LAW and (‘vs’?) CASE LAW On “FLATS”

LAW and (‘vs’?) CASE LAW On “FLATS”

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.

*FINAL CONVEYANCE OF PROPERTY IN A BUIDLING … – swamilook


“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, 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,-

@Section 194 IA     And   Section 194 IA Supplement

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 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”.

 Possession is nine-tenths of the law – Wikipedia, the free  encyclopedia

Possession and Intent – Legal Dictionary – The Free Dictionary

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.

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.

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