ltd., 222 ITR 574 (Cal- A
cutta).

8. C.I. T. v. Klishna Lal Ajmani, 222 ITR 653 (Patna).

Mr. H.N. Salve, learned senior counsel appearing for the respondent-
assessee in Tax Reference Case Nos. 9-10/86, took a different stand from B
that of Mr. Sharma and contended that the word 'owner' in Section 22 of
the Income Tax Act should be understood in its general sense and not in
the sense in which it was understood by this Court in Jodha Mal's case
(supra). According to learned counsel, the word 'owner' can only refer to
... the legal owner and none else, as concept of dual ownership is unknown C
in Indian Jurisprudence. He invited our attention to the language of
Section 9(1) of the Old Income Tax Act which corresponds to Section 22
of the present Act and contended that the assessment does not depend on
actual receipt of income from house property. He also submitted that the
view taken by some of the High Courts that the owners of the flats even in
the absence of any registered document of sale in their favour can be D
treated as owners in view of Section 53A of the Transfer of Property Act
is wholly wrong and unsustainable. That view, according to him, is contrary
to the well settled position in law as laid down in several judgments of this
Court. The learned seni0r counsel submitted that the ownership is
paramount title and it cannot be otherwise interpreted. Mr. Salve sub- E
mitred that even if the interpretation suggested by him to Section 22
results in double taxation even then that has to be accepted as that being
the correct position in law. There is no equity in Taxation law. In
support of his arguments he placed reliance on the following judgments
of this Court :
F
1. Balkrislma Gupta & Ors. v. Swadeshi Polylex Ltd. & Anr.,
(1985) 2 sec 167.

2. Narandas Karsondas v. S.A. Kamtam & Anr., (1977) 2 SCR
341.
G
3. Bai Dosabai v. Mathurdas Govinddas & Ors., (1980) 3 SCR
762.

4. Rani Chhatra Kumari v. Mohan Bikram, (1931) 58 I.A. 279.

We are given to understand that an identical issue is pending before H
404 SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R.

A a Full Bench of the Delhi High Court and Mr. Syali, learned counsel
appearing in that case sought our permission to place his arguments. The
question being of some importance, we permitted him to submit his argu-
ments.

Mr. Syali, learned counsel, submitted that the Income Tax Act is a
B 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 R.B.R. Subba
Rao & Ors. v. CIT, 30 ITR 163. According to the learned counsel, the
meaning of the word 'owner' occurring in Section 22 has to be understood ...
C 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's case. In addition to the cases cited by Mr.
Sharma, learned counsel Mr. Syali invited our attention to a case reported
D in (Late) Nawab Sir Mir .Osman Ali Khan v. Commissioner of Wealth Tax,
Hyderabad, 162 ITR 888. He also invited our attention to a recent judgment
of this Court reported in State v. SJ. Chaudlzary, [1996] 2 SCC 428, to
support his contention the words occurring in a statute should be so
construed as to continuously update the wordings in accordance with the
E changes in social conditions.

To appreciate the submissions made at the bar, it is necessary to set
out the relevant sections from the Act. We set out hereunder Section 9(i)
of the old Act, Sections 22, 27 and 56 of new Act.

F "9(1) The tax shall be payable by an assessee under the head
'Income from property' in respect of the bona fide annual value of
property consisting of any building or lands appurtenant thereto
of which he is the owner, other than such portions of such properly

G
as he may occupy for the purposes of any business, profession or
vocation carried on by him the profits of which are assessable to
tax."
c
"22. Income from house prope1ty.- The annual value of property
consisting of any building or lands appurtenant thereto of which
the assessee is the owner, other than such portions of such property
H as he may occupy for the purposes of any business or profession
C.I.T. BOMBAYv. PO DAR CEMENT PVI'. L1D. [K. VENKATASWAMI, J.] 405

carried on by him the profits of which are chargeable to income- A
tax, shall be chargeable to income-tax under the head "Income
from house property."

27. "Owner of house property", "annual charge'', etc., defined - For
the purposes of sections 22 to 26 -
B
(i) xxx xxx xxx xxx

(ii) xxx xxx xxx xxx

•• (iii) a member of a cooperative society to whom a building or part
thereof is allotted or leased under a house building scheme of the C
society shall be deemed to be the owner of that building or part
.... thereof.

