B.K. Mehta, J.
1. The petitioners herein by these two petitions challenge the constitutional validity of sections 22 and 23 of the Income-tax Act, 1961, and the legality of the notices dated 29th March, 1972, issued by respondent No. 1 herein under section 148 of the said Act for reopening the assessments for assessment years 1967-68 and 1968-69, as he had reason to believe that income of the petitioners chargeable to tax for the said years had escaped assessment within the meaning of section 147 of the said Act. In order to appreciate the rival contentions in proper perspective, a few facts need be stated.
2. Petitioner No. 1 is the son and petitioners Nos. 2 and 3 are grandsons of one Balabhai Damodar who died on 31st December, 1957, in jointness with his son, petitioner No. 1, and two grandsons - petitioners Nos. 2 and 3 - and other great-grandsons. The deceased Balabhai had separate properties as well as joint family properties. The deceased had executed a will dated 6th October, 1956, bequeathing his undivided 1/2 share in the joint family properties which consisted of partnership business, shares, securities and immovable properties, as well as individual properties to his grandsons, petitioners Nos. 2 and 3 herein. Though no executor was appointed for carrying out the directions in his said will, petitioner No. 1 administered the properties bequeathed under the will as executor and legal representative of the late Balabhai Damodar. Petitioner No. 1 on the death of his father, the said Balabhai, also received his 1/2 share in the joint family property, he being a coparcener and he, therefore, qua his 1/2 share constituted along with his two sons, petitioners Nos. 2 and 3, and their sons a smaller Hindu undivided family of which he was the karta. In these two petitions, we are concerned only with the 1/2 share of the late Balabhai Damodar in joint family properties which he bequeathed by will to petitioners Nos. 2 and 2 as well as with the 1/2 share in the same which petitioner No. 1 received as coparcener. After the death of Balabhai, the income from the estate of the deceased which was bequeathed to petitioners Nos 2 and 3 under the aforesaid will was assessed in the hands of petitioner No. 1 as a legal representative of late Balabhai Damodar. The income from the remaining 1/2 share which belonged to petitioner No. 1 was assessed in his hands as Sakarlal Balabhai (Hindu undivided family). The joint family properties included, inter alia, two plots of land bearing final plot Nos. 560 and 583 of Ellis-Bridge Town Planning Scheme No. 3, with buildings standing thereon situated in Ellis-Bridge, Ahmedabad (hereinafter referred to as 'the immovable property'). Both the buildings and the open plots of land appurtenant thereto were self-occupied by the petitioners and their families. It is the case of the petitioner No. 1 as legal representative of late Balabhai Damodar, the letting value of the immovable property up to the assessment year 1961-62 was taken as the same as per the Municipal valuation by the predecessor of respondent No. 1. It appears that the predecessor in office of respondent No. 1 had issued a notice for reassessment relating to assessment years 1960-61 and 1961-62, under section 147(b) of the Act against petitioner No. 1 for reassessing him in respect of the property income from 1/2 share of the immovable property in his capacity as legal representative of late Balabhai Damodar and in respect of the remaining 1/2 share in his capacity as the karta of his smaller Hindu undivided family. The proceedings for reassessment were the subject-matter of appeals up to the Income-tax Appellate Tribunal and the valuation was ultimately finalised for the whole of the immovable property at Rs. 30,600 for determining property income as against Rs. 33,600 determined by the predecessor of respondent No. 1. The Income-tax Appellate Tribunal has passed the respective orders in June, 1969, and January, 1970, against petitioner No. 1 as the karta of his smaller Hindu undivided family and as legal representative of late Balabhai Damodar. It is the case of the petitioners that up to the date of the impugned notices the said valuation as determined by the Appellate Tribunal was accepted by respondent No. 1 also. However, on 29th March, 1972, respondent No. 1 has in exercise of the power under section 148 of the Income-tax Act, 1961, issued four notices, two of which were served on petitioner No. 1 as the karta of his smaller Hindu undivided family as well as the legal representative of late Balabhai Damodar and the remaining two were served on petitioners Nos. 2 and 3 stating that he had reason to believe that the income of the petitioners chargeable to tax for assessment year 1967-68 had escaped assessment within the meaning of section 147 and he, therefore, proposed to reassess the income for assessment year 1968-69, since he had reason to believe that the income of the petitioners chargeable to tax for the said assessment year had escaped assessment. It is common ground that respondent No. 1 proposed to reassess the petitioners in respect of the income from the immovable property, namely, the buildings and the lands occupied by them, under section 147(b) of the Act.
3. The petitioner sent their reply dated 9th May, 1972, contending, inter alia, that the impugned notices were without jurisdiction, bad in law, vague and were also violative of the principles of natural justice. The petitioners, however, submitted their return under protest. It is the grievance of the petitioners that without clarifying as to under what provision of section 147 reassessments were proposed to be made, respondent No. 1 by his notices of 3rd January, 1973, under section 143(2) of the aforesaid Act, called upon the petitioners to remain present for assessment on 10th January, 1973. The matter was adjourned to 11th January, 1973, when the petitioners attended through their income-tax consultant. In the course of the discussion, respondent No. 1 indicated that he desired to reassess the petitioners by enhancing the property income assessed in their respective assessments as the valuer nominated by him in the course of wealth-tax proceedings was of the opinion that the value of immovable property was more than the value as per the report of the valuer of the petitioners. These notices have been challenged in these two petitions as being without jurisdiction, bad in law and void and of no effect.
