Law:

Section:

Section 27(iii) of the Income-tax Act, 1961 - Income from house property - Members of co-operative society - Whether section 27(iii) is neither arbitrary nor in conflict with any provisions of Constitution of India - Held, yes FACTS According to the petitioners, a part of the building, of which the petitioners were licensees, was owned by a separate juristic entity, and that the petitioners were not the owners thereof but were merely licensees. Because income therefrom had been taxed in the hands of the petitioners by virtue of the assessment orders, the petitioners had challenged the vires of section 27(iii). HELD Section 27(iii) provides that if a member of a co-operative society, company or other association of persons to whom a building belongs is allotted a building or a part thereof under the scheme of the society, company or association, then that person is deemed to be the owner of the building or part thereof. As is evident from the provision of section 27(iii ) itself, such a member, as contemplated by section 27(iii) is deemed to be an owner only for the purposes of sections 22 to 26. In other words, the legal ownership will not vest in such a person but, in order to decide under what head he should be taxed, section 27(iii) deems such a member to be the owner. Once he is deemed to be the owner, then income from the house property will be taxed under the provisions of sections 22 to 26. By being deemed to be the owner for the purposes of sections 22 to 26, such member would become entitled to the deductions which are available under these provisions. The tax is to be computed not under section 56 but will have to be computed under sections 22 to 26. This being so, it is wrong to contend that section 27(iii) vests the property of the company in the members or shareholders. There is no legislative infirmity in Parliament enacting a provision like section 27(iii). Such a provision is in fact of assistance and help to members of co-operative societies, companies and associations of persons who are allotted buildings or flats. The said provision is not in conflict with any of the other provisions of the Constitution. This provision is not arbitrary. Note…

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