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Sakarchand Chhaganlal Vs. Controller of Estate Duty, Gujarat - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberEstate Duty Reference No. 1 of 1967
Judge
Reported in[1969]73ITR555(Guj)
ActsEstate Duty Act, 1953
AppellantSakarchand Chhaganlal
RespondentController of Estate Duty, Gujarat
Appellant Advocate M.M. Thakore, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredKhimjee Thakarsee v. Pioneer Fibre
Excerpt:
.....in estate value of deceased - deceased in possession of land under agreement of lease with society - society agreed to request of deceased recognising division of plots in name of s and r - such recognition results in determination of lease in deceased's favour - as per section 108 after determination lessee entitled to remove structures built by him - once person lawfully in possession constructs on another's land does not remove structures built by him while parting with possession he loses right of removal - deceased lost right to remove superstructures - value of such structures not includible in estate value of deceased as he had no right in them. - - both of them are well advanced in yours and each of them is the absolute owner of the plot coming to his share. the..........27th may, 1951, to the secretary to the society stating that he had divided his plot into two plots, plot no. 1 admeasuring about 1109 square yards and plots nos. 1-a and 1-b admeasuring about 1341 square yards and 'made a gift' of plot no. 1 to sakarchand and plots nos. 1-a and 1-b to ramanlal and adding : 'i request you to have the said plot partitioned as above in the society records. plot no. 1 had been gifted to my son, sakarchand chhaganlal. both of them are well advanced in yours and each of them is the absolute owner of the plot coming to his share. i request you therefore to plae this matter before the members and to have my two sons accepted as members of the society in their individual capacity in my place. my two sons are to be accepted as members of the society.....
Judgment:

Bhagwati, C.J.

1. This reference under the Estate Duty Act raises a question of considerable importance affecting transactions relating to buildings constructed by members of co-operative housing societies. The society with which we are concerned in this reference is Jain Merchants Co-operative Housing Society Ltd. One Chhaganlal Laxmichand (hereinafter referred to as the deceased) was member of this society and he held certain shares in its share capital. Plot No. 1 was allotted to his as a member out of the land owned by the society and on the plot so allotted to him, he constructed a superstructure at his own cost. He had two sons by the name of Sakarchand and Ramanlal. On 8th March, 1951, and thereafter, he took certain steps in regard to the plot and the superstructure on it and the question is as to the true legal effect of what he did. First, on 8th March, 1951, he divided the plot into two parts, one marked plot No. 1 and the other marked plots Nos. 1-A and 1-B. It appear that the latter part was given two plot numbers as there was a private Jain temple on a portion of it and that portion was given plot No. 1-B. He 'gifted' plot No. 1 to Sakarchand and plots Nos. 1-A and 1-B to Ramanlal. Since under the bye-laws of the society no plot could be held by a person who was not a member of the society, Sakarchand agreed to subscribe to the necessary shares from the society and so far as Ramanlal was concerned, the deceased agreed to transfer his shares to Ramanlal. The deceased also handed over possession of the respective plots to Sakarchand and Ramanlal. These facts were recorded by the deceased in a declaration made by him on the same day, namely, 8th May, 1951. The deceased then made an application dated 27th May, 1951, to the secretary to the society stating that he had divided his plot into two plots, plot No. 1 admeasuring about 1109 square yards and plots Nos. 1-A and 1-B admeasuring about 1341 square yards and 'made a gift' of plot No. 1 to Sakarchand and plots Nos. 1-A and 1-B to Ramanlal and adding :

'I request you to have the said plot partitioned as above in the society records. Plot No. 1 had been gifted to my son, Sakarchand Chhaganlal. Both of them are well advanced in yours and each of them is the absolute owner of the plot coming to his share.

I request you therefore to plae this matter before the members and to have my two sons accepted as members of the society in their individual capacity in my place. My two sons are to be accepted as members of the society separately each as absolute owner of the plot which may be separately numbered by the society as per the plan annexed herewith.'