[before amendment)

(iii) a member of a co-operative society, company or other associa- D
tion of persons to whom a building or part thereof is allotted or
leased under a house building scheme of the society, company or
association, as the case may be, shall be deemed to be the owner
of that building or part thereof;

(iiia) a person who is allowed to take or retain possession of any E
building or part thereof in part performance of a contract of the
nature referred to in section 53A of the Transfer of Property Act,
1882 ( 4 of 1882), shall be deemed to be the owner of that building
or part thereof;
F
(iiib) a person who acquires any rights (excluding any rights by
way of a lease from month to month or for a period not exceeding
one year) in or with respect to any building or part thereof, by
virtue of any such transaction as is referred to in clause (f) of
section 269UA, shall be deemed to be the owner of that building
or part thereof; G
(iv) xxx xxx xxx xxx \__

(v) xxx xxx xxx xxx

(vi) xxx xxx xxx xxx H
406 SUPREME COURT REPORTS (1997] SUPP. 1 S.C.R.

A 56. Income from other sources - (1) Income of every kind which is
not to be excluded from the total income under this Act shall be
chargeable to income-tax under the head "Income from other
sources", if it is not chargeable to income-tax under any of the
heads specified in section 14, items A to E.

B (2) In particular, and without prejudice to the generality of the
provisions of sub-section (1), the following income shall be char-
geable to income-tax under the head "Income from other sources",
namely -

(i) xxx xxx xxx xxx
c
(ia) xxx xxx xxx xxx
41 ..
(ib) xxx xxx xxx xxx

(ic) xxx xxx xxx xxx
D
(id) xxx xxx xxx xxx

(ii) xxx xxx xxx xxx

(iii) where an assessec lets on hire machinery, plant or furniture
E
belonging to him and also buildings, and the letting of the buildings
is inseparable from the letting of the said machinery, plant or
furniture, the income from such letting, if it is not chargeable to
income-tax under the head "Profits and gains of business or profes-
sion".
F
From the narration of the facts and the rival submissions it will be
seen that the controversy revolves around the meaning to be given to the
word 'of which the assessee is the owner' occurring in Section 22 of the
Act. We may point out that Section 9(i) of the old Act was substantially
G the same as Section 22 of the new Act. We may also state that the whole
of Section 9 of the old Act has been split up and redrafted into several'
separate Sections, namely, Sections 22 to 27 under the new Act.
,
We have noticed the reliance placed by the b.ar on the decision of , .
this Court in Jodha Mal's case which was concerned with the old Section
H 9(i) of the Act. In that case, this Court had o~casioned to consider the
C.I.T. BOMBAYv. PODARCEMEl\'TPVT. LID. (K VENKATASWAMl,J.] 407

meaning to be given to the words 'of which he is the owner'. Of course, on A
facts the Court was called upon to decide whether the erstwhile admitted
owner of the property is liable to pay income-truc on the house property
under Section 9 even after the said property has been vested in the
Custodian of Evacuee Property by virtue of Section 6(1) of the Pakistan
(Administration of Evacuee Property) Ordinance, 1949. The contention of B
the Revenue in that was that notwithstanding the vesting of the house
property in the Custodian the legal ownership remained with the assessee
therein and, .therefore, Section 9(1) of the old Act was attracted. This
contention was repelled by this Court. Hegde, J. speaking for the Bench
observed at page 575 :
c
"The question is who is the "owner" referred to in this Section?
Is it the person in whom the property vests or is it he who is entitled
to some beneficial interest in the property? It must be remembered
that Section 9 brings to truc the income from property and not the
interest of a person in the property. A property cannot be owned D
by two persons, each one having independent and exclusive right
over it. Hence, for the purpose of Section 9, the owner must be
that person who can exercise the rights of the owner, not on behalf
of the owner but in his own right."

The learned Judge observed that "it is true that equitable considera- E
tions are irrelevant in interpreting truc laws. But, those laws, like all other
laws, have to be interpreted reasonably and in consonance with justice".
Again at page 577, it was held that 'for determining the person liable to
pay tax, the test laid down by the Court was to find out the person entitled
to that income". Again at page 578 it was observed : "No one denies that F
an evacuee from Pakistan has a residual right in the property that he left
in Pakistan. But the real question is, can that right be considered as
ownership within the meaning of Section 9 of the Act. As mentioned earlier
that Section seeks to bring to truc income of the property in the hands of
the owner. Hence, the focus of that Section is on the receipt of the income.
The meaning that we give to the word "owner" in Section 9 must not be G
such as to make. that provision capable of being made an instrument of
oppression. It· must be in consonance with the principles underlying the
Act."

In our opinion, the .above observations of this Court clearly fixes the H
408 SUPREME COURT REPORTS (1997] SUPP. 1 S.C.R.

A liability on a person who receives - or is entitled to receive the income from
the property in his own right. In spite of this, the assessing officers of
various circles instead of uniformally following the ratio laid down in this
case have taken different diametically opposite views depending upon the
pronouncements of the concerned High Courts in the circles on the scope
of Section 22 of the Act. The High Courts of Allahabad. Punjab and
B
Haryana, Rajasthan, Calcutta and Patna have taken the view by correctly
understanding the ratio laid down in Jodha Mal's case and the High Courts
of Bombay, Delhi and Andhra Pradesh have taken a different view wrongly
distinguishing on facts in Jodha Mal's case.

C In the Kala Rani's case (supra), the Punjab and Haryana High Court
after referring to the judgment of this Court in Jodha Mal's case observed
as follows:

"Thus, it cannot be accepted that before a person can be
assessed under Section 22 of the Act, he must be the owner by
D virtue of a sale deed in his favour. As a matter of fact, what is
being taxed under Section 22 of the Act is the income from house
property or the annual value of the property of which the assessee
is the owner."

E The High Court rejected the contention that the mere possession of
the property in pursuance of an agreement to sell was not sufficient to
burden the assessee with tax on any income under Section 22 of the Act.

The High Court of Patna in Sahay Properties' case (supra) has
elaborately dealt with this case. As a matter of fact, civil appeals were
F preferred by Special Leave against the judgment of the Patna High Court
in Civil Appeal Nos. 5874-76 of 1983. However, those appeals were dis-
missed as withdrawn on 20.3.1996 without deciding the issue.

Brief facts in that case were, the assessee company acquired certain
immovable property in February 1962. The assessee paid the entire con-
G sideration and was in actual physical possession of the entire properties
contracted to be sold. The assessee was empowered by the vendor to use
the properties in whatsoever manner the assessee liked and to receive and •
enjoy the entire usufructs thereof, with the only reservation that a formal
deed of conveyance with registration in conformity with the Indian
H Registration Act would follow al the request of the assessee and once that
.
C.l.T.BOMBAYv. PODARCEMENTPVT.LID.[K VENKATASWAJ\11,J.] 409
'
request was made, it was incumbent upon the transferor to execute such a A
deed of conveyance and to get it registered. The assessee was assessed
under Section 2'(- in respect of the income from the property but the
Tribunal held that the assessee was not the owner of the property and was
not liable to be assessed as such.

The Patna High Court has cited this Court's judgment in Jodha Mal's B
case and also number of other judgments of the different High Courts. The
High Court had also gone into the concept of "ownership" and referred to
passages from G.W. Paton on Jurisprudence, Dias on Jurisprudence,
Stroud's Judicial Dictionary and Pollock on Jurisprudence. We may use-
fully extract certain passages from the judgment of the Patna High Court. C
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
a
is not as simple as it looks. This leaves us to more vexed question
0
D
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 E
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, (1971) 82 ITR 570 (SC). F

We are very much alive to the legal position that it is true that
there is no equity about a tax. There is no presumption as to a tax.
Nothing is to be read in-nothing is to be implied. We can look only
fairly at the langu;ge used. Nonetheless, the tax laws have to be G
interpreted reasonably and. in consonance with justice. This is
well-settled by numerous decisions of the Supreme Court itself.

We have, therefore, to judge a·nd interpret the language of
Section 22 of the Act in the context of that particular Section, and
that context we shall come back to hereinafter at a more ap- H
410 SUPREME COURT REPORTS !1997) SUPP. l S.C.R.

A propriate place.

In the meantime, it would not be irrelevant to go into the
concept of "ownership". What is ownership after all? Read from
the Roman Law upto the English Law at the present stage,
medieval stage having been interspersed with different formulae,
B the position that now j uristically emerges is this. The full rights of
an owner as now recognised are :

"(a) The power of enjoyment (e.g., the determination of the use
to which the res is to be put, the power to deal with produce as
c he pleases, the power to destroy);

(b) Possession which includes the right to exclude others;

( c) Power to alienate inter vivas, or to charge as security;

(d) Power to leave the res by will.
D
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 of handling of the
thing ....... But every owner does not possess all the rights set out
E 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).

While dealing with the concept of possession and enumerating
the illustrative cases and rules in this respect, Paton says at p.577
F in cl.(x):

"To acquire possession of a thing it is necessary to exercise such
physical control over the thing as the thing is capable of, and to
evince an intention to exclude others: ......"
G Reference in this connection has been made to the case of
Tubantia: Young v. Hichens and of Pierson v. Post, [1805] 3 Caines
175 (Supreme Court of New York) ......

It would thus be seen that where the possession of a property
H is acquired, with a right to exercise such necessary control over
C.I.T.BOMBAYv. PODARCEMENTPVf.LTD. [K. VENKATASWAMl,J.] 411

the property acquired which it is capable of, it is the intention to A
exclude others which evinces an element of ownership.

To the same effect and with a more vigorous impact is the
subject dealt with by Dias on Jurisprudence, (4th Edn., at p.400):

"The position, therefore, seems to be that the idea of ownership B
of land is essentially one of the 'better right' to be in possession
and to obtain it, whereas with chattels the concept is a more
absolute one. Actual possession implies a right to retain it until
the contrary is proved, and to that extent a possessor is presumed
to be owner." C

"Again, at p.404, the learned author says:

"Special attention should also be drawn to the distinction be-
tween 'legal' ownership recognised at common law and 'equitable'
ownership recognised at equity. This occurs principally when there D
is a trust, which is purely the result of the peculiar historical
development of English Law. A trust implies the existence of two
kinds of concurrent ownerships, that of the trustee at law and that
of the beneficiary at equity."

We are not concerned in this case with any case of trust either
E
under the equitable principles or under the law as engrafted in the
Indian Trusts Act. Because, the "beneficiary might himself be a
trustee of his interest for a third person, in which case his equitable
ownership is as devoid of advantage to him as the legal ownership
is to the trustee. So, when described in terms of ownership, the F
distinction between legal and equitable ownership lies in the his-
torical factors that govern their creation and function; in terms of
advantage, the distinction is between the bare right, whether legal
or equitable, and the beneficial right" (vide pp.404-405 of Dias on
Jurisprudence, 4th Edn.).
G
We, therefore, need not go into the questions involving trusts
where a person holds the property and receives the income in trust
for others who are the legal beneficiaries. The crux of the matter
is as to whether, as already stated above, the actual possession in
a given particular case gives a right to retain such a possession B
412 SUPREME COURT REPORTS (1997] SUPP. 1 S.C.R.
A until the contrary is proved and so long as that is not done, to that
extent a possessor is presumed to be the owner.

Incidentally, although the Supreme Court in the case of Jodha
Mal (1971) 82 ITR 570 merely mentioned that Stroud's Judicial
Dictionary had given several definitions and illustrations of owner-
B ship, it refrained from going into the details on account of the
practical approach that was made in that case, to which we shall
hereinafter refer and dilate upon. We think it worthwhile, the
matter having been canvassed at length at the Bar, to give a full
illustration of the definitions of "ownership" as Stroud puts it. One
c such definition is that the "owner" or "proprietor" of a property is
the person in whom (with his or her assent) it is for the time being
beneficially vested, and who has the occupation, or control, or
usufruct, of it, e.g., a lessee is, during the term, the owner of the
property demised. Yet another definition that has been given by
Stroud is that :
D
'"Owner' applies to every person in possession or receipt either
of the whole, or of any part, of the rents or profits of any land or
tenement; or in the occupation of such land or tenement, other
than as a tenant from year to year or for any less term or as a
E tenant at will"'. (Stroud's Judicial Dictionary, 3rd Edn., Vol. 3,
p.2060).

Thus the juristic principle from the view point of each one is
to determine the true connotation of the term "owner" within the
F meaning of s.22 of the Act in its practical sense, leaving the husk
of the legal title beyond the domain of ownership for the purpose
of this statutory provision. The reason is obvious. After all, who is
to be taxed or assessed to be taxed more accurately - a person in
receipt of money having actual control over the property with no
person having better right to defeat his claim of possession or a
G .person in legal parlance who may remain a remainder man, say,
at the end or extinction of the period of occupation after, again
say, a thousand years? The answer to this question in favour of the
assessee would not merely be doing palpable injustice but would
cause absurd inconvenience and would make the Legislature to be
H dubbed as being a party to a nonsensical legislation. One cannot
C.l.T. BOMBAYv. PODARCEMENf PVT.LID. [K. VENKATASWAMl,J.] 413

...... reasonably and logically visualise as to when a person in actual A
physical control of the property realising the entire income and
usufructs of the property for his own use and not for the use of
any other person, having the absolute power of disposal of the
income so received, should be held not liable to tax merely because
a vestige of legal ownership or a husk of title in the long run may
B
yet clothe another person with the power of a residual ownership
when such contingency arises which is not a case even here. A
plain reading of clause 4 of the agreement, as extracted above,
clearly goes to show that the physical possession of the properties
has passed on or is deemed to have passed on to the assessee to
have and to hold for ever and absolutely with the power to use the c
same in whatsoever manner it thinks best and the assessee shall
derive all income and be~efits together with full power of disposal
of the properties as well as the income thereof. Can it then be said
that the recipient of the income being the assessee only having an
absolute and exclusive control over the property without any let or D
hindrance on the part of the so-called vendor which, indeed, under
law it was not entitled to do, as we shall presently show, shall be
immune from the taxing provision in Section 22 of the Act? The
answer in our view is clearly in the negative. The reason is simple.
The consideration money has been paid in full. The assessee has E
been put in exclusive and absolute possession of the property. It
has been empowered to deal with the income as it likes. It has
been empowered to dispose of and even to alienate the property.
Reference to s.54 or, for that matter, s.55 of the Transfer of
Property Act by the Tribunal merely emphasises the fact that the
legal title does not pass unless there is a deed of conveyance duly F
registered. The agreement is in writing and the value of the
property is admittedly worth more than hundred rupees. Section
54 of the Transfer of Property Act would, therefore, exclude the
conferment of absolute title by transfer to the assessee. That,
however, would not take away the right of the assessee to remain G
in possession of the property, to realise and receive the rents and
profits therefrom and to appropriate the entire income for its own
use. The so-called vendor is not permitted in law to dispossess or
to question the title of the assessee (the so- called vendee). It was
for this very practical purpose that the doctrine of the equity of H
414 SUPREME COURT REPORTS (1997] SUPP. 1 S.C.R.

A part performance was introduced in the Transfer of Property Act,
1882, by inserting s.53A therein. the Section specifically allows the
doctrine of part performance to be applied to the agreements
which, though required to be registered, are not registered and to
transfers not completed in the manner prescribed therefor· by any
law. The section is, therefore, applicable to cases where the trans-
B
fer is not completed in a manner required by law unless such a
non- compliance with the procedure results in the transfer being
void. There is, however, a distinction between an agreement void
as such and an agreement void in the absence of something which
the vendor could do and had expressly or impliedly contracted to
c ...
do, and where a vendor agrees to sell his share of property,
including sir land, there is an implied term in the contract that he
will apply for sanction to the reve.nue authorities necessary for such
transfers and the Court will direct him to do so. It cannot be said
that such an agreement is void because no sanction has been
D obtained. In the instant case, having reference to cl. 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
E not exercised its option for reasons best known to it - presumably
to have 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
F 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. Having taken all the advantages and still
G taking all the advantages under the contract without any hindrance
or obstruction on the part of anyone including the vendor which
the vendor could not do in view of s.53A of the Transfer of
Property Act, the assessee cannot now turn back and say that
because of its default in having a deed registered at its sweet will
H it was not an owner within the meaning of s.22 of the Act. It may
C.I.T. BOMBAy v. PODAR CEMENT rvr. LID. [K VENKATASWAMU.] 415

bear repetition to say that it was on account of these facts that A
juristic principles have now emerged saying that one of the most
important of the powers of ownership is the right to exclude others
from possession and the property right is essentially a guarantee
of the exclusion of other persons from the use or handling of the
thing. In that sense, therefore, the assessee itself became the owner B
of the property in question. In our view, any decision to the
contrary would not be in consonance with the juristic principle
either at common law or in equity. In either case, it would not be
subservient to the intent and purpose of s.22 of the Act, with regard
to which, as we have already stated, we can fairly look at the
language used and the tax laws have to be interpreted reasonably C
and in consonance with justice. So far we have dealt with the case
in this respect on juristic principles as if it were a matter of first
impression. We have, therefore, now to refer to the case law on
the subject."
D
Ultimately, the learned Judges held that the assessee in that case will
fall under the true meaning of the term "owner" as used in Section 22 of
the Act and, therefore, liable to tax from income out of the house property
as owner thereof. This Judgment of the Patna High Court was followed by
the same High Court in the Judgment reported in Krishna Lal Ajmani 's
case (supra). E

The Rajasthan High Court in Maharani Yogeshwari Kumari's case
again considered the same question and after referring to various judg-
ments held as follows :
F
"Section 22 of the Income Tax Act has created a charge on the
income in respect of annual value of the property consisting of any
buildings or lands appurtenant thereto of which the assessee is the
owner, other than such portions of such property as he may occupy
for the purposes of any business or profession carried on by him G
the profits of which are chargeable to income tax under the head
"income from house property". The question, therefore, arises as
to whether the words "of which. the assessee is the owner" can be
applicable only to a registered owner or also to such person in
whose favour the registered sale- deed has not been executed but
a sale agreement has been executed, possession of the property H
416 SUPREME COURT REPORTS (1997] SUPP. 1 S.C.R.

A has been given and consideration for sale has been paid. Section
53A of the Transfer of Property Act contemplates that when any
person contracts to transfer for consideration any immovable
property by writing signed by him or on his behalf from which the
terms necessary to constitute the transfer can be ascertained with
reasonable certainty, and the transferee has, in part performance
B
of the contract, taken possession of the property or any part
thereof, or the transferee, being already in possession, continues
in possession in part performance of the contract and has done
some act in furtherance of the contract, and the transferee has
performed or is willing to perform his part of the contract, then,
c notwithstanding that the contract, though required to be
registered, has not been registered, or where there is an instrument
of transfer, that the transfer has not been completed in the manner
prescribed therefor by the law for the time being in force, the
transferor or any person claiming under him shall be debarred
D from enforcing against the transferee and persons claiming under
him any right in respect of the property of which the transferee
has taken or continued in possession, other than a right expressly
provided by the terms of the contract. The proviso to the aforesaid
section contemplates that nothing in that section shall affect the
E rights of a transferee for consideration who has no notice of the
contract or of the part performance thereof. If the view that
without there being conveyance, the transferor continues to be the
owner is taken, still a question arises that the income has not been
received by the owner and, therefore, whether the assessment of
the transferee could be made by considering that there was diver-
F sion of income or the transferor has ceased to have any right in
respect of the income received? This Section debars the transferor
from enforcing his right to the property. In the case of Hamda
Ammal v. Avadiappa Pathar, [1991) 1 SCC 715, it was held by the
apex court that the document after its registration relates back to
G the date of execution of the sale deed. Though under the income
tax law, the benefit of ownership is unknown, but still if the income
is assessed in the hands of the transferor who has not received the
income from the property whether such a transferor can be made .J

