1. One Krishna Iyer, by his will, bequeathed a number of house properties in favour of his wife, Gnanambal Ammal, the assessee herein. Under the terms of the will, the assessee was given a life interest in the house properties. After her death, the properties were to pass absolutely in favour of other legatees. On important provision in the will was that in respect of three house properties, f the assessee was not entitled either to reside in or occupy the houses herself or to let them out and collect any rents from the tenants, since those houses were meant either for the residence or for the business of the testator's sons. It was clearly provided in the will that the assessee. Gananambal ammal, could occupy the houses herself or otherwise derive income from the houses by letting them out only in case the sons, who were in capitation, voluntarily decided to vacate those houses.
2. The ITO assessed the annual letting out value of these houses as part of the income of Ganambal Ammal, even for the period during which the houses were in the occupation of the testator's sons. The correctness of this assessment was questioned in appeal; but the appellate authorities, including the Tribunal, upheld the assessment.
3. This pattern of assessment was employed for the assessment of the annual letting out value of these houses for a number of assessment years from 1966-67 to 1970-71. for some of the years, the assessee brought the matter in reference before this court in T. Cs. Nos. 679 to 681 of 1975 and 60 of 1976 [See : 136ITR103(Mad) ]. The point which was raised in those reference was whether the Tribunal was right in holding that the assessee, as life estate holder of the three house properties in question, was liable to tax on the annual letting value of the properties. This court in a judgment dated December 18, 1979 M.P. Gnanmbal v. CIT (T.Cs. Nos. 679 to 681 of 1975 and 60 of 1976-since reported in : 136ITR103(Mad) ), disagreed with the Tribunal's decision and held that in the light of the peculiar terms of the will and having regard to the particular nature of the interest created in favour of Gnanambal Ammal, assessments under s. 22 of the I.T. Act, 1961, in respect of the annual letting value of the houses cannot be made on her.
4. The present tax case arises out of an assessment made for 1967-68 and sustained by the Tribunal as in the rest of the assessment years, to which we have made reference earlier. the point which arises is whether, for this assessment year, the assessee, Gnanambal Ammal, was properly assessed under s. 22 of the I.T. Act, 1961, on the annual letting value of the three house properties in question. Having regard to the earlier decision of this court on the subject in T. Cs. Nos. 679 to 681 of 1975 and 60 of 1976, we must hold that the assessment for this year is also made on a wrong understading of the decision both legally and factually.
5. Learned standing counsel for the Department submitted that the judgment of this court in the earlier references of this assessee contained observations which, according to him, went father than what might be necessary for the disposal of the case. He particularly referred to the discussion in the previous case in which this court was inclined to feel that the assessee, Gnanambal Ammal, was not an owner at all of the houses in question for the period during which the testator's sons were in occupation in terms of the provisions of the will. The learned counsel submitted that when, admittedly, the assessee was granted a life interest under the will, it would not be correct to deny her the status of an owner, however fractional her interest in the house properties might be.
6. We do not think that the Bench in the earlier cases ruled out any idea of wonershiup of even a fractional interest in the house properties question to the assessee, Gnanambal. All that they emphasized was that the terms of the will under which Gnanambal was given the interest must be read and understood as a whole. They underlined the overriding condition in the will to the effect that the sons of the testator in the occupation of the houses ought not to be disturbed if they wished to continue in occupation. Stress was also laid on the provision that the assessee could not seek to let out the properties and seek to obtain any rental income from them so long as the sons in occupation were unwilling to vacate the houses. It was these peculiar conditions subject to which the life interest was conferred on the assessee that made the learned judges describe the assessee's interest as a delusion and a snare so long as the sons continued to stay put in the properties. We do not think that the observations of the learned judges, when they ruled out the ownership to the assessee, should be taken too literally, but must be understood in the context of the entire discussion bearing on the case.
7. On the conclusion arrived at by the court in the earlier case, there can hardly be any room for doubt or further debate. Learned standing counsel for the Department, however, urged that whatever may be the basis of taxation under other heads of income provided for under the I.T. Act, so far as income under the head 'Property' is concerned, it hinges upon one attribute alone, namely, the attribute of the assessee being the owner of the house properties. Learned counsel, therefore, submitted that if it is accepted in any given case that a person is the owner of house properties and the house properties have got annual letting value, then the assessment of the income from those properties can hardly be resisted and it would be no answer to say that the house in question are not occupied either by the assessee or by a tenant.
8. While we accept the first part of the submission of the learned counsel that the crucial factor in the assessment of property income under the scheme of the I.T. Act is the ownership of the house property, we do not accept the further submission made by the learned counsel that no other consideration is at all necessary for the tax to be exigible other than the presence of the attribute of ownership in the assessee. The assessee is not doubt the owner of the houses in question, being the owner of the life interest therein, but the fact remains that the houses in question were not yielding any rent to her, since they were not under occupation by tenants. The assessee herself has not right to let them out to tenants. And those who were in occupation of the houses, viz., the testator's sons, were also not under an obligation to pay rent to the assessee, even though she had become the owner of the life interest in the properties. In this situation, what we have is a classic case of an owner whose house property is occupied neither by the owner nor by tenants. The question is, can such a kind of ownership be the basis of liability to income-tax under the head 'Income from property' falling within s. 22 of the I.T. Act.
9. If we examine the scheme of taxation on this particular head in the I.T. Act, we would discover that the tax levied really falls under two sub-heads, i.e., (i) income from house property under the occupation of the tenants, and (ii) income from house property under owner's occupation. Several provision relating to deductions, exemptