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Commissioner of Income-tax, Bombay City Iii Vs. Zorostrian Building Society Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 38 of 1966
Judge
Reported in[1976]102ITR499(Bom)
ActsIncome Tax Act, 1961 - Sections 2(15), 22 and 46; Transfer of Property Act, 1882 - Sections 53A; Income Tax Act, 1922 - Sections 6 and 9
AppellantCommissioner of Income-tax, Bombay City Iii
RespondentZorostrian Building Society Ltd.
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateR.J. Kolah, Adv.
Excerpt:
direct taxation - assessment - sections 2 (15), 22 and 46 of income tax act, 1961, section 53a of transfer of property act, 1882 and sections 6 and 9 of income tax act, 1922 - purchaser put into possession of property with all other rights incidental thereto - value of property more than rs. 100 - in absence of registered sale deed transferee cannot be regarded as 'owner' - for asserting right over property section 53a not available. - - he also submitted that in a taxing statute one has to look merely at what is clearly said. ' 9. in view of these observations the decision in abubaker abdul rehman's case cannot be regarded as good law. strong reliance is placed by mr. 4 lakhs, under section 54 of the transfer of property act a registered instrument is absolutely essential before a.....kantawala, c.j.1. zorostrian building society ltd., the assessee, owned a house property which was in occupation of several tenants. on april 27, 1956, the assessee offered to sell the building for a sum of rs. 4 lakhs in favour of the trustees of zorostrian building fund (hereinafter referred to as 'the trustees'). this offer of the assessee was accepted by the trustees by their letter dated may 2, 1956. the assessee was thereafter brought into liquidation on september 11, 1958. on november 21, 1959, the liquidators of the assessee wrote to the trustees saying that the sale was likely to be completed before the end of december, 1959. they also suggested that in case there was any delay they might hand over possession on december 31, 1959, on receipt of full consideration. this suggestion.....
Judgment:

Kantawala, C.J.

1. Zorostrian Building Society Ltd., the assessee, owned a house property which was in occupation of several tenants. On April 27, 1956, the assessee offered to sell the building for a sum of Rs. 4 lakhs in favour of the trustees of Zorostrian Building Fund (hereinafter referred to as 'the trustees'). This offer of the assessee was accepted by the trustees by their letter dated May 2, 1956. The assessee was thereafter brought into liquidation on September 11, 1958. On November 21, 1959, the liquidators of the assessee wrote to the trustees saying that the sale was likely to be completed before the end of December, 1959. They also suggested that in case there was any delay they might hand over possession on December 31, 1959, on receipt of full consideration. This suggestion of the assessee was accepted by the trustees under their resolution dated November 26, 1959. On January 4, 1960, the trustees paid the entire amount of consideration to the assessee. A couple of days prior thereto on January 2, 1960, the assessee wrote to the tenants saying that the property had been sold to the trustees and requesting them to attorn their tenancies to the trustees and pay them the rent from January 1, 1960. Thereafter, rents were received by the trustees. There was, however, delay in execution of the conveyance in favour of the trustees. It was ultimately executed on February 12, 1962.

2. For the assessment years 1961-62 and 1962-63 for which the relevant previous years were calendar years 1960 and 1961 the following question which arose for determination has been referred to us :

'Whether, on the facts and in the circumstances of the case, the assessee society was liable to be assessed on the income from the property under consideration under the provisions of section 9 of the Indian Income-tax Act, 1922, for the assessment year 1961-62 and under section 22 of the Income-tax Act, 1961, for the assessment year 1962-63 ?'

3. The Income-tax Officer held that the assessee was the owner of the property and as such was liable to be taxed under section 9 of the Indian Income-tax Act, 1922, and the corresponding provisions of section 22 of the Income-tax Act, 1961. On appeal by the assessee the Appellate Assistant Commissioner held that the income from the property which was put in possession of the purchaser since January, 1960, could not be assessed in the hands of the assessee. He, accordingly, upheld the contention of the assessee. On appeal by the revenue the Tribunal held that the question relevant for consideration was whether the assessee could claim ownership of the property after January, 1960. According to the Tribunal, section 53A of the Transfer of Property Act would certainly stand in the way of such a claim. The trustees were in receipt of the rents and were exercising actual rights of ownership. The mere fact that there was no document or registered deed was not decisive of the claim as to ownership. According to the Tribunal the Income-tax Act requires the taxing authorities to see who the real owner is and the income of the property can be brought to tax in the hands of such owner. The mere fact that under section 9 of the Indian Income-tax Act, 1922, and under section 22 of the Income-tax Act, 1961, the actual rent received was not to be treated as income but bona fide annual value was to be regarded as income, made no difference. This merely referred to a particular mode of computation having regard to the nature of the property.

4. Mr. Joshi on behalf of the revenue contended that under section 9 of the Indian Income-tax Act, 1922, and section 22 of the Income-tax Act, 1961, it is the owner who is liable to be assessed in respect of income from property. Such income has to be computed having regard to the annual letting value of the property. It is immaterial for such consideration to consider the question whether the owner was in fact in receipt of the income. It is sufficient if in law the assessee continues to be the legal owner of the property and if that is so, he can be subjected to tax irrespective of the fact whether any part of the income actually came into his hands or not. He also submitted that in a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. His submission was that if the question was approached from such a point of view then as the assessee continued to be the owner until it executed the registered sale deed in favour of the trustees, it is liable to be taxed for the income of the property as computed under section 9 of the Indian Income-tax Act, 1922, and section 22 of the Income-tax Act, 1961. Mr. Kolah, on the other hand, on behalf of the assessee contended that the real test to be applied in such a case is, who is entitled to received the income of the property He emphasised that after the agreement was entered into at the request of the assessee the entire price was paid by the trustees and possession was handed over to them; that tenants were attorned in favour of the trustees and were requested to pay rent to the trustees; that thereafter the entire income of the property has been realised by the trustees and not a penny has come to the hands of the assessee. He further contended that, having regard to the provisions of section 53A of the Transfer of Property Act, the assessee was debarred from enforcing any right against the trustees in respect of the property. In fact once the possession was handed over and the tenants were attorned the assessee had no right in respect of the property. It could not recover the income thereof, nor could it do anything in respect thereof. In fact, the assessee, according to his submission, had no vestige of ownership left in it.

5. The charging section is section 3 of the Indian Income-tax Act, 1922. That section charges the total income of an assessee. Under section 2(15) of that Act 'total income', means total amount of income, profits and gains computed in the manner laid down in that Act. Before income can be computed in the manner laid down in the Act there must be income to which the mode of computation can be applied. Income from property has to be computed in accordance with the provisions of section 9 of the Indian Income-tax Act, 1922, for the assessment year 1961-62 and under section 22 of the Income-tax Act, 1961, for the assessment year 1962-63. Under both these sections tax shall be payable by the assessee in respect of the bona fide annual value of the property of which he is the owner. It was contended by Mr. Joshi that the expression 'of which he is the owner' is not dependent upon the question whether the assessee who is the owner receives the income thereof or not. He submitted that income from property is an artificially defined income and the liability arises from the fact that the assessee is the owner of the property. Such liability does not depend upon the power of the owner to let the property, as it also does not depend upon the capacity of the owner to receive the bona fide annual value. He relied upon the decision of a Division Bench of this court in D. M. Vakil v. Commissioner of Income-tax. On the other hand, Mr. Kolah contended that the expression 'of which he is the owner' should be construed to mean 'of which annual value he is the owner'. He relied upon the earlier decision of a Division Bench of this court in Commissioner of Income-tax v. Abubaker Abdul Rehman.

6. In the case of Abubaker Abdul Rahman, the question that arose for consideration was whether the income of the property which was settled on trust ought to be assessed in the hands of the trustees or the beneficiaries. In that case a Mahomedan who owned several immovable properties executed a deed of wakf in respect of them under which he appointed himself, his wife and his two sons mutawallis and conveyed to them these properties to be held in trust for the purposes declared therein. The mutawallis were directed to collect the rents, and, after defraying all charges, to pay 1/8th of the balance of the income to the settlor's wife for life and the other 7/8ths to the settlor's children, After the death of the wife the 1/8th was to follow the other 7/8ths and after the extinction of all the children and remoter issue of the settlor the properties were to be held for the use of charitable, religious or pious purposes for the benefit of Sunni Halai Memons. The Division Bench of this court held that though the mutawallis constituted an association of individuals within the meaning of section 3 of the Indian Income-tax Act, 1922, they were not the 'wonder' of the properties within the meaning of section 9 of the Act and could not be assessed as regards the income of the wakf properties; but the income-tax authorities were bound to assess the beneficiaries directly in respect of the income of the wakf. Beaumont C. J., who delivered the main judgment of the court, held that though the language of section 9(1) seems to involve that the assessee must be the owner of the property from which the income is derived, in order to bring the section into conformity with the general scheme of the Act, it is necessary to read the words 'of which he is the owner' as meaning 'of which annual value he is the owner'. In this case Rangnekar J. has pointed out that the question raised in the reference is not free from doubt, but upon the whole he came to the same conclusion which was arrived at by the learned Chief Justice. He pointed out that in taking that view they were departing from a strict grammatical construction of section 9 of the Income-tax Act, but he had no regrets in that respect, because after all it seemed to him that the whole object of the Act was to tax the income of the subject where it was found. If the income is found with the beneficiary, then the beneficiary is primarily liable to be taxed, and if the income is found with the trustee, then it is the trustee who is liable.

7. If the correctness of the view taken by the Division Bench in Abubaker Abdul Rehman's case is not shaken then Mr. Kolah will be right. The decision in Abubaker Abdul Rehman's case was considered by their Lordships of the Privy Council in the case of Commissioner of Income-tax v. Dewan Bahadur Dewan Krishna Kishore. This decision was not approved of by the High Court and their Lordships pointed out that the learned judges of the High Court were right in refusing to follow the decision of the Bombay High Court in Abubaker Abdul Rehman's case, where it was held that the words 'property of which he is the owner' are to be read as meaning 'of which annual value he is the owner'. Their Lordships pointed out :

8. However difficult it may be in some cases to apply the simple and ordinary phrase 'owner of property' to the facts it is not permissible to substitute a phrase which is of dubious and noticeably different meaning.'

9. In view of these observations the decision in Abubaker Abdul Rehman's case cannot be regarded as good law. The question before their Lordship was whether the income of an impartible estate should be regarded as the income of an individual or of the Hindu undivided family of which the individual was a member. In that connection they pointed out that the distinction between property owned by an individual Hindu and property owned by a Hindu undivided family must be made by applying the difficult to draw it is all the more necessary to keep close to the Hindu law. Their Lordships could not accept the suggestion that because the statute to be interpreted was an Income-tax Act, broader or more general notions of ownership than the Hindu law afforded ere to determine the matter.

10. However, the contentions urged by Mr. Joshi are fully supported by the decision of this court in D. M. Vakil v. Commissioner of Income-tax. As laid down in that case, to ascertain what is the total income, the court must look at sections 6 and 9 which contain the heads of income and how computation was to be made in respect of the head 'Income from property'. It was argued that the scheme of the Income-tax Act was that once a party was shown to be the owner of a property, he must be taxed under the head 'Income from property' and the computation of the income must be in accordance with section 9 of the Indian Income-tax Act. It was contended that the actual receipt of the rent in the hands of the owner is quite immaterial for the purposes of assessment. The law has laid down a particular method of computation in respect of income from property and that must be applied to arrive at the figure to be inserted against the head 'Income from property' in the individual assessee' assessment. After referring to the provisions of section 9 it is said that the legislature has expressly provided that the tax shall be payable by the assessee in respect of the bona fide annual value irrespective of the question whether he receives that value or not. Section 9(2) provides that for the purposes of this section, the expression 'annual value' shall be deemed to mean the sum for which the property might reasonably be expected to let from year to year. It is again significant to note that the word used is 'might' and not 'can' or 'is'. Reading these two paragraphs of section 9 together, it is clear that the income from property is thus an artificially defined income and the; liability arises from the fact that the assessee is the owner of the property. It is further provided in the section that if the owner occupies the property he has to pay tax calculated in the manner provided therein. Therefore, by reason of the fact that the property is not let out, the assessee does not escape taxation. The liability to tax does not depend on the power of the owner to receive the bona fide annual value of the property. The law has laid down an artificial rule by which the amount is to be considered the income of the assessee from immovable property and provided that he should be taxed on that footing.

11. It is quite clear from the facts of this case that in or about the month of April or May, 1956, an agreement to sell the property by the assessee to the trustees was arrived at. Later on, at the suggestion of the assessee the full price was paid by the trustees and possession was handed over to them. Tenants were also attorned to the trustees and were directed to pay the rent to them. However, the sale deed was not executed during the relevant years with which we are concerned. It came to be executed only on February 12, 1962. The short question that we have to consider is that if regard be had to these facts, can the assessee or the trustees be regarded as the owner of the property within the meaning of section 9 of the Indian Income-tax Act, 1922, or section 22 of the Income-tax Act, 1961 It is not disputed that in view of the provisions of section 54 of the Transfer of Property Act a sale in respect of an immovable property of the value of Rs. 100 and upwards can be made only be a registered instrument. A contract of sale of an immovable property by itself does not create any interest in or charge on such property. Strong reliance is placed by Mr. Kolah upon three principal facts, that after the contract of sale by mutual arrangement possession had been handed over to the trustees in exchange of the receipt of price by the assessee; that the tenants were attorned to the trustees and they have been directed to pay the rent to the trustees and that from and after the date of handing over possession not a penny by way of income has been realised by the assessee and so for all practical purposes no vestige of ownership was left outstanding in the assessee at all from and after that date. Having regard to the provisions of section 54 of the Transfer of Property Act and section 17 of the Registration Act sale of the property with which we are concerned can never be effected or completed without a registered conveyance. The short question that we have to consider is that simply because possession has been handed over and the trustees who are the purchasers are authorised and entitled to collect the rents, can it be said that they have become owners in the absence of a registered instrument It should not be overlooked that sale of an immovable property of the value of Rs. 100 or upwards cannot be effected by mere delivery of possession. Section 9 of the Transfer of Property Act merely permits a transfer of property to be made without writing in every case in which a writing is not expressly required by law. In the present case in view of the fact that the price of the property is Rs. 4 lakhs, under section 54 of the Transfer of Property Act a registered instrument is absolutely essential before a sale can effectively take place in law. Mr. Kolah has emphasised that if the assessee failed or neglected to execute a conveyance then the trustees will be entitled to file a suit for specific performance and the assessee will have no defence to such a suit and will be compelled by a decree of the court for specific performance to execute such conveyance. He, therefore, submitted that when such is the position, the assessee who had received the full consideration in respect of the property agreed to be sold, but has not executed a conveyance, cannot be regarded as the owner of the property within the meaning of section 9 of the Indian Income-tax Act, 1922, or section 22 of the Income-tax Act, 1961.

12. Such a question has come to be considered in a fairly good number of cases. We will first refer to the decision of the Calcutta High Court in the case of Commissioner of Income-tax v. Ganga Properties Ltd. The facts of the case show that under an oral agreement dated March 27, 1956, the assessee agreed to sell a property to another person and in accordance with this agreement delivery of possession was given to the purchaser on March 29, 1956. The purchaser paid the whole of the consideration money on April 16, 1956, and this amount was credited in the assessee's books in the suspense account. An agreement for sale was drawn up on April 28, 1956. The deed of conveyance transferring the property was executed only on March 17, 1958, and was registered on July 8, 1958. On these facts the Income-tax Officer held that the ownership was not transferred until registration of the deed of conveyance; that during the accounting year in question the ownership remained vested in the assessee. He, accordingly, included the property's bona fide annual value in the assessee's total income. The Appellate Assistant Commissioner was also of the same view. The Tribunal, however, was of opinion that though the assessee remained the legal owner, the beneficial ownership passed to the purchaser on March 29, 1956, and that under section 9 of the Indian Income-tax Act, 1922, the income