liable !O make the payment of tax. Various decisions given by the
H different High Courts have taken different views. The view of the
C.l.T. BOMBAYv. PODARCEMEl\'TPVf.LTD. [K VENKATASWAMl,J.] 417

Calcutta, Bombay, Delhi and Allahabad High Courts as mentioned A
above is on one hand, whereas the view of the Andhra Pradesh
Court in the case of CIT v. Nawab Mir Barkat Ali Khan, (1974)
Tax LR 90 and the Karnataka High Court in the case of Ram-
kumar Mills P. Ltd. v. CIT, (1989) 180 ITR 464 is different. So far
as the view taken by the apex court in the case of Osman Ali Khan, B
(1986) 162 ITR 888 is concerned that was in the context of the
Wealth Tax Act where the language of the section was different.
Section 53A debars a transferor from exercising the rights of an
owner after he has received full consideration and handed over
possession under the contract. The transferor in a case where he
has executed the document and received consideration and even C
handed over possession of the property, cannot exercise any right
of an uwner. This Court in the case of Rajputana Hotels Pvt. Ltd.
v. State of Rajasthan, (D.B. Civil Writ Petition No. 511. of 1989
decided on May 27, 1992), while interpreting the provisions of
Rajasthan Land and Building Tax Act, 1964, has held that the D
person who is entitled to receive the rent is assessable in respect
of a property even if it is :10t registered in his name.

The matter can be considered from another angle. Under the
Income Tax Act, the assessing authority has power to assess the
. income in the hands of the real owner. If 'A' purchases the E
property in the name of 'X', simply because the property is
registered in the name of 'X', 'A' cannot escape his liability.
Secondly, there can be a partnership where the partners have
contributed the property and the property has become the partner-
ship property, then no registration is required, the income in such F
a case has to be assessed in the hands of the partnership-firm and
not the individuals who have contributed the property. Thirdly, the
transferee who has received the income has already been assessed
)
in respect of income derived from such property as income from
the property, whether section 22 can again be invoked against the G
transferor in respect of such income, fourthly, in respect of a
co-operative society the members thereof are given the property
on the basis of allotment letters which may or may not be
registered. The members thereafter transfer the property from one
hand to another and if it is considered that it is only t\le registered
owner or the society who can be assessed to tax, then the person H
418 SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R.

A who has enjoyed the income would escape liability of tax. Fifthly,
if it is considered that the registered owner alone is liable to pay
tax while the income is received by the transferee, the transferee
would enjoy the income but the tax will be levied from the
registered owner who may or may not be in a position to make the
payment of tax. Sixthly, there could be diversion of income by
B overriding title as was considered in the case of Savita Mohan,
(1985) 154 ITR 449 (Raj.), seventhly, if the property is in the name
of a trust and the beneficiary is entitled to a specific share of the
income, whether the other provisions of the Act can be said to be
inoperative and , eighthly, there may be some similar other instan-
c ces."

We do not think that it is necessary to set out extracts from the
judgments of other High Courts taking similar view.

The contrary view taken by the other High Courts was mainly based
D on the facts 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's case according to us,
E 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 the 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
F
(Through CBI/New Delhi) v. S.J. Choudhary, [1996] 2 SCC 428, this Court
has quoted the following passage with approval in support of updating
construction.

"Statutory Interpretation by Francis Bennion, 2nd Edn., Section '
G 288 with the heading "Presumption that updating construction to
be given" states one of the rules thus : (p.617)

II X X X X x x x

(2) It is presumed that Parliament intends the court to apply
H to an ongoing Act a construction that continuously updates its
C.l.T.BOMBAYv. PODARCEMENf PVT.LID.(K VENKATASWAMl,J.] 419

wording to allow for changes since the Act was initially framed (an A
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.
B
11
x x x x x x x

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)
c
"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 D
conditions, technology, the meaning of words, and other matters.
Just as the US Constitution is regarded as 'a living Constitution',
so an ongoing British Act is regarded as 'a living Act'. That today's
construction involves the supposition that Parliament was catering.
long ago for a state of affairs that did not than exist is no argument
against that construction. Parliament, in the wording of an enact- E
ment, is expected to anticipate temporal development. The drafter
will try to foresee the future, and allow for it in the wording.
11
X X X X x x x
An enactment of former days is thus to be read today, in the F
light of dynamic processing received over the years, with such
modification of the current meaning of its language as will now
give effect to the original legislative intention. The reality and effect
of dynamic processing provides the gradual adjustment. It is con-
stituted by judicial interpretion, year in the year out. It also com- G
prises processing by executive officials."

Applying the above principle also, the view taken by the High Courts
of Patna, Punjab and Haryana, etc. can be supported.

Assuming that there are two possible interpretations on Section 22 H
420 SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R.

A of the Act, which is akin to a charging Section, it is well settled, that the
one which is favourable to the assessee has to be preferred. Even on that
principle the view taken by the High Courts of Patna, Punjab and Haryana,
etc. has to be preferred rather than the contrary view taken by the High
Courts of Delhi and Andhra Pradesh.

B Accordingly, we hold that the views taken by the High Courts of
Allahabad, Patna, Rajasthan, Punjab and Haryana are the correct views.
The contrary view taken by the Delhi High Court is not correct.

It may not be out of place to extract a passage from the judgment
C of the Delhi High Court under Appeal (C.A. No. 4549/95). The High
Court in a way conceded the correctness of the Patna view by observing
as follows :

"It can be contended, in view of the agreements of sale and the
handing over of the possession to various persons who are, in fact
D entitled to enjoy these flats and the income therefrom in any
manner they like and against whom the company has lost all rights
of recourse because of the provisions of section 53A of the Trans-
fer of Property Act, that the company is the owner of nothing but
the husk of title over the property and should not be assessed on
E the principle of the decision of the Supreme Court and this
contention may perhaps have to be accepted."

In spite of the above observation, the Delhi High Court took a
.
contrary view mainly on the ground that the earlier decisions of that Court
F has consistently taken such a contrary view which has to be followed.

The view expressed supra by us is strengthened/supported by a
subsequent amendment to Section 27 of the Act. The said amendment was
introduced to Section 27 of the Act by the Finance Act, 1987 by substituting >
Clauses (iii), (iiia) and (iiib) in the place of old clause (iii) w.e.f. 1.4.88.
G
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
H clarificatory/declaratory in nature and, therefore, it will have retrospective
C.l.T.BOMBAYv. PODARCEMENf PVT.LTD.[K VENKATASWAMI,J.] 421

effect then it will set at rest the controversy finally. A

We have seen that the High Courts are sharply divided on this issue,
one set of High Courts taking the view that the promoters/contractors after
parting with possession on receipt of full consideration thereby enabling
the 'purchasers' to enjoy the fruits of the property, even though no
registered document as required under Section 54 of the Transfer of B
Property Act was executed, can be 'owners' for the purpose of Section 22
of the Act. The other set of the High Courts had taken a contrary view
holding unless a registered sale document transferri11g the ownership as
required under the Transfer of Property Act the so- called purchasers
cannot become owners for the purpose of Section 22 of the Act. As a C
matter of fact, the judgment of the Delhi High Court in I.T.R. No. 84/77
reported in Sushi/ Ansal v. CIT, Delhi-III, 160 ITR 308, the appeal against
l which is C.A. No. 4549/95 (supra) the learned Judge has made the follow-
ing observation:

"Before we conclude, we may mention that, during the course D
of the hearing, we suggested to the standing counsel for the
Department that the Central Board should consider various prac-
tical aspects of this problem and formulate guidelines which would
be equitable to the various classes of persons concerned. Perhaps,
as suggested by this Court in CIT v. Hans Raj Gupta, (1981) 137 E
ITR 195, the time has even come for legislative amendment, if
necessary, possibly with retrospective effect. Serious consideration
at the highest administrative level was warranted in view of the
recurrent nature of the problem, its magnitude and the conflict of
judicial decisions. However, after taking sufficiently long adjourn- F
ments, counsel informed us that no decision could be taken by the
Board and requested that we should decide the reference. We
have, therefore, proceeded to do so."
...
May be this is one of the reasons for the Parliament to bring in the G
amendment referred to above to Section 27 of the Act. At any rate the
admitted position when the amendment was brought in, was that there was
divergence of opinion between the High Courts on the issue at hand.

In the Memorandum explaining provisions in Finance Bill 1987 con-
cerning Section 27 reads as follows : H
422 SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R.