4. These petitions have been opposed by the respondents on whose behalf one Shri K. N. Lalchandani, Income-tax Officer, Special Investigation Circle-VI, Ahmedabad, has filed an affidavit-in-reply. It has been stated in the said affidavit-in-reply that out of the aforesaid two immovable properties, the building standing on final plot No. 560 was situated near M. J. Library in Ellis Bridge, Ahmedabad. The second property was standing on final plot No. 583 situated near Nagri Eye Hospital, Ellis-Bridge, Ahmedabad. It has been averred in the said affidavit-in-reply that for purposes of completing wealth-tax assessments in these cases of the assessee, the properties were inspected by the Executive Engineer (Valuation Cell of the Income-tax Department) and it was found by him that the values of the two properties aforesaid were much higher than that shown by the petitioners. The property near M. J. Library was valued for wealth-tax purposes at Rs. 6,05,000 by the petitioners while the Executive Engineer had valued the same at Rs. 23,26,000 for assessment year 1967-68. Property situated near Nagri Eye Hospital, Ellis-Bridge, Ahmedabad, was similarly valued by the petitioners at Rs. 5,53,000; whereas the Executive Engineer had valued the same at Rs. 13,22,000. The total valuation of the aforesaid two properties as per the Executive Engineer of the Valuation Cell of the Income-tax Department was more than Rs. 36,38,000 for the assessment year 1967-68. It has been thereafter stated in the said affidavit-in-reply as under :
'..... I say that for the purposes of estimating the annual value of the said properties for income-tax purposes the petitioners have estimated them at Rs. 30,000. I say that the estimate of the annual value by the petitioners is even less than 1% of the market value of properties estimated by the Executive Engineer. As the value estimated by the petitioners of the aforesaid properties was very much lower than the value that could be reasonably be estimated on the basis of fair market value of the properties estimated by the Executive Engineer it was a case of income escaping assessment and in consequence of the information acquired from the report of the Executive Engineer it was a case of income escaping assessment and in consequence of the information acquired from the report of the Executive Engineer reassessment proceeding for reopening of assessment was initiated. I say that the information obtained by me both as to facts and as to the correct principles of valuation from the report of the Executive Engineer is 'information' which was not in my possession at the stage of original assessment but which I got after the assessment order.......'
5. It is in this context, therefore, that we have to determine the rival contentions of the parties.
6. At the time of hearing of these petitions, the learned Advocate-General who appeared for the petitioners raised the following contentions :
(1) Respondent No. 1 has no jurisdiction to initiate action under section 147(b) of the Income-tax Act, 1961, inasmuch as he had no information in his possession, which he derived after the assessments in respect of the assessment years in question from an external source.
(2) Assuming that the report of the valuer for purposes of wealth-tax assessment of the petitioners was an information, at the most it was the valuation of the properties and did not give any indication as to their letting value which can be the basis of assessments under section 22 and 23.
(3) Having regard to the overall scheme of the Income-tax Act which is essentially to tax income, the notional letting value of self-occupied property would not amount to, nor constitute, income and, therefore, the provisions contained in sections 22 and 23 are ultra vires the Income-tax Act.
(4) In case notional letting value of self-occupied property is considered to be an income, according to the provisions contained in the said two sections, they would be beyond the legislative competence of Parliament under entry 82 of List I of the 7th Schedule of the Constitution of India.
7. The learned Advocate-General also advanced certain intermediate contentions on the basis of which he canvassed the aforesaid broad propositions to which we will refer at the appropriate stage in our discussion.
8. Re. Contentions Nos. 1 and 2 :
The gist of the attcak of the learned Advocate-General in these first two contentions was that respondent No. 1 had all the necessary information with him in his possession as regards the letting value of the immovable property in question. The question of letting value of the said immovable property was the subject-matter of reassessment relating to assessment years 1960-61 and 1961-62 and the matter was carried in appeal right up to the Tribunal which has by its orders of June, 1969, and January, 1970, concluded the question of the annual value by fixing the same at Rs. 30,600 for both the immovable properties in question and that valuation was accepted by respondent No. 1 up to the date of the impugned notices. The valuation report obtained by respondent No. 1 in his capacity as Wealth-tax Officer for purposes of assessment of the wealth-tax of the petitioners cannot constitute any 'information' from an external source, since it was respondent No. 1 who for purposes of valuation under the Wealth-tax Act required the Executive Engineer bolonging to the Valuation Cell of the Income-tax Department to value the said immovable poperty. The report submitted by the Executive Engineer to the Valuation Cell of the Income-tax Department cannot constitute an information from an external source and in any case, it did not give any relevant information as to the annual letting value of the property since the report merely gave the opinion as to capital value for purposes of wealth-tax.