from the property was assessable in the hands of the beneficial owner, that is the purchaser, and not the assessee. The view taken by the Tribunal was reversed on a reference to the High Court. The High Court held that in the case of a sale of immovable property a registered document is necessary to give effect to the sale and the sale takes effect only from the date of execution of the document; that in Indian law beneficial ownership is unknown; there is but one owner, namely, the legal owner, both in respect of vendor and purchaser, and trustee and cestui que trust; and that the expression 'income from property' used in sections 6 and 9 of the Indian Income-tax Act, 1922, refers to the income of the legal owner of the property and he is the only person assessable to tax on the basis of the bona fide annual value thereof. The court, inter alia, referred to the provisions of sections 54 and 55(6) of the Transfer of Property Act an pointed out that these provisions show that a contract for sale followed by payment of money may create a charge on the property or give rise to a suit for specific performance or rescission; but it does not have the effect of passing the title thereto. The court also referred to the provisions of section 40 of the Transfer of Property Act and pointed out that the said provisions prescribe, inter alia, that where a third person is entitled to the benefit of an obligation arising out of contract, and annexed to the ownership of the immovable property, but not amounting to an interest therein or easement thereon, such right or obligation may be enforced against a transferee with notice thereof or a gratuitous transferee of the property affected thereby, but not against a transferee for consideration and without notice of the right of obligation nor against such property in his hands. The court approved of the passage in Mulla's Transfer of Property Act, 5th edition, that the right above referred to has to come into existence before the transfer, but does not presuppose ownership of property; it is a purely personal right arising out of contract and the person who has the right need not be the owner of any property at all; but the right though personal must be annexed to the ownership of immovable property. 'The Calcutta High Court referred to the decision of the Supreme Court in Commissioner of Income-tax v. Bhurangya Coal Co. In that case, the facts briefly were that on March 16, 1946, the coal company, which was the owner of a colliery, entered into an agreement with the promoters of another company to sell the colliery which included both movable and immovable properties for Rs. 6,10,000. The schedule to the deed of agreement set out the details of the properties in two parts : the first part included immovable property whose value was fixed at Rs. 2,00,600 and the second part consisted of movables valued at Rs. 4,09,400. The purchaser-company was incorporated on March 18, 1946, all the properties, movable and immovable, were put into the possession of the purchaser-company. On May 17, 1946, a sale deed was executed and registered in respect of the immovable properties mentioned in the first part of the schedule to the agreement. The sale deed recited the agreement of March 16, 1946, and referred to the two classes of properties agreed to be sold thereunder. The actual conveyance under the deed was only of the immovable properties specified in the first part of the schedule and the price thereof was stated to be Rs. 2,00,600. The Appellate Tribunal held that, so far as the movable were concerned, title passed when they were delivered to the company on March 30, 1946, and capital gains tax was not payable in regard to these properties under section 12B (this section applied only to transfers effected after March 31, 1946) but the coal company was liable to pay capital gains tax for the immovable properties covered by the sale deed dated May 17, 1946. The Supreme Court has held, inter alia, that the title to immovable properties covered by the sale deed passed to the transferee on the date it was executed, namely, May 17, and the title to the movable properties passed to the company on the date they were handed over, namely, March 30, and not on the date of the agreement, and, therefore, the firm was liable for tax only in respect of profits made with reference to the immovable properties covered by the sale deed. The Calcutta High Court has pointed out that this decision of the Supreme Court reiterates the principle that title to immovable properties does not pass until a proper deed of conveyance is executed and registered. The fact that the purchaser has been put into possession on an earlier date is immaterial so far as the passing of title is concerned. The Calcutta High Court has summarised the conclusions as follows :

