The judgment of the court was delivered by
HEGDE J.--In these appeals by certificate, the only
question arising for decision is :
" Whether, on the facts and in the circumstances of
the case, the assessee continued to be the owner of the property for the
purposes of computation of income under section 9 of the Income-tax Act, 1922
(to be hereinafter referred to as the Act) ?"
A Full Bench of the Delhi High Court, speaking through S.
K. Kapur J., answered that question in the negative. Being dissatisfied with
that decision the assessee has brought these appeals.
Now, turning to the facts of the case, the concerned
assessment years are 1952-53, 1955-56 and 1956-57, the relevant accounting
periods being financial years ending March 31, 1952, March 31, 1955, and March
31, 1956. The assessee is a registered firm deriving income from interest on
securities, property, business and other sources. Some time in the year 1946 it
purchased the Nedous Hotel in Lahore for a sum of Rs. 46 lakhs. For that purpose
it raised a loan of Rs. 30 lakhs from M/s. Bharat Bank Ltd., Lahore, and a loan
of Rs. 18 lakhs from the Raja of Jubbal. The loan taken from the bank was partly
repaid but as regards the loan taken from the Raja, the assessee came to an
agreement with the Raja under which the Raja accepted a half share in the said
property in lieu of the loan advanced and also 1/3rd of the outstanding
liability of the bank. This arrangement came into effect on November 1, 1951.
After the creation of Pakistan, Lahore became a part of Pakistan. The Nedous
Hotel was declared an evacuee property and, consequently, vested in the
Custodian in Pakistan.
In its return for the relevant assessment years, the
assessee claimed losses of Rs. 1,00,723, Rs. 1,16,599 and Rs. 1,16,599,
respectively, but showed the gross annual letting value from the said property
at nil. The loss claimed was stated to be on account of interest payable to the
bank. Since the property in question had vested in the Custodian of Evacuee
Property, in Pakistan, the Income-tax Officer held that no income or loss from
that property can be considered in the assessee's case. He, accordingly,
disallowed the assessee's claim in respect of the interest paid to the bank. The
Appellate Assistant Commissioner confirmed the order of the Income-tax Officer.
In second appeal the Tribunal came to the conclusion that the assessee still
continued to be the owner of the property for the purpose of computation of
loss. The Tribunal held that the interest paid is a deductible allowance under
section 9(1)(iv) of the Act. In arriving at that conclusion, the Tribunal relied
on its earlier decision in the case of the assessee in respect of the assessment
year 1951-52. Thereafter, at the instance of the assessee, the Tribunal
submitted the question set out earlier. The High Court on an analysis of the
various provisions of the Pakistan (Administration of Evacuee Property)
Ordinance, 1949 (XV of 1949), (to be hereinafter referrred to as the
"Ordinance"), came to the conclusion that, for the purpose of section
9 of the Act, the assessee cannot be considered as the owner of that property.
It was urged by Mr. V. C. Mahajan, learned counsel for the
assessee, that the High Court erred in opining that the assessee was not the
owner of the property, for the purpose of section 9 of the Act. According to
him, the property vested in the Custodian only for the purpose of administration
and the assessee still continued to be its owner. He contended that the
expression "owner" means the person having the ultimate right to the
property. He further contended that so long as the assessee had a right to that
property, in whatever manner that right might have been hedged in or restricted,
he still continued to be the owner. On the other hand, it was contended on
behalf of the revenue that the income-tax is concerned with income, gains and
profits. Therefore, for the purpose of that Act, the owner is that person who is
entitled to the income. According to the revenue, the word "owner" in
section 9 refers to the legal ownership and not to any beneficial interest in
the property.
For deciding the question whether the assessee was the
owner of the property for the purpose of section 9 of the Act during the
relevant accounting years, we have to look to the provisions of the Ordinance.
Let us first take a survey of the relevant provisions of the Ordinance and
thereafter analyse the effect of those provisions.
The long title of the Ordinance says that it is an
Ordinance to provide for the administration of the evacuee property in Pakistan
and for certain matters incidental thereto. The Preamble says that :
" Whereas an emergency has arisen which renders it
necessary to provide for the administration of evacuee property in Pakistan and
for certain matters incidental thereto "
Section 6(1) provides that all evacuee property shall vest
and shall be deemed always to have vested in the Custodian with effect from the
1st day of March, 1947. Section 9 gives power to the Custodian to take
possession of the evacuee property. Section 11 provides that any amount due to
an evacuee or payable in respect of any evacuee property, shall be paid to the
Custodian by the person liable to pay the same and the payment to the Custodian
discharges the debtor's liability to the extent of the payment made. Section 12
prescribes that the property which has vested in or of which possession has been
taken by the Custodian shall be exempt from all legal process, including
seizure, distress, ejectment, attachment or sale by any officer of a court or
any other authority and no injunction or other order of whatever kind in respect
of such property shall be granted or made by any court or any other authority.