9. On behalf of the Union of India, it was contended by the learned advocate, Mr. K. H. Kaji, that the said valuation report did furnish information in the nature of valuation of the immovble property, which would have a bearing and a relevance on the question of annual letting value of these self-occupied properties. It cannot be said that the valuation report of the Executive Engineer was not an external source, because the valuation was made by the Executive Engineer belonging to the Valuation Cell of the Income-tax Department.
10. What conditions precedent should be satisfied for purposes of initiating action under section 147(b) of the Income-tax Act, 1961, has come up for consideration before the Supreme Court on a number of occasions. In the leading authoritative pronouncement on the point, the Supreme Court in Commissioner of Income-tax v. A. Raman & Co. has held that two conditions must be satisfied before an Income-tax Officer can exercise his jurisdiction under section 147 (b). These conditions are, (1) that the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (2) that he has reason so to entertain that belief in consequence of the informaion which he has in his possession. The Supreme Court in the said case, in the first instance, dealth with the second condition, as the decision of the Gujarat High Court from which appeal was taken to the Supreme Court, had concentrated its attention upon it. Mr. Justice shah, as he then was, speaking for the court, observed :
'The expression 'information' in the context in which it occurs must, in our judgment, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment.'
11. In Assistant Controller of Estate Duty v. Nawab Sir Mir Osman Ali Khan Bahadur, the Supreme Court was concerned with a similar provision of reopening of assessment undr section 59 of the Estate Duty Act. The question before the Supreme Court was whether the opinion of the Central Board of Revenue regarding the correct valuation of securities for purposes of estate duty, in an appeal preferred by the accountable person before the insertion of section 59 in the Estate Duty Act by the Estate Duty (Amendment) Act of 1958, could constitute 'information' within the meaning of section 58 on the basis of which the Controller could entertain a reasonable belief that the property assessed to estate duty had been under-valued. Mr. Justice Grover, as he then was, referred to the decision of the Supreme Court in A. Raman's case and affirmed that in the context of section 147(b) of the Income-tax Act, 1961, 'information' must mean instruction or knowledge derived from extraneous sources concerning facts or prticulars or as to law relating to a matter bearing on the assessment. The established position, therefore, is that 'information' would mean instruction or knowledge derived from external sources concerning facts or particulars or as to law relating to a matter bearing on the assessment. In our opinion, the contention of the learned Advocate-General that this information was available at the time of original assessment is not well-founded since the Income-tax Officer could have obtained the information by entrusting the work of valuation of property to the Executive Engineer of the Valuation Cell of the Income-tax Department. The observation of Mr. Justice Shah in A. Raman's case clearly negatives this contention. The relevant observation on which reliance was placed by the learned Advocate-General for the Union of India reads :
'The High Court in this case was apparently of the view that the information in consequence of which proceedings for reassessment were intended to be started, could have been gathered by the Income-tax Officer in charge of the assessment in the previous years from the disclosures made by the two Hindu undivided families. But that, in our judgment, is wholly irrelevant. Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information must, it is true, have come into the possession of the Income-tax Officer after the previous assessment, but even if the information be such that it could have been obtained during the previous assessment from an investigation of the materials on the record, or te facts disclosed thereby or from other enquiry or research into facts or law, but was not in fact obtained, the jurisdiction of the Income-tax Officer is not affected.'
12. The learned Advocate-General, therefore, attempted to persuade us to hold that since this report was prepared and drawn by the Executive Engineer of the Valuation Cell of the Income-tax Department, it cannot constitute an external source, the derivation of information from which would invest the Income-tax Officer with the jurisdiction. We are afraid, we cannot accede to this broad contention of the learned Advocate-General because the valuation report of the Executive Engineer, though belonging to the Valuation Cell of the Income-tax Department, would certainly constitute a source which is not an internal source in the sense that the materials were on the record to which the Income-tax Officer had an opportunity to apply his mind and process them. The learned Advocate-General, therefore, resorted to his second contention that the valuation report containing capital value of the immovable properties cannot be an information as to annual letting value of same. Though the contention appears to be attractive, on close scrunity, it does not stand the legal test. The information which would invest the Income-tax Officer with the jurisdiction should be concerning facts or particulars as to law relating to a matter bearing on the assessment. In other words, it must have some relevance to the question to be determined, namely, the annual letting value in the present case. We do not think that it can be doubted that capital value of a property has a relevance and a bearing on the question of letting value of that property and more particularly when that property is self-occupied by the owner. Our attention has been drawn in this connection to the observation from the book of Ryde on Rating, tenth edition (Butterworths), at page 329. The observation reads :
'Where property is of a kind that is rarely let from year to year, recourse is sometimes had to interest on capital value, or on the actual cost, of land and buldings, as a guide to the ascertainment of annual value. There was some apparent, if not real, conflict of decisions upon the question whether interest on capital value, or on cost, might be considered at all; but the difficulty disappears if the rule be thus stated; the measure of net annual value is defined by statute as te rent which might reasonably be expected; interest on cost, or on capital value, cannot be substituted for the statutory measure, but in the absence of the best evidence, that is, actual rents, it can be looked at as prima facie evidence in order ot answer the question of fact what rent a tenant may reasonably be expected to pay.....'