1. In the case of a sale of immovable property a registered document is necessary to give effect to the sale.

2. The sale takes effect from the date of execution of the document.

3. In Indian law, beneficial ownership is unknown and there is but one owner, namely, the legal owner, both in respect of vendor and purchaser and trustee and cestui que trust.

4. And the expression 'income from property' used in sections 6 and 9 of the Indian Income-tax Act, 1922, refers to the income of the legal owner of the property who is the only person assessable to tax on the basis of the bona fide annual value thereof.

13. This decision of the Calcutta High Court completely supports the contention that has been urged by Mr. Joshi.

14. The above decision of the Calcutta High Court has been followed by a Division Bench of this court in the case of Commissioner of Income-tax v. Union Land and Building Society Pvt. Ltd. In that case the assessee company doing the business of construction of bungalows, constructed and sold seven bungalows to various parties in the income-tax year relevant to the assessment year 1957-58 for Rs. 6,68,218 and received Rs. 5,29,350, leaving a balance of Rs. 1,38,868. On and from April 1, 1956, the assessee-company changed over from the cash system of accounting to the mercantile system. The assessee contended that the amount of Rs. 1,38,868 was not receivable in the accounting year but only at future dates and, therefore, could not be included in the assessment year; and alternatively that only that part of the amount should be included as represented the then realisable value computed on an accrual basis. The department and the Appellate Tribunal rejected the contention and held that the amount of Rs. 1,38,868 had accrued to the assessee and could be taken into account in the assessment year 1957-58 for determining the taxable profits of the assessee. In this case the purchasers were put in possession of their bungalows in 1953 or 1954 and they were realising the rents of the bungalows rented out by them in pursuance of oral agreements with the vendor. The Appellate Tribunal held that, as there were no conveyances and completed sales, the assessee would still be the owner of the bungalows within the meaning of section 9 of the Indian Income-tax Act, 1922, and that the department rightly taxed the rental income in the hands of the assessee. It was, inter alia, held by the Division Bench of this court that the rental income from the bungalows, the possession whereof was given to the intending purchasers along with the right to receive rent, without transferring ownership, was assessable in the hands of the assessee. The word 'owner' in section 9 of the Act must be construed in its ordinary meaning of a legal owner under the general law. The liability to income-tax on property depends on the fact that the assessee is the owner of the property. Section 9 deals with income from property and the income from that source is an artificially defined income. The assessee is made liable to pay the income-tax on the value of the property computed in the manner prescribed. That liability does not depend either on the power of the owner to earn the income therefrom or on the power on capacity of a person to let it out or his own power to receive rent or income from bona fide annual value. It is further pointed out that the word 'owner' does not imply a person who has the capacity to earn profit from property or to rent it out. But, unless there is some vestige of ownership in a person, he cannot be called the owner within the meaning of section 9 of the Act, however wide the connotation of that word might be. In this view the purchasers were not 'owners' within the meaning of section 9 and the assessee continued to be the owner of the bungalows sold. The facts of this case are almost similar to those of the case before us, with this difference, that in the case of Union Land and Building Society Pvt. Ltd., there were oral agreements while in the case before us there is a contract to sell in writing. In the case of Union Land and Building Society Pvt. Ltd. the court has not considered the effect of section 53A of the Transfer of Property Act which we will consider a little later. One of the cases cited before the Division Bench in that case was the case of Burma Railways Co. v. Secretary of State. The facts of that case were simple. The Burma Railway Company were the managing agents of the railway system under a contract entered into with the Secretary of State for India. They had been put in possession, management and control of the entire railway system. The contract provided that the existing railways and the subsequent extensions were to continue to be owned by the Secretary of State and if fresh capital was needed, the company were to obtain it primarily from the Secretary of State, who undertook to supply the same. The company were entitled to receive a guaranteed rate of interest on their share capital and a certain share in the surplus profits. On the termination of the contract the railways were to be handed back to the Secretary of State, the company receiving back their capital in full. The railways claimed the allowances in respect of the property income under section 9 and the question was whether they were the owners within the meaning of section 9. By a majority view the court allowed the claim of the assessee, inter alia, holding that the justness of the claim to such an allowance of annual value in no way depends on absolute ownership and would be equally just when arising out of a lesser degree of ownership. It is further pointed out that the use of the premises by the railways was essential to the earning of the profits and applying the rule of construction laid down by them the word 'owner' must be interpreted in a wide and popular sense and, having regard to the object and intention of the legislature, it is clear that the railway comes within the rule granting this allowance. This majority view was, however, not accepted by the Division Bench of this court on the ground that in the first place it seemed to them that the very principle of interpretation with which the judgment commenced was not correct, namely, that where the object and intention of the legislature is clear and undoubted, that meaning should be given, when possible, to the words used which will best carry out its clear object and intention. The Division Bench pointed out that the words in the statute by themselves should first be attempted to be construed and it was only in the event of doubt or difficulty that the object and intention of the legislature should be brought into play. The majority view was also not followed on the ground that all the property of the railway was expressly declared to be the property of the Secretary of State but only subject to the use and management thereof by the company during the continuance of the contract. Thus, the company was in no better position than that of managing agents and it was obvious that they could not have been the owners. The Division Bench approved of the minority view of Heald J. Heald J. has pointed out :

'It is, I think, clear that their position as managing agents, although it gives them possession of the premises, cannot give them ownership in any sense of the word. As managing agents they may, of course, be treated for many purposes as if they were owners, but they can be so treated only as representing their principal, and although they might, on behalf of their principal, be allowed to claim the deduction allowed by the section if the profits from the business of the railways were being assessed, they cannot, in my opinion, be allowed to claim that deduction on their own account when only the income from their own business and not that of the undertaking as a whole is under assessment. It may be true that if the income from the business of the railways were being assessed, a deduction of the annual value of the premises would have to be made, but it is not that income but the income of the company which is being assessed, and there is, in my opinion, a clear distinction between the business of the company, which is the management of the railways, and the business of the railways, which is mainly the business of carriers.'

15. The minority view was thus preferable to this court. We are in agreement with the view taken by the Division Bench of this court in accepting the minority view of Heald J. As pointed out earlier, in Commissioner of Income-tax v. Diwan Krishna Kishore, their Lordships of the Privy Council accepted the proposition that the word 'owner' used in the section means the owner of the property itself and not the owner of its annual value. By this decision of the Privy Council the decision of the Rangoon High Court in the case of Burma Railways Co. may be regarded as impliedly overruled.