A 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
B 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
c can be effected only by means of a registered instrument. However,
in the 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-storeyed building, or a holder of a power of attorney is not
D 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
E 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 company or
other association of persons.
F
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".
G
These amendments will take effect from 1st April, 1988, and
will, accordingly, apply in relation to the assessment year 1988-89
and subsequent years."

If this much is clear, the next thing to be considered is what is the
H effect of the amendment.
C.l.T. BOMBAY v. PODAR CEMENnvr. LID. [K VENKATASWAMI, J.] 423

In Crawford's Statutory Constrnction, at page 107 paragraph 74 reads A
as follows:

"74. Declaratory Statutes.-Generally speaking, declaratory
statutes can be divided into two clauses : ( 1) those declaratory of
the common law, and (2) Those declaring the meaning of an existing B
statute. Obvipusly, those declaratory of the common law should be
construed according to the common law. Those of the second class
are to be constrned as intended to lay down a rnle for future cases,
and to ai:t retrospectively. They closely resemble interpretation
clauses, and their paramount purpose is to remove doubt as to the
meaning of existing law, or to co"ect a constrnction considered C
e"oneous by the legi.slature."

(Emphasis supplied)

In Francis Bennion Statutory Interpretation, (second edition) 1992,
page 105, the learned author says "Declaratory Acts - A declaratory Act D
or enactment declares what the law is on a particular point, often 'for the
avoidance of doubt'."

In Justice G.P. Singh 's (Sixth Edition 1996) 'Principles of Statutory
Interpretation' under the heading "declaratory statutes", the learned author E
has summed up as follows :

"Declaratory statutes

The presumption against retrospective operation is not ap-
plicable to declaratory statutes. As stated in CRAIES and ap- F
proved by the Supreme Court : "For modern purposes a
declaratory Act may be defined as an Act to remove doubts
existing as to the common law, or the meaning or effect of any
statute. Such Acts are usually held to be retrospective. The usual
reason for passing a declaratory Act is to set aside what Parliament G
deems to have been a judicial error, whether in the statement of
the common law or in the interpretation of statutes. Usually, if not
'· invariably, such an Act contains a preamble, and also the word
'declared' as well as the word 'enacted"'. But the use of the words
'it is declared' is not conclusive that the Act is declaratory for these
words may, at times, be used to introduce new rules of law and H
424 SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R.

A the Act in the latter case will only be amending the law and will
not necessarily be retrospective. In determining, therefore, the
nature of the Act, regard must be had to the substance rather than
to the form. If a new Act is 'to explain' an earlier Act, it would be
without object unless construed retrospective. An explanatory Act
is generally passed to .,supply an obvious omission or to clear up
B doubts as to the meaning of the previous Acl. It is well settled that
if a statute is curative or merely declaratory of the previous law
retrospective operation is generally intended. The language 'shall
be deemed always to have meant' is declaratory, and is in plain
terms retrospective. In the absence of clear words indicating that
c the amending Act is declaratory, it would not be so construed when
the pre-amended provision was clear and unambiguous. An
amending Act may be purely clarificatory to clear a meaning of a
provision of the principal Act which was already implicit. A •
clarificatory amendment of this nature will have retrospective
effect and, therefore, if the principal Act was existing law when
D
the constitution came into force, the amending Act also will be
part of the existing law."

The above summing up is factually based on the judgments of this
Court as well as English decisions.
E
A Constitution Bench of this Court in Keshavlal Jethalal Shah v.
Mohan/al Bhagwandas & Anr., [1968] 3 SCR 623, while considering the
nature of amendment to Section 29(2) of the Bombay Rents, Hotel and
Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965,
observed as follows :
F
"The amending clause does not seek to explain any pre-existing
legislation which was ambiguous or defective. The power of the
High Court to entertain a petition for exercising revisional juris-
diction was before the amendment derived from s. 115, Code of
G 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."

H (Emphasis supplied)
C.l.T.BOMBAYv. PODARCEMEl\'f PVT.LID.[K VENKATASWAMJ,J.] 425

From the circumstances narrated above and from the Memorandum A
explaining the Finance Bill, 1987.(supra), it is crystal clear that the amend-
ment 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 declara-
tory/clarificatory Act it i.s necessary to multiply the authorities on this point. B
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), (iiia) and (iiib). 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 C
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 not 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 D
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.
E
In the light of the above narration and discussion, we do not think it
necessary to discuss any more separately the submissions advanced across
the bar.

In-time, we answer the question referred to this court in T.R.C. Nos.
9-10/88 in the negative and in favour of the Revenue. The Civil Appeal No. F
4165/94 filed by the Revenue stands dismissed and Civil Appeal No.
4549/95 by an assessee stands allowed.
.., However, there will be no order as
to costs.

R.A. Revenue in T.R.C. Nos. 9-10/88 allowed. G
C.A. No. 4165/94 dismissed.
C.A. No. 4549/95 allowed.