13. The observation of Mr. Justice Cave in R. v. School Board of London has been extracted on the same page 329 as under :
'Interest on cost is a rough test undoubtedly. It is a test in some cases but it is not a test in others. If the place is occupied by a tenant, it is not a good test at all, because the rent which he actually pays is a far better one. If the place is unlet, it is not at all a good test, beacause it may be that no tenant would give anything approaching to the interest on the cost. But if the place is occupied by the owner himself, then it is in some sense a test, a rough test no doubt, and only prima facie evidence, but still some evidence, to show what the value of the occupation is ..... if he could get a place cheaper, at a less rent than the interest on the cost comes to, it is to be assumed he would not go to the expense of building, he would prefer to take the cheaper course and pay the rent.'
14. In Municipal Corporation of Greater Bombay v. Polychem Ltd., the Supreme Court was concerned with the question of method of valuation of land on which the building was being constructed for purposes of determining rateable value. Mr. Justice Beg, after referring with approval to the decision of the Supreme Court in Patel Gordhandas Hargovindas v. Municipal Commissioner, Ahmedabad, as to special meaning of the word 'rate', quoted in paragraph 15 from the said decision as under :
'It will thus be clear from the various statutes to which we have referred and the various books on rating in England that the rate always had the meaning of a tax on the annual value is arrived at by one of three modes, namely, (i) actual rent fetched by land or building where it is actually let, (ii) where it is not let, rent based on hypothetical tenancy, particularly in the case of buildings, and (iii) where either of these two modes is not available, by valuation based on capital value from which annual value has to be found by applying a suitable percentage which may not be the same for lands and buildings, and it was this position which was finally brought out in bold relief by the Rating and Valuation Act, 1925. It is clear further that it is not the Rating and Valuation Act of 1925 which for the first time applied the concept of net annual value and rateable value as the basis for levying a rate for purposes of local taxation; that basis was always there for centuries before the Act of 1925 was passed.'
15. In Motichand Hirachand v. Bombay Municipal Corporation, where the provisions of the Bombay Municipal Corporation Act were concerned, the Supreme Court said :
'It is a well-recognised principle in rating that both gross value and net annual value are estimated by reference to the rent at which the property might reasonbly be expected to let from year to year. Various methods of valuation are applied in order to arrive at such hypothetical rent, for instance, by reference to the actual rent paid for the property or for others comparable to it or where there are no rents by reference to the assessments of comparable properties or to the profits earned from the property or to the cost of construction.'
16. In New Manek Chowk Spg. and Wvg. Mills Co. Ltd. v. Municipal Corporation of the City of Ahmedabad the Supreme Court referred with approval to the observations to be found in Faraday on Rating, 5th edition, page 24. The said observation from Faraday on Rating, at page 24, reads :
'The 'competitive or comparative methods', i.e., by finding out rents actually paid for the hereditament in question and/or others of a similar kind, adjusting them to bring into line with the statutory conditions, and thus arriving directly at an estimate of the rent.
2. The 'profits basis', or calculation by reference to receipts and expenditure, which is now required to be applied to certain public utility undertakings, and may properly be applied to any other hereditament on which a business is carried on which enjoys privileges in the nature of a monopoly.
3. The 'contractor's method', by which it is assumed, in the absence of any other better way of estimating the rent, that the tenant would arrive at it by finding the figure for which a contractor would provide him with premises neither more nor less suitable for his purpose, and the rate of interest on that cost which the contractor would charge him as rent.
4. The 'unit method', by which schools may be valued at so much a place, hospitals at so much a bed, or certain industrial premises at so much a furnace or other unit of output.'
17. Though the above passages are more or less in the context of ascertaining rateable value of property, they none-the-less assure us that in the absence of any better way of estimating rent, the rate of interest on cost of building and land may provide a reasonable basis for determining the annual letting value of property, and more particularly, as observed in Ryde on Rating, when the property is occupied by the owner. In our opinion, therefore, the contention of the learned Advocate-General that capital value of property may not have a bearing or relevance on the question of annual letting value, should be rejected, and more particularly, when, as in the instant case, the annual letting value of a self-occupied property is to be ascertained. It was, therefore, urged by the learned Advocate-General that at the most the report of the Executive Engineer of the Valuation Cell of the department is merely an opinion and cannot be information or knowledge as to facts or particulars of question of law. We cannot accept this submission of the learned Advocate-General as the opinion of the Executive Engineer as to cost of land and building would certainly constitute an information as to fact. A similar contention was raised on behalf of the accountable person before the Supreme Court in Assistant Controller of Estate Duty v. Mir Osman Ali Khan Bahadur that the question of valuation of securities was neither purely one of fact nor of law and was a mixed question of law and fact and, therefore, the opinion of the Tribunal in the decision in its order in appeal regarding valuation of securities would not fall within the rule laid down in various decisions of the Supreme Court. Negativing the contention, Mr. Justice Grover observed :
'We are unable to agree. When the expression 'information' is undrstood in the sense of instruction or knowledge derived from an external source concerning facts or particulars or as to law relating to a matter bearing on the assessment, it is difficult to see how determination of valuation for the purpose of assessment of estate duty would not squarely fall within the meaning of the expression 'information', in the context in which it occurs in section 59 of the Act. It has not been disputed, and can indeed not be disputed, that the provisions of section 59 are in pari materia with section 34 of the Indian Income-tax Act, 1922, and section 147 of the Income-tax Act, 1961. The opinion expressed by the Board of Revenue, in the present case, as to valuation, was clearly 'information' in the sense in which that expression has been held to have used in these enactments. The view of the High Court on this point cannot be sustained for the aforesaid reasons.'
18. In that view of the matter, therefore, we must reject the first and second contentions of the learned Advocate-General.
19. Re. Contentions Nos. 3 & 4 :
On behalf of the petitioners, it was urged by the learned Advocate-General that having regard to the overall scheme of the Income-tax Act, which has been enacted with the object of taxing income, it cannot be held that notional letting value of self-occupied property of an owner constitutes income and, therefore, to the extent to which sections 22 and 23 subject annual value of the property as chargeable to income-tax under the head of income from house property would be ultra vires the Income-tax Act. According to the learned Advocate-General, though the definition of 'income' given in section 2(24) of the Income-tax Act, 1961, is inclusive, it none-the-less enumerates all conceivable types of income and the said section does not refer to notional letting value of self-occupied property, are beyond the charging section and the scheme of the Act. According to the learned Advocate-General, income for tax purpose must be money and money's worth, and income must be that which goes into the pocket of an assessee. It was strenuously contended by the learned Advocate-General that no fiction has been created in the Income-tax Act, 1961, or for that matter in the 1922 Act as to how income of self-occupied property is to be computed and in the absence of such a fiction, there is no charging provision which can subject such notional income to tax. In other words, the main burden of the song of the learned Advocate-General was that as nothing has been received by the owner of self-occupied property, if tax is sought to be levied on the notional income, it would in effect and substance amount to taxing the right of occupation and enjoyment of such property, which Parliament is not competent to do in exercise of its legislative power under entry 82 of List I of the 7th Schedule of the Constitution. In other words, it was contended by the learned Advocate-General that if notinal letting value of self-occupied property is treated as income, though nothing has been received actually in the nature of money, nor the right of occupation and enjoyment can be converted into money's worth, it would be acting beyond the legislative competence of Parliament since the field of legislation is tax on the income under the said entry. We must frankly state that we are not impressed by this contention of the learned Advocate-General. It is no doubt true that, for purposes of tax on income, it must be money or money's worth. It is not necessary that income must be received in cash. It may also be received in kind but that may represent money's worth, that is, something which is capable of being converted in terms of money (vide Acharya D. V. Pande v. Commissioner of Income-tax). The question which has been raised by the learned Advocate-General is in our view concluded long back by the decision of the Bombay High Court in D. M. Vakil v. Commissioner of Income-tax. The facts before the Bombay High Court were that one Bai Bhicaiji Dhunjibhoy appointed her husband and her son and three daughters as the trustees under her last will and testament dated 28th January, 1937. According to clause 5 of the said will, the husband of the testatrix, her son, Motabhoy, and daughter, Motibai, had the right to use and occupy free of rent such portion of the Warden Road property as was at the time of the making of the will occupied by the testatrix. Besides te husband, the son and the daughter, such of the children and grandchildren of the testatrix as might be invited had also the right to reside in the bungalow. For the assessment year 1942-43, the trustees who were assessed as an association of persons claimed that in view of the aforesaid provision in the will, the trustees could not be said to have realised any income whatever from the property in question, which could be computed under section 9 of the Income-tax Act. The claim was rejected by the Income-tax Officer and the income from the said house property was computed on the bona fide annual value basis under section 9 and included in the assessment. The Appellate Commissioner, however, in appeal by the trustees, directed exclusion of the aforementioned bona fide annual value from the calculation of the assessee's property income. In appeal by the revenue before the Tribunal, the Tribunal held on the facts that the mere circumstance that in pursuance of a certain arrangement no rent was to be charged from the occupants of the property did not render the property or the income thereof exempt from the assessment under section 9. At the instance of the trustees, the following question was referred to the Bombay High Court :
'Whether upon the facts found by the Tribunal the annual value of the property on Warden Road, Bombay, has been rightly included in the assessment under section 9 of the Income-tax Act ?'