Section 14(1) permits the rehabilitation authority to allot evacuee property to
the refugees. Section 16(1) says that no creation or transfer of any right or
interest in or encumbrance upon any property made in any manner whatsoever on or
after the first day of March, 1947, by or on behalf of an evacuee or by or on
behalf of a person who has or may become an evacuee after the date of such
creation or transfer, shall be effective so as to confer any right or remedy on
any party thereto or on any person claiming under any such party, unless it is
confirmed by the Custodian. Section 19 empowers the Custodian to restore the
evacuee property to the lawful owner subject to such conditions as he may be
pleased to impose. Section 29(1) stipulates that the Custodian may take such
measures as he considers necessary or expedient for the purpose of
administering, preserving and managing any evacuee property which has vested in
him and may, for any such purpose as aforesaid, do all acts and incur all
expenses necessary or incidental thereto. Sub-section-(2) of that section
provides that :
" Without prejudice to the generality of the
provisions contained in sub-section (1), the Custodian may . . . . .
(m) sell any evacuee property, notwithstanding anything
contained in any law or agreement to the contrary relating thereto :
Provided that the Custodian shall not under this clause or
the next succeeding clause sell any immovable evacuee property or any business
or undertaking which is evacuee property, except with the previous approval of
the Central Government."
Clause (n) of that sub-section empowers the Custodian to
demolish or dismantle any evacuee property which, in his opinion, cannot be
repaired, or sell the site of such property and the materials thereof. The
Custodian can recoup all the expenses incurred by him in the administration of
the evacuee property from out of the receipts in his hand in respect of that
property. Section 22(1) requires the Custodian to maintain separate account of
the property of each evacuee of which he has taken possession and shall cause to
be made therein entries of all receipts and expenditure in respect thereof.
The Ordinance starts by saying that it is an Ordinance to
provide for the administration of evacuee property and not management of evacuee
property. The expression "administration", in relation to an estate,
in law means management and settling of that estate. It is a power to deal with
the estate. The evacuee could not take possession of his property. He could not
lease that property. He could not sell that property without the consent of the
Custodian. He could not mortgage that property. He could not realise the income
of the property. On the other hand, the Custodian could take possession of that
property. He could realise its income. He could alienate the property and he
could under certain circumstances demolish the property. All the rights that the
evacuee had in the property he left in Pakistan were exercisable by the
Custodian excepting that he could not appropriate the proceeds for his own use.
The evacuee could not exercise any rights in that property except with the
consent of the Custodian. He merely had some beneficial interest in that
property. No doubt that residual interest in a sense is ownership. The property
having vested in the Custodian, who had all the powers of the owner, he was the
legal owner of the property. In the eye of the law, the Custodian was the owner
of that property. The position of the Custodian was no less than that of a
trustee. Section 9(1) says :
" 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 buildings or lands appurtenant thereto of which he is the
owner, other than such portions of such property 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, subject to the following allowances namely : . .
. ."
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 tax the income from property and not the interest of a
person in the property. A property cannot be owned 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.
For a minute, let us look at things from the practical
point of view. If the thousands of evacuees who left practically all their
properties as well as businesses in Pakistan had been considered as the owners
of those properties and businesses as long as the "Ordinance" was in
force, then those unfortunate persons would have had to pay income-tax on the
basis of the annual letting value of their properties and on the income, gains
and profits of the businesses left by them in Pakistan though they did not get a
paisa out of those properties and businesses. Fortunately, no one in the past
interpreted the law in the manner Mr. Mahajan wants us to interpret. 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.
The question as to who is the owner of a house property
under section 9 of the Act in circumstances similar to those before us came up
for consideration before the Calcutta High Court in the matter of Official
Assignee for Bengal (Estate of Jnanendra Nath Pramanik). In that case, on the
adjudication of a person as insolvent under the Presidency Towns Insolvency Act,
1909, certain house property of the insolvent vested in the official assignee.
The question arose whether the official assignee could be taxed in respect of
the income of the property under section 9. The High Court held that the
property did not by reason of the adjudication of the debtor cease to be a
subject fit for taxation and, in view of the provisions of section 17 of the
Presidency Towns. Insolvency Act, the official assignee was the
"owner" of the property and he could rightly be assessed in respect of
the income from that property under section 9. Section 17 of the Presidency
Towns Insolvency Act reads :
" On the making of an order of adjudication, the
property of the insolvent wherever situate shall vest in the official assignee
and shall become divisible among his creditors, and thereafter, except as
directed by this Act, no creditor to whom the insolvent is indebted in respect
of any debt provable in insolvency shall, during the pendency of the insolvency
proceedings, have any remedy against the property of the insolvent in respect of
the debt or shall commence any suit or other legal proceedings except with the
leave of the court and on such terms as the court may impose :
Provided that this section shall not affect the power of
any secured creditor to realize or otherwise deal with his security in the same
manner as he would have been entitled to realize or deal with it if this section
had not been passed."