2. On the application of the deceased the society passed a resolution dated 27the May, 1951, transferring plot No. 1 admeasuring 1109 square yards to the name of Sakarchand and plots Nos. 1-A and 1-B admeasuring 1341 square yards to the name of Ramanlal, and necessary entries to that effect were made in the register of the society, annexure IV to the statement of the case. The shares held by the deceased were also transferred to the name of Ramanlal, and Sakarchand and Ramanlal remained in possession and enjoyment of the respective plots Nos. 1 and 1-A and 1-B as their own properties.

3. The deceased died on 2nd July, 1957, and on his death a question arose as to what was the principal value of his estate on which estate duty was chargeable under the provisions of the Estate Duty Act. The Assistant Controller took the view that, tough the original plot No. 1 (now made up of new plot No. 1 and plots Nos. 1-A and 1-B) was owned by the society, the superstructure constructed upon it belonged to the deceased and since the superstructure was immovable property, it could not be transferred except by an instrument duly registered and stamped and therefore there was no valid gift of the portions of the superstructure to Sakarchand and Ramanlal as claimed by the accountable person. The Assistant Controller accordingly included the value of the superstructure in the estate do the deceased. This view was affirmed by the Central Board of Revenue on appeal and hence the present reference at the instance of the accountable person.

4. The question we are asked to determine is; whether the value of the superstructure built by the deceased on the land of the society was rightly included in the principal value of the estate of the deceased The only ground on which the revenue claimed to include it was that there was no valid gift of the superstructure to Sakarchand and Ramanlal and the superstructure therefore continued to belong to the deceased and was at the time of his death his property which passed on his death under section 5. The point which therefore arises for determination is whether the superstructure came to be owned by Sakarchand and Ramanlal as claimed by the accountable person or continued to belong to the deceased at the time of his death as contended by the revenue. To determine this point it is necessary to analyse the true nature of the transaction entered into by the deceased. We must ask ourselves the question : What was the interest of the deceased in the land What was his interest in the superstructure and what change in judicial relationship was brought about as a result of the steps taken by the deceased The question is one of great importance having far-reaching consequences, as it is a matter of common knowledge that in this city where co-operative housing societies have flourished to an extent unknown and unprecedented in other parts of India, hundreds of transactions of sales and gifts of plots with superstructures have taken place without any registered documents, merely by transfers of plots being recognised and transfers being entered as holders of plots by the societies and if the contention of the revenue were correct that the ownership of the superstructures cannot pass in such cases except by registered instrument, all such transience would be invalidated. That is a consideration which we cannot totally banish from our mind and if the law permits, we should certainly strive to avoid such a consequence.

5. One fact which stands out prominently is that the land of original plot No. 1 belonged to the society and it was merely allotted to the deceased. No lease of the plot was executed by the society in favour of the deceased and the deceased had therefore no interest in the plot. What then, it may be asked, was the nature of the right of the deceased in respect of the plot To answer this question we must turn to the bye-laws of the society. Schedule A to the bye-laws is the application for registration and it shows that the society was of the type known as tenant ownership society as distinguished from co-partnership tenancy society. In a tenant ownership society, land belongs to the society and each plot is allotted and given on lease by the society to the member and on the plot so allotted, the member builds his own house either with his own moneys or with moneys borrowed from the society so that the house belongs to him while the plot belongs to the society and is held by him on lease. Bye-law 11 requires that every member must hold at least one share in the society and according to bye-law 12, a person all of whose shares have been transferred, repaid, forfeited or cancelled shall ease to be a member. Bye-law 14 provides for expulsion of a member in certain circumstanes. The next relevant bye-law is bye-law 66 which empowers a member to nominate a person to whom his share or interest in the society shall be transferred at his death. That takes us to bye-law 66 which says that no member shall be a tenant of the society unless he holds at least five shares. Then at the end of the bye-laws, there are two Forms, A and B. We are not concerned with Form A for that relates to a co-partnership tenancy society but Form B is relevant. The heading of this form indicates that it concerned only with regulations relating to leases to be granted by the society to members desiring to purchase their houses but in fact, as clause (1A) of that form shows, the regulations relate also to leases to be granted by the society to members desiring to construct their own houses. The scheme of the bye-laws, therefore, clearly is that out of the land belonging to the society a plot may be allotted and given by the society on lease to a member who holds at least five shares and the member may build his own house upon it; the plot would continue to be held by the member so long as he is a member; if he cases to be a member for any reason, by expulsion or otherwise, the society can determine the lease and take back the plot and if it does so, the building built by the member on the plot would also go to the society with the plot and the society would be bound to pay the value of the member's interest in the house : vide clause 8 of Form B. Now, in the present case, the deceased was member of the society holding at least five shares and out of the land of the society, a plot, being plot No. 1, was allotted to the deceased but no lease as contemplated by the bye-law was yet executed by the society in favour of the deceased. The deceased was lawfully in possession of the plot under an implied agreement to be gathered from the bye-laws for execution of a lease by the society in terms of the regulations set out in Form B and being lawfully in possession of the plot, he constructed a superstructure upon it. Now having regard to the observations of the Privy Council in Narayan Das v. Jatindra Nath and Vallabhdas Naranji v. Development Officer, Bandra, and the decision of the Supreme Court in Dr. K. A. Dhairyawan v. J. R. Thakur, it must be taken as well settled that the doctrine of English law embodied in the maxim quick quid plantatur solo, solo credit, that is, what in annexed to the solid goes with the soil, has no application in this country. Unlike the English law, the law in India recognizes dual ownership, the land belonging to one person and the structure upon it belonging to another. There can, therefore, be little doubt that, whilst the deceased was lawfully in possession of the plot, though the land of the plot was owned by the society, the superstructure upon it belonged to the deceased.

6. The argument of the revenue was that, since the superstructure was immovable property, it could not be transferred by the deceased to Sakarchand and Ramanlal except by a registered instrument and, in the absence of a registered instrument, the ownership of the superstructure continued to remain in the deceased. Now, it an hardly be disputed that the superstructure, being embedded in the earth, was immovable property and it is elementary that a transfer of an immovable property by one person to another can be effected only by a registered instrument. But there was in this case no transfer of the superstructure by the deceased to Sakarchand and Ramanlal. As a matter of fact, the deceased could not transfer the superstructure to anyone without having transferable interest in the land. His only right was to removal the superstructure as and when his possession of the plot came to an end. As far back as 1866, on a reference to a Full Bench, Sir Barnes Peacock C.J. and in Thakoor Chunder Poramanick v. Ram Dhone Bhuttacharjee :

'........... We think it should be laid down as a general rule that, if he who makes the improvement is not a mere trespasser, but is in possession under any bona fide title or claim of title, he is entitled either to remove the materials, restoring the land to the state in which it was before the improvement was made, or to obtain compensation for the value of the building if it is allowed to remain for the benefit of the owner of the soil, - the option of taking to the building, or allowing the removal of the material, remaining with the owner of the land in those cases in which the building is not taken down by the builder during the continuance of any estate he may passes.'

7. The statement of the law was quoted with approval by the Judicial Committee of the Privy Council in Vallabhdas Naranji v. Development Officer, Bandra. The Privy Council also referred with approval to the following observations of Couch C.J. in Narayan v. Bholagir :

'We cannot, however, apply to cases arising in India the doctrine of the English law as to buildings, viz., that they should belong to the owner of the land. The only doctrine which we an apply is the doctrine established in India that the party so building on another's land should be allowed to remove the materials.'

8. The effect of these decisions was summarised by Venkatarama Aiyar J., speaking on behalf of the Supreme Court, in State of Madras v. Gannon Dunkerley & Co., in these terms :

'.............. these decisions are concerned with rights of persons who, not being trespassers, bona fide put up constructions on lands belonging to others, and as to such persons the authorities lay down that the maxim recognized in English law, quic quid plantatur solo, solo cedit has no application, and that they have the right to remove the superstructures.,........'

9. This principle also finds recognition in section 108(h) of the Transfer of Property At, 1882. That section provides that, in the absence of a counteract to the contrary, the lessee may, even after the determination of the leases, remove at any time whilst he is in possession of the property leased, but not afterwards, all things which he has attached to the earth; provided he leaves the property in the state in which he received it. If the lessee has counteracted a building on the land leased to him, he is entitled to remove the building, on termination of the lease, at any time before he quits possession. It must therefore be held in accordance with this principle that since the deceased being lawfully in possession had constructed on the land belonging to the society, the only right which the deceased had in regard to the superstructure was to remove it, if for any reason his possession of the land came to an end.

10. Having said so much about the legal position, let us now turn to consider what the deceased did on 8th March, 1951, and thereafter. On 8th March, 1951, the deceased purported to gift plot No. 1 to Sakarchand and plots Nos. 1-A and 1-B to Ramanlal and handed over possession of the respective plots to them. Now, obviously this transaction had no legal consequence for the deceased had no interest in the plots which he could transfer at his will, what happened thereafter on 27th May, 1952, is more important. The deceased was in lawful possession of the original plot No. 1 under an agreement of lease from the society and he requested the society to recognize division of the plots into plot No. 1 and plots Nos. 1-A and 1-B and to transfer plot No. 1 to the name of Sakarchand and plots Nos. 1-A and 1-B to the name of Ramanlal. The society acceded to the request of the deceased and, recognizing the division of the plot into plot No. 1 and plots Nos. 1-A and 1-B to the name of Ramanlal. The result was that the right of the deceased to remain in possession of the original plot No. 1 under an agreement of lease form the society came to an end and Sakarhand and Ramanlal instead became entitled to hold and retain possession of plot No. 1 and plots Nos. 1-A and 1-B respectively, each under a distinct and separate-albeit implied-agreement of lease from the society. Now, as pointed out above, when the right of the deceased to remain in possession of the original plot No. 1 came to an end and the deceased handed over possession of the reconstituted plots to Sakarhand and Ramanlal along with the reconstituted plots. The question is, what is the effect of this transaction

11. It is now well settled that if a person who, whilst lawfully in possession, had constructed on the land of another, does not remove the superstructure when parting with the possession of the land, he loses his right to remove the superstructure. It was so held by the Judicial Committee of the Privy Council in Narayan Das v. Jatindra Nath. One Satyendra Nath Roy who was the predecessor of the defendants was the proprietor of a holding and he had constructed a house upon it. The holding was purchased by the plaintiff. Before possession of the holding could be given to the plaintiff, the entire property was acquired and the question arose as to how the compensation should be apportioned. The Privy Council held that what the revenue sold was only the holding and the ownership of the building did not pass to the plaintiff by reason of the revenue sale and proceeded to consider whether, in the circumstances, 'the defendants are entitled to the compensation money which was awarded in respect of the building, or to what, if any portion of such money.' The Privy Council said :

'........... in order to arrive at a decision on this part of the case, it is necessary to consider what would have been the position and the respective rights of the parties after the sale, if no acquisition had taken place under the Land Acquisition Act.'

and added :

'It is difficult to lay down any principle upon which the compensation money awarded in respect of the house should be apportioned, but the position seems to their Lordships to involve certain matters which should be taken into consideration by the court what makes the apportionment.

After the sale the plaintiff would have been the owners of the land and the defendants would have been the owners of the house. The plaintiff would have had the right to call upon the defendants to remove the houses. If the defendants did remove the house, the value to them would be small, and in the ordinary course would be no more than what has been called 'demolition value', viz., the value of the materials less the cost of removal; and if the defendants did not remove the house they would lose if.'

12. This statement of the law also holds good in case of lease where the lessee, on the determination of the lease, yields up possession without removing the things attached by him to the earth. Says Sir Dinshaw Mulla in his well-known book on Transfer of Property Act (fifth edition) at page 694 while commenting on section 108(h) :

'If he (that is the lessee) one quits possession, he may not return and the fixtures become the property of the lessor.'

13. The decision of the Bombay High Court in Khimjee Thakarsee v. Pioneer Fibre o. Ltd. is also to the same effect. It is, therefore, indisputable that the deceased lost his right to the superstructure when his right to remain in possession of the original plot No. 1 came to an end and he handed over possession of the reconstituted plots to Sakarchand and Ramanlal without removing the superstructure. He had thereafter no interest in the superstructure and it was not liable to be included in the principal value of his estate.

14. Our answer to the question referred to us is, therefore, in the negative. The Controller will pay the costs of the reference to the accountable person.

15. Question answered in the negative.


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