20. The trustees advanced similar contention as the learned Advocate-General did which urging his contention No. 3. It was contended by the trustees before the Bombay High Court that the Indian Income-tax Act, 1922, was enacted with the object of taxing income and in the case before the Bombay High Court the trustees could not by virtue of the express provision of clause 5 of the will let the premises to any one and were obliged to give the bungalow for occupation to the persons named in the clause free of rent. It was contended that there being no income, sections 3 and 4 of the Indian Income-tax Act, 1922, could not be relied upon to tax the annual letting value of the bungalow. The trustees in support of their contention relied on the observation of Lord Halsbury L. C. in his speech in Tennant v. Smith, where the revenue sought to assess an agent of a bank on the annual value of the residence under Schedule D or Schedule E of the Income-tax Act, and the agent was required to reside in the building of the bank for purposes of performing his duty, which he owed to be his employers. The observation was to the effect that the thing sought to be taxed was not income unless it could be turned into money. On behalf of the Commissioner of Income-tax, it was urged before the Bombay High Court that this line of reasoning was incorrect as the only question to be considered under the Income-tax Act was that what was the income under the charging sections 3, 4, 6 and 9 containing the heads of income and how computation of income was to be made in respect of the income from property. Acting Chief Justice, Kania, speaking for the Division Bench of the Bombay High Court, held as under while rejecting the contention of the trustees :
'In my opinion the contention of the trustees is not correct. The word 'income' has not been defined in the Act, but for the purposes of the Indian Income-tax Act, 1922, the expression 'total income' is defined in section 2 (15). The legislature has used there the words 'computed in the manner laid down in this Act'. Therefore, in order to ascertain the total income of an assessee his income must be computed in the manner laid down in the Act and particularly Chapter III. In this connection the words used in section 9 may be particularly noted. The section provides as follows :
'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 building....'
The legislature has, therefore, 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 secion, 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 artifucially 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.
On behalf of the trustees it was argued that in the present case the trustees are prevented from letting out the property to any one by virtue of clause 5 of the will itself. That, however, in my opinion, makes no difference. The liability to tax does not depend on the power of the owner to let the property, as it also does not depend on the capacity 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 provides that he should be taxed on that footing. In my opinion the argument of the Commissioner on this point is correct.'
21. Mr. Justice Chagla, in his concurring judgment, said :
'It is true that under the Indian Income-tax Act, 1922, the only thing that can be taxed is income and nothing else. The charging section is section 3; it charges the total income of an assessee; and 'total income' is defined in section 2 (15) as the total amount of income, profits and gains computed in the manner laid down in this 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. Now it cannot be disputed that income from property is taxable income. The only question is : what is income from property or how is it to be computed And for that purpose one must turn to section 9 of the Indian Income-tax Act, 1922. The scheme of the Income-tax Act is that the Income from property which is made liable to tax is not the actual income but an artificial or statutory income as defined in section 9 and that artificial or statutory income is the bona fide annual value of the property. Therefore, the fact that the owner of the property receives no income in fact or even that there is no possibility of his receiving an income is irrelevant for the consideration of the question as to what the artificial or statutory income of an assessee is from property. The test and the only test laid down in the Act is the bona fide annual value of the property, and in the case of every property that test can be complied with and the annual value of the property can be determined. Therefore, what the Act does is to make the annual rental value of the property the income of the owner of that property and it is that income that has got to be taxed under the Act.'
22. We can do no better than adopting this reasoning of Mr. Justice Chagla for purposes of answering contention No. 3. Section 4 is the charging section and by sub-section (1) it provides :
'Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person.'
23. Section 14 which enumerates the heads of income provides :
'Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :-
A - Salaries.
B - Interest on securities.
C - Income from house property.
D - Profits and gains of business or profession.
E - Capiatal gains.
F - Income from other sources.'
24. The effect of section 4(1) read with section 14 is that the total income of an assessee subject to statutory exemptions is chargeable under section 4 (1). Section 14 enumerates the six heads under which income of an assessee falls to be charged. Since the rates for computation of income and permissible deductions vary with the deductions of different heads of income, each of the six heads is dealt with in a separate set of sections from sections 15 to 59. The net effect of section 14 is to classify income and to group it into different heads according to the character of its source and sections 15 to 59 provide appropriate rules for computing the amount of income from different heads. Section 22 (which is corresponding to section 9 of the 1922 Act) provides as under :
'22. Income from house property. - The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property'.'
25. Section 22 provides for the method of determination of income from property. Section 23 says that, for purpose of section 22, the annual value of any property would be deemed to be the sum for which the property might reasonably be expected to be let from year to year. The contention of the learned Advocate-General that there is no fiction provided to treat the annual letting value of self-occupied property as income is not at all well-founded. It cannot be gainsaid that income from property is a taxable income. How income from property is to be assessed to tax is indicated by section 22, which lays down, in effect, that annual value of property consisting of any buildings or lands appurtnenat thereto of which the assessee is the owner, shall be chargeable to income-tax as income from property except those properties which are used by the owner for business or profession for profits chargeable to income-tax. How annual value of property is to be determined is provided by section 23 (1). The scheme of the Income-tax Act is that income from property which is made liable to tax is not its actual income in money but an artificial or statutory income as defined in section 23 and that artificial or statutory income is the annual value of the property. The contention that the properties are self-occupied and, therefore, the owner does not receive anything in cash or anything which is money's worth is entirely beside the point. In effect, the Act constitutes annual rental value of property as income of the owner and it is this income which is subjected to tax. The contention of the learned Advocate-General is that the term 'income' which was not defined in the 1922 Act has been now sought to be defined by Parliament in the 1961 Act. The definition of 'income' is to be found in section 2(24) of the 1961 Act which is an inclusive definition, it tried to bring in within the meaning of 'income' what would generally be not treated as 'income'. The inclusive defination, no doubt, enlarges the meaning of 'income'. However, that would not be a valid ground for successfully contending that because rents of self-occupied properties are not mentioned, the notinal annual value of such properties cannot be subjected to tax. Income from property has been subjected to tax under section 4 read with section 14 and the fiction how income of an owner from the property is to be computed is provided in sections 22 and 23. In that view of the matter, therefore, we have to reject contention No. 3 of the learned Advocate-General.