16. A view similar to the one taken by the Bombay High Court has been taken also by the Delhi High Court in the case of S. Kartar Singh v. Commissioner of Income-tax. In this case the assessee executed a deed of settlement with respect to his house property in favour of his father. In the preamble to the deed it was recited that the assessee was desirous of making provision for the maintenance of his father for his lifetime. Clause 1 of the deed provided that the 'transfers in favour of' his father for the lifetime of the later 'the right to the usufruct and income' of the property 'and for that purpose transfers in his favour and authorises him to exercise all the powers and rights of an owner that (the assessee) himself possesses and enjoys'. By way of clarification clause 2 provided that the father would be entitled to receive all the rents and income from the existing or any future leases, to enter into contracts of leases, to evict and to induct tenants and 'in short he shall possess during his lifetime all the powers and rights of the owner of the property except that he cannot sell, mortgage or gift away the corpus of the property which is to remain intact and unencumbered and will after the demise of (the father) revert' to the assessee or his heirs and successors. Under clause 3 the father was himself to pay the taxes and municipal dues. Clause 4 provided that the assessee 'or his heirs and successors shall not during the lifetime of the (father) have any right to claim any part of the income of the said property nor will the (assessee) or his successors and assigns be in any way entitled to create any right or interest in any person in derogation of the rights' of the father. It was held that the assessee transferred under the deed of settlement only the income from the property; the ownership continued to vest in him. The assessee continued to be the owner of the property within the meaning of section 9 notwithstanding the execution of the settlement deed and was liable to be assessed in respect thereof under section 9. It was further held that the tax under section 9 was upon the owner, legal or beneficial. It was levied not upon the actual income but on notional income represented by the bona fide annual letting value. Even where the owner had diverted the income from the house property at source he would continue to be liable to pay income-tax on the annual letting value subject to specified deductions given in section 9 itself. Such view was taken even though the father under the deed of settlement was entitled to let out the property, to evict and to induct tenants and to receive income during his lifetime. So mere receipt of income was not regarded as sufficient to tax the father under section 9 but the settlor who continued to be the owner was held to be liable to tax under section 9 of the Act.

17. It was, however, strongly urged by Mr. Kolah that these decisions of the Calcutta High Court, Bombay High Court and the Delhi High Court should be regarded as impliedly overruled by a later decision of the supreme Court in the case of R. B. Jodha Mal Kuthiala v. Commissioner of Income-tax. In this case the Supreme Court had occasion to consider the provisions of the Pakistan (Administration of Evacuee Property) Ordinance, 1949. The assessee in that case was 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. The question that arose for consideration was that having regard to the provisions of the Pakistan (Administration of Evacuee Property) Ordinance, 1949, whether the assessee can be regarded as owner within the meaning of section 9 of the Indian Income-tax Act, 1922. The Supreme Court held that for the purpose of section 9 of the Indian Income-tax Act, 1922, the owner must be the person who can exercise the rights of the owner, not on behalf of the owner but in his own right. An assessee whose property remains vested in the custodian of Evacuee Property by virtue of section 6(1) of the said Ordinance, as evacuee property, is not the owner of the property for the purposes of section 9 of the Indian Income-tax Act, 1922. The assessee cannot exercise any rights in that property except with the consent of the Custodian; he merely has some residual beneficial interest in that property that he left in Pakistan. That residual beneficial right cannot be considered to be ownership for the purposes of section 9. The Supreme Court also points out that it is true that equitable considerations are irrelevant in interpreting tax laws. But those laws, like all other laws, are to be interpreted reasonably and in consonance with justice. The Supreme Court referred to the decision of the Calcutta High Court in the matter of the Official Assignee for Bengal (Estate of Inanendra Nath Pramanik). In that case the Calcutta High Court has taken the view that the official assignee was the owner of the property of the insolvent which vested in him within the meaning of section 9 and after referring to the cases considered by the Calcutta High Court, the Supreme Court points out that 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. It is upon this passage that great reliance is placed by Mr. Kolah. Mr. Kolah has also emphasised that the Supreme Court has also pointed out at page 578 that the meaning of 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. If regard be had to the facts of the case before the Supreme court it is quite evident that there is nothing in the ratio of the decision of the Supreme Court to indicate that the view taken by the Calcutta High Court in Ganga Properties Ltd.'s case or by the Bombay High court in Union Land & Building Society Pvt. Ltd.'s case or by the Delhi High Court in S. Kartar Singh's case should be regarded as impliedly overruled. The Supreme Court has analysed with meticulous care the provisions of the Evacuee Ordinance and has considered the effect thereof. It is pointed out that 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 upon scrutiny of the effect of the Ordinance that the Supreme Court first took the view that the Custodian should be regarded as the owner and it was in that light the test was considered whether the assessee was the person entitled to the income of that property. It will not be possible for us to divorce a test of mere receipt of income apart from vesting of the property under the Evacuee Ordinance. None of the decisions on which reliance is placed by Mr. Joshi was cited before the Supreme Court and there is nothing in the findings of the Supreme Court which will persuade us to take the view that the said decisions should be treated as impliedly overruled. The case before the Supreme Court has not been decided upon the mere fact of having possession and the right to receive income. The entire provisions of the Evacuee Ordinance have been considered and it is after scrutiny of the provisions of the said Ordinance that the view has been taken that an evacuee assessee cannot be regarded as 'owner' within the meaning of section 9.

