In so far as the rents received from “Samsung” are concerned., the finding recorded by the Assessing Officer is that, the structure is constructed by the Company itself with its own funds and not that the super structure has been constructed by the shareholders on the land belonging to the Company or a case where the investments have been made on behalf of the shareholders.
Therefore, the only conclusion is that not only does the Company exercise all such rights as that of the owner, but also the rental income, notwithstanding the fact that in terms of the memorandum of association the shareholders are alone to enjoy the possession. Therefore, it cannot be said that the shareholders are not the owners either in the practical or equitable sense. In view of the investments being made and in view of the documentation of title, it is the Company that is the owner of the property. Even in the rental agreement executed in favour of the lessee i.e., the Samsung Company, it has been clearly stated that it is the Company, that is the owner entitled to receive the rents and not the shareholders.
7 It is not the requirement of law that the income asses sable should be in the hands of a person who is neither the legal owner nor the beneficial owner. Even if the land is owned by the shareholders, since the super structure constructed by the Company is out of its own funds, the rents have to be assessed in the hands of the Company and not the shareholders. The Memorandum of Understanding entered into between “Samsung” and the Company clearly indicates that the Company is the owner and not the shareholders. The mere mentioning in the Memorandum of Understanding that each of the shareholders would be entitled to, in terms of the shareholding, would nor affect the title of the property of the respondent company. The Memorandum of Understanding itself clearly shows that it is not the shareholders, but the Company which has entered into the rental agreement. By the distribution of the deposit to the individual shareholders, the Company did not expect the shareholders to return the said deposit, would also indicate that there is no investment made by the individual shareholders in the construction of the property in question. As per the Minutes of the Extraordinary General Body Meeting of the respondent company held on 30-7-1998 the respective shares are yet to be allotted to the shareholders in respect of the building constructed by the respondent company and the same would be done only after the construction of the building since the building is yet to be completed. Therefore,, in terms of the said Meeting, what has been disclosed by the Company themselves in the proceedings of the meeting is that neither the shares have been allotted nor is the building completed. Consequently, on this factual aspect also we have no hesitation to hold that it is not the shareholders but the Company that is the owner of the property in question and therefore it is liable to pay tax to the revenue on the rental received from “Samsung”. Further, the balance sheet of the Company reflects that the property belongs to the Company and not to the shareholders. Ignoring these factual aspects of the case, the Tribunal has committed a serious error in law in holding that it is not t-he Company but the shareholders who are the owners of the Company in question who are liable for taxation to the appellants department. For the aforesaid reasons, we are of the considered view that the Company alone is liable to tax so far as the rentals paid by “Samsung” are concerned.
8. The amounts invested in the construction of the property are on account of the lands taken by the Company and the deposits made: by the shareholders. However, the shareholders have advanced money to the Company only to be treated as deposits. But, on the other hand, the Company has invested ail the money in its name?. Furthermore/ the assessee itself has stated that the shareholders have not even contributed a single rupee in the construction of the super structure.
9. The CBDT Circular No.495 dated 22-9-1987 is an explanatory note on the substance of the provisions relating to direct taxes under the Finance Act. The meaning of ownership of house property has been explained in the said Circular. The practice of Companies constructing Multi storied Building, and leasing of flats to shareholders being prevalent and the legal ownership remaining with the Company, the income thereof was taxed in the hands of the Company under the head’ “Income from House Property”. At the same time, since the shareholder actually enjoys the income he is assessed under the head “Income from other sources”. This to taxing the income twice. Therefore,, the CBDT clarified the said position by holding that the liability to tax has been shifted from the legal owner to the real owner and consequently the taxation of the legal owner, that is the builder of the Multi storied fats would consequently not arise. Therefore, it is the shareholder alone that could be taxed in terms of Section 27(3) of the Act.
10. The contention of the learned counsel for the respondent that even though the husk of the title remains with the Company it is the shareholders alone who are the real owners of the property and in their hands the rents received should be assessed for payment of income tax to the revenue becomes unsustainable. The holder of the husk of the title is therefore not the person who is liable for taxation. Therefore, keeping in view the provisions cf law, the CBDT Circular and the citations of the Honourable Supreme Court of India we have no hesitation to hold that notwithstanding the husk of the title remaining with the Company, it is the shareholders alone that are liable for taxation under the provisions of the Income Tax Act so far as the rents received by them are concerned.
11. The Courts have held that qua the third parties the Karta of the HUF is a partner of the firm to whom they can look up to qua the Income-Tax Act he heads the HUF. Therefore, the fact that the company is the legal owner is neither here nor there as far as Section 17 of the Act is concerned is to entrust Section 23 otiose. The finding of the Tribunal is erroneous and is opposed to the factual position of law. The comparison with the Karta of a HUF is inappropriate in this case.
12. For the aforesaid reasons, we are of the considered view that the substantial questions of law are to be answered in favour of the revenue and against the assessee