26. It was, however, contended by the learned Advocate-General that the decision of the Bombay High Court in D. M. Vakil's case does not hold the field as good law since the subsequent decision of the Bombay High Court in Sir Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of Income-tax, which was followed the decision in D. M. Vakil's case, has, by necessary implication, been disapproved by the Supreme Court in R. B. Jodha Mal Kuthiala v. Commissioner of Income-tax. We do not think that this submission of the learned Advocate-Generate is correct. The facts involved in the case before the Supreme Court in R. B. Jodha Mal's case were that for the assessment years 1952-53, 1955-56 and 1956-57, the assessee which was a registered firm derived income from interest on securities, property, business and other sources. In 1946, the assessee purchased the Nedous Hotel in Lahore for a sum of Rs. 46 lakhs. For that purpose, the assessee 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 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 become a part of that country. 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, 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 cosidered 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. When the appeal was taken to the Tribunal, it 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. At the instance of the revenue, the Tribunal referred the following question to the High Court :
'Whether, on the facts and in the circumstances of the case, the assessee continued to be the owner of the property for the purpose of computation of income under section 9 of the Indian Income-tax Act, 1922 ?'
27. The High Court of Delhi on an analysis of the various provisions of the Pakistan (Administration of Evacuee Property) Ordinance, 1949 (XV of 1949), came to the conclusion that for the purpose of section 9 of the Indian Income-tax Act, 1922, the assessee cannot be considered as the owner of property. In appeal by the assessee, the Supreme Court held that for purposes 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. It further held that an assessee whose property remains vested in the Custodian of Evacuee Property by virtue of section 6 (1) of the Pakistan (Adiministration of Evacuee Property) Ordinance, 1949, as evacuee property, is not the owner of the property for the purposes of section 9 of the Indian Income-tax Act, 1922, and 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; and that residual beneficial right cannot be considered to be ownership for the purpose of section 9. We have not been able to appreciate how the decision of this case can be of any assistance to the cause of the clients of the learned Advocate-General. The real and the only pertinent question before the Supreme Court was who was the ownerof a house property under section 9 of the 1922 Act in circumstances similar to those before the Supreme Court. The learned Advocate-General, however, tried to rely on this decision of the Supreme Court by urging that the Supreme Court dismissed the appeal of the assessee and confirmed the decision of the Delhi High Court which has taken a contrary view from the decision of the Bombay High Court in Sir Currimbhoy Ebrahim Baronetcy Trust's case. In the submission of the learned Advocate-General, since the decision of the Bombay High Court in Baronetcy Trust's case relied on the decision of D. M. Vakil's case, the ratio of Vakil's case would not hold the field in view of the decision of the Supreme Court in R. B. Jodha Mal Kuthiala's case, confirming the decision of the Delhi High Court in Commissioner of Income-tax v. R. B. Jodhamal Kuthiala. We are not inclined to accept this contention of the learned Advocate-General because the question which arose before the Bombay High Court in Currimbhoy Baronetcy Trust's case was in the following context :
The trustees of a Baronetcy Trust created by a statute were the owners of certain properties. Under the statute, the incumbent for the time being of the office of Baronetcy was entitled to reside free of rent in two flats and a bungalow which formed part of the trust properties. In 1949, the then Baronet was declared an evacuee and the Custodian of Evacuee Property passed an order declaring the flats and the bungalow to be evacuee property and the rights of residence of the Baronet free of rent of vest in him. The question was whether the trustees could thereafter be assessed to tax on the annual rental value of the flats and the bungalow under section 9 of the Indian Income-tax Act, 1922. It was held by the Bombay High Court that, as the trustees were the owners of the flats and the bungalow, their annual value was liable to be assessed in the hands of the trustees under section 9 of the said Act. Neither the westing of the interest of the Baronet in the Custodian nor the inability of the trustees to realise rent from the flats and the bungalow affected this position. It is no doubt true that the Division Bench of the Bombay High Court in Sir Currimbhoy Baronetcy Trust's case followed the decision of D. M. Vakil's case, where the question was altogether different. The question in D. M. Vakil's case really was whether the trustees who were under obligation to provide trust property for occupation of certain beneficiaries without charging any rent could be assessed to tax under section 9 of the Indian Income-tax Act, 1922, on their income from house property. The contention, as we have earlier stated, on behalf of the trustees is D. M. Vakil's case was that, since no income was received from the property, which they were under obligation to provide free of rent to some beneficiaries, they were not liable to be taxed. It is no doubt true that in D. M. Vakil's case Mr. Justice Kania observed that the liability did not depend on the power of the owner to let the property and it also did not depend upon the owner's capacity to