We may note that the powers of the Custodian are no less
than that of the official assignee under the Presidency Towns Insolvency Act,
1909. Delivering the judgment of the court in the Official Assignee's case,
Costello J. observed :
" With regard to the first point, Mr. Page argued
that although by section 17 of the Presidency Towns Insolvency Act these
properties vested in the official assignee he did not thereby or thereupon
become the owner of those properties within the meaning properly ascribable to
that word for the purposes of the applicability of section 9. What Mr. Page
really invited us to do was to restrict the meaning of the word by putting
before it the qualifying adjective "beneficial". What was argued by
Mr. Page was that the official assignee had no legal interest in the properties
themselves, they were merely vested in him for the purposes of the
administration of them in the interest of the creditors of the insolvent. I am
unable to accept Mr. Page's contention. In this country there is no difference
between "legal estate" and "equitable estate". In this
connection the case of Sir Currimbhoy Ibrahim Baronetcy Trust v. Commissioner of
Income-tax is of assistance. At page 217 Sir Sydney Rowlatt, when giving the
judgment of the Privy Council, made this observation :
'In their Lordships' opinion the effect of the Act
creating these trusts is not to give the baronet for the time being any right to
any part of the interest or property specifically or any right which, even
granting that the legal title is not the only thing that can ever be looked at,
would make it true to say that any proportion of the interest is not
"receivable" or any proportion of the property is not
"owned" by the incorporated trustees'. "
The learned judges of the Calcutta High Court in reaching
that conclusion relied on the decision in Commissioners of Inland Revenue v.
Fleming. That appeal related to a claim for repayment of income-tax to which the
respondent claimed to be entitled in respect of "personal allowance"
introduced into the income-tax system by section 18 of the Finance Act, 1920.
The claim arose in the following circumstances :
The respondent was declared insolvent in 1921. He was then
the owner of charitable properties. His insolvency lasted till May 10, 1926,
when he received his discharge on payment of composition and was reinvested in
his estate. At that time his estate consisted of, (1) two of the original
charitable properties which had not been realised by the trustees in the
insolvency and, (2) a balance in cash of pound 53 odd. During the insolvency,
the trustee paid income-tax on the full annual value of the two properties in
question. The contention of the respondent was that the radical right to these
properties was in him all the time, and that, in paying the tax, the trustee was
really paying it on his behalf--that is, on his income--and that, consequently,
there arose in each of the years in which the payment was made a right to deduct
his "personal allowance" from the annual value of the properties. The
right to this abatement is said to have passed to the respondent himself in
virtue of the reinvestment in his estate which occurred upon his discharge on
composition. Rejecting this contention the Lord President observed :
" It is obvious that, unless during the years in
question the annual value of the properties was income of the respondent, he
cannot have any claim to abatement of it for income-tax purposes ; and,
accordingly, everything depends upon the soundness of the proposition that the
income consisting in the annual value of these properties was truly income of
the respondent. I do not see how it can possibly be so described. It was part of
the income arising from the sequestrated estates vested in the trustee for the
respondent's creditors. Any income that did arise from those estates was income
of the trustee as such, and he (and he alone) had the right to put it into his
pocket as income. It was not income that went or could go into the pocket of the
respondent as income in any of the years in question. How then can it be said to
have reached his pocket as income on his subsequent reinvestiture ?"
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. An
attempt was made by Mr. Mahajan to distinguish this case on the ground that
under the corresponding English statute the liability to tax in respect of
income from property is not laid on the owner of the property. It is true that
section 82 of the English Income Tax Act, 1952, is worded differently. But the
principles underlying the two statutes are identical. This is clear from the
various provisions in that Act.
The conclusion reached by Costello J. in the Official
Assignee's case receives support from the decision of the Privy Council in
Trustees of Sir Currimbhoy Ibrahim Baronetcy Trust v. Commissioner of
Income-tax. Counsel for the appellant was unable to point out to us any decision
which has taken a view contrary to that taken in the Official Assignee's case.
The learned judges of the High Court in reaching their
conclusion that the assessee was not the owner of the property in the relevant
assessment years, took assistance from the decisions of English courts dealing
with the question of levy of income-tax on the income from enemy properties
taken possession of by the Custodian during the war. In those cases the English
judges have enunciated the theory of suspended ownership. We do not think that
we need call assistance from those decisions.