18. That takes us to the contention of Mr. Kolah that in view of the provisions of section 53A of the Transfer of Property Act the assessee cannot be regarded as 'owner' within the meaning of section 9 of the Act. Section 53A lays down the doctrine of part performance as applied in India. The relevant part thereof is as under :

'53A. Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty,

and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract,

and the transferee has performed or is willing to perform his part of the contract,

then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor ..... shall be debarred from enforcing against the transferee ..... any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract .....'

19. The argument of Mr. Kolah is that as all the essential conditions prescribed by section 53A of the Act have been fulfilled in the present case the assessee who is the transferor is completely debarred from enforcing against the trustees who are the transferees any right in respect of the property of which they have taken possession. What is the effect of section 53A of the Transfer of Property Act is not a matter of doubt. The right conferred by section 53A is a right only available to a defendant to protect his possession. Section 53A does not create a title in favour of the defendant. It merely operates as a bar to the plaintiff for asserting his title. When the conditions mentioned in section 53A are fulfilled it debars the transferor from enforcing against the transferee any right or interest expressly provided by the contract. This section merely creates a right in the transferee to protect his possession against any challenge to it by the transferor contrary to the terms of the contract. However, it is well-settled that this section does not confer title on the defendant in possession and he cannot maintain a suit on title. It will be sufficient if reference be made to a decision of the Supreme Court in Ram Gopal Reddy v. Addl. Custodian, Evacuee Property, Hyderabad. It is also a case of an evacuee under the Administration of Evacuee Property Act. Two questions arose for consideration before the Supreme Court : Whether in view of the events that had taken place a civil court had any jurisdiction to entertain a suit which was instituted and further the effect of section 53A of the Transfer of Property Act was also considered. In that case, the appellant purchased certain land from one A in 1946. Although the land was valued at more than Rs. 100 no registered deed of sale was executed. In 1949, A was declared an evacuee and the appellant was given notice by the Deputy Custodian of Evacuee Property to show cause why the land should not be declared evacuee property. No appearance was put in by the appellant in answer to the notice and the land was declared evacuee property. The appellant represented to the departmental authorities that he had become owner of the land before the evacuee property law came into force. The Custodian did not accept the plea and observed that if the appellant was aggrieved by the decision he could obtain a declaration of his rights from a competent court. The appellant, therefore, filed a suit which was contested by the department on the ground that section 46 of the Administration of Evacuee Property Act was a bar. The subordinate judge held that the court had jurisdiction because of section 53A of the Transfer of Property Act. In appeal by the Custodian, the High Court disagreed with the subordinate judge and reversed his decision. The appellant then came before the Supreme Court by special leave. Having regard to the scheme of the Evacuee Property Act, the Supreme Court held that in view of a special machinery provided under the Act by section 46 of that Act, the jurisdiction of civil and revenue courts to entertain or adjudicate upon any question whether any property or any right or interest in any property is or is not evacuee property was barred. In view of the provisions of that Act it is pointed out that any transferee from an evacuee claiming the property or any right or interest therein has to avail of the remedies under the Act and cannot go to a civil court. The fact that the Custodian in his order said that the appellant could go to a competent court could not confer jurisdiction on the court. Secondly, so far as the effect of section 53A was concerned, it was held that it could not be said on the facts found that the appellant had become the owner of the property before 1947, for, admittedly, the property was worth more than Rs. 100 and without a registered sale deed it was not possible for the title to pass. It may be that, if A tried to get back the property, section 53A of the Transfer of Property Act would come to the aid of the appellant in defence. But the suit in that case had been filed to establish the right of the appellant as owner of the property and in such a suit the appellant could not take the benefit of section 53A. Thus, it is quite evident from the facts of this case that even though the purchaser was put into possession with all the other rights incidental thereto, in the absence of a registered sale deed, as the value of the property exceeded Rs. 100, the transferee cannot be regarded as 'owner' and, for asserting such a right, section 53A of the Transfer of Property Act was not available.

20. Thus, our answer to the question referred to us is in the affirmative. The assessee shall pay the costs of the revenue.

21. Question answered in the affirmative.


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