receive the bona fide annual value. The observation appears to have been made only with a view negative the contention of the trustees that the trustees were put under an obligation to provide this trust property to some of the beneficiaries free of rent and that it was not open to them to rent it out to such person as they liked for rent. In that context the said observations has been made. It is no doubt true that the Division Bench of the Bombay of High Court in Sir Currimbhoy Baronetcy Trust's case relied on this observation and held that in terms of the statute since the incumbent for the time being of the office of Baronetcy was entitled to reside free of rent in two flats and bungalow which formed part of the trust properties, which were declared to be evacuee properties, which vested in the Custodian of Evacuee Property, nonetheless the trustees continued to be owners of the said properties and the annual value of the said properties was liable to be assessed in the hands of the trustees under section 9. The decision of the Bombay High Court in Sir Currimbhoy Baronetcy Trust's case was not cited before the Delhi High Court in Commissioner of Income-tax v. R. B. Jodhamal, where a question arose in a slightly different context. The property in question in R. B. Jodhamal's case as situated in Lahore which formed part of Pakistan and, therefore, was declared an evacuee property and vested in the Custodian of Evacuee Property, Lahore. The assessee-firm which was in India claimed that it still continued to be the owner thereof within the meaning of section 9 of the Indian Income-tax Act, 1922, and it was entitled to claim losses which it had suffered of account of the payment of interest to Bharat Bank Ltd. on the loan which it had raised for purchasing the said property in Lahore. It is no doubt true that the Delhi High Court held on a consideration of the provisions of Pakistan (Administration of Evacuee Property) Ordinance, 1949, and more particularly section 6(1) thereof that during the period that the assessee's property remained vested in the Custodian of Evacuee Property as evacuee property, the right of the assessee to claim to be the owner of the property was taken away by the statute and it cannot be said to be the owner of the property for purposes of section 9 of the Indian Income-tax Act, 1922, and, therefore, neither annual letting value of the property to vested in the assessee can be its income for can it be allowed to claim deductions under section 9. It should recalled that the decision of the Division Bench of the Bombay High Court was not cited before the delhi High Court in R. B. Jodhamal's case. The Delhi High Court in R. B. Jodhamal's case referred to and followed the decision of the Supreme Court in Delhi Cloth and General Mills Co. Ltd. v. Harnam Singh, which as the only case in which the Supreme Court has considered the effect of the provision of the Pakistan (Administration of Evacuee Property) Ordinance, 1949, and held that the evacuees were divested of their ownership right. The decision of the Supreme Court in Harnam Singh's case has been considered by the Delhi High Court as applicable for deciding the case before it. The effect of the Evacuee Property Ordinance of India has been considered by the Supreme Court in Amar Singh v. Custodian of Evacuee Property, Punjab, where the Supreme Court has held that an evacuee does not loss his ownership in the property and the law recognizes ultimate ownership subject to certain limitations. It is instructive to note the observation of the Supreme Court in Amar Singh's case, where it was said :
'Stopping here it will be seen that the position, in its general aspect, is that all evacuee property is vested in the Custodian. But the 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. Such return which was originally contemplated without any restriction, is subsequently dependent on a notification or a certificate of the Central Government. Until such return the Custodian may manage the property by granting allotments in favour of displaced persons.'
28. In R. B. Jodhamal's case therefore, the Delhi High Court and ultimately the Supreme Court were concerned with the effect on the right of ownership under the Pakistan Ordinance relating to evacuee property, under which as held by the Supreme Court in Harnam Singh's case the evacuees were divested of their ownership right while as observed in Amar Singh's case the effect of Indian legislation was not to divest the right of ownership and an evacuee cannot be said to have lost his ownership in it. The decision of the Supreme Court in R. B. Jodha Mal's case, therefore, would not by implication render the ratio of the decision of the Bombay High Court in Sir Currimbhoy Baronetcy Trust's case as of no effect. In any case, in our opinion, the decision of the Supreme Court in R. B. Jodha Mal's case was on the construction of the Evacuee Property Ordinance, 1949, of Pakistan an more particularly on the question, whether the assessee continued to be the owner in view of the provisions of the Pakistan Ordinance. That decision cannot, therefore, be of any assistance to the petitioners before us and in our opinion the decision in D. M. Vakil's case on this point that the fact of the actual receipt of income from property is not at all conclusive of of the question of liability of the owner of the self-occupied property to pay of its fictional or statutory income still holds the filed as good law with which we are in respectful agreement. In that view of the matter, tax being on the income from property, there is no question about the constitutional validity of the provisions contained in sections 22 and 23 of the Income-tax Act, 1961. The third and fourth contentions of the learned Advocate-General must, therefore, fail.
29. The result is that these petitions are dismissed with costs. Rule is discharged in each matter.