Mr. Mahajan contended that despite the fact that evacuee
property was taken over by the Custodian and that he had been conferred with
large powers to deal with it, an evacuee from Pakistan who owned that property
before he migrated to India still continued to be the owner of the property. For
this contention of his he placed reliance on some of the observations of this
court in Amar Singh v. Custodian, Evacuee Property, Punjab. Therein, delivering
the judgment of the court, Jagannadhadas J. observed (at page 815 of the report)
:
" Stopping here it will be seen that the position, in
its general aspect, is that all evacuee property is vested in the Custodian. But
he evacuee has not lost his ownership in it. The law recognised his ultimate
ownership subject to certain limitations. The evacuee may come back and obtain
return of his property, as also an account of the management thereof by the
Custodian."
Those observations have to be understood in the context in
which they were made. Therein, their Lordships were considering whether the
right of an evacuee in respect of the property left by him in the country from
which he migrated was property right for the purpose of article 19(1)(f) of the
Constitution. No one denies that 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 tax income of the property in
the hands of the owner. Hence, the focus of that section is on the receipt of
the income. The word "owner" has different meanings in different
contexts. Under certain circumstances a lessee may be considered as the owner of
the property leased to him. In Stroud's Judicial Dictionary, 3rd edition,
various meanings of the word "owner" are given. It is not necessary
for our present purpose to examine what the word "owner" means in
different contexts. The meaning that we give to the word "owner" in
section 9 must not be 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.
Mr. Mahajan next invited our attention to the observations
in Pollock on Jurisprudence, 6th edition (1929), at pages 178-80 :
" Ownership may be described as the entirety of the
powers of use and disposal allowed by law....The owner of a thing is not
necessarily the person who at a given time has the whole power of use and
disposal ; very often there is no such person. We must look for the person
having the residue of all such power when we have accounted for every detached
and limited portion of it ; and he will be the owner even if the immediate power
of control and use is elsewhere. "
It is not necessary to consider whether those observations
hold good even now because of the various legislative measures enacted during
the last about forty years after those observations were made. Suffice it to say
that those observations are inapplicable to the case of the "owner"
under section 9 of the Act.
Mr. Mahajan in support of his contention next placed
reliance on the decision of the Patna High Court in Raja P. C. Lall Chowdhary v.
Commissioner of Income-tax. Therein the question was whether the receiver of a
property appointed by court was the owner of the property for the purpose of
section 9 of the Act. The court came to the conclusion that he was not the owner
as the property did not vest in him. In fact, in the course of the judgment, the
court made a distinction between a receiver and a trustee and an official
assignee. In our opinion this decision instead of supporting the case of the
appellant may lend some support to the contention of the revenue.
Reliance was next placed on the decision of the Calcutta
High Court in Nawab Bahadur of Murshidabad v. Commissioner of Income-tax. The
facts of that case were :
Properties which belonged to the ancestors of the Nawab of
Murshidabad as rulers were, some time after the territories had been conquered
by the British, settled by the Secretary of State for India in the year 1891 on
the then Nawab of Murshidabad under a deed of settlement which provided that
such properties "shall henceforth and for ever be held and enjoyed by the
said Nawab Bahadur and such one among his lineal male heirs as may be
successively entitled to hold the said title in perpetuity, with and subject to
the incidents, powers, limitations and conditions as to the inalienability and
otherwise hereinafter contained". One of the conditions was that he was not
entitled to sell or alienate the properties except with the approval of the
Governor of Bengal. The settlement deed was confirmed by Act XV of 1891. The
question arose whether the Nawab of Murshidabad was liable to pay tax in respect
of the income of those properties under section 9 of the Act. The court held
that whatever might have been the original nature of the "State
properties", after the deed of settlement and the Act of 1891, as the dual
status of the Nawab as the holder of the State and as an individual ceased, it
could not be said that the Nawab for the time being was not the
"owner" of such properties for the purposes of section 9 of the Act
and the Nawab was therefore liable to be assessed to income-tax on the income of
such properties. The court further held that the word "owner" in
section 9 of the Act applies to owners of the whole income, even though they are
under certain restrictions with regard to the alienation of the properties. We
are unable to see how this decision gives any support to the contentions
advanced on behalf of the assessee.
After giving our careful consideration to the question of
law under consideration, we have come to the conclusion that the assessee was
not the owner of Nedous Hotel during the relevant assessment years for the
purpose of section 9 of the Act. Hence, these appeals fail and they are
dismissed. In the circumstances of the case, we make no order as to costs in
these appeals.
Appeals dismissed.
