COMMISSIONER OF INCOME TAX Vs. MAHENDRA J SHAH

JUDGEMENT

(1.) THE question which has been referred to us by the Appellate Tribunal under s. 66(1) of the Indian I.T. Act, 1922, is as follows : 'Whether, on the facts and in the circumstances of the case, the national income in respect of the flat in question returned by the assessee for the two years under reference was liable to be assessed as income under the head 'property' under section 9 of the Act ?'

(2.) WE are concerned in this reference with the assessment of the assessee in respect of the assessment years 1960 -61 and 1961 -62. The State of Bombay had originally granted a lease in favour of a company by name Karimjee Properties Limited of an open plot for construction of a building. This lease was assigned on November 6, 1950, by the said company in favour of one Khetan. Khetan formed a company by name Khetan Estate Ltd. with an issued capital of Rs. 17.50 lakhs on November 24, 1950. This company started construction of a building on the land and the building was completed in September, 1952. In October, 1952, the company allotted flats to its shareholders in proportion to the shares held by the shareholders. The assessee was one such shareholder to whom a flat was allotted. The assessee and the company also executed an under -lease on March 17, 1958. According to this under -lease, the assessee was to pay a monthly rent of Rs. 85 to the company for the flat allotted to him and he had to bear the municipal and other taxes levied in respect of this flat. The assessee personally occupied the flat allotted to him for residential purpose. In respect of the assessment year 1960 -61, the assessee in his returns disclosed Rs. 2, 779 as property income. This was accepted by the ITO.

(3.) WE may at this stage point out that there are two glaring infirmities in the observations made by the Commissioner. Firstly, it is difficult to appreciate his observation that it was conceded that the amount returned represented income. As a matter of fact, the limited case of the assessee is that it is income from property and it could not be found on record that there was at any stage any concession made that the amount returned was conceded as being income in any general sense. The second glaring infirmity is that he has assumed that the benefit which the assessee got was in the form of free use of the flat. Here again, it is difficult to see on what material the Commissioner has reached that conclusion because the assessee was a shareholder of the company and to that extent he had invested moneys in that company. Obviously, it was in lieu of his investment that he was allotted a flat. The use of the flat was, therefore, in no sense free as understood by the Commissioner, but it was in the form of return for the investment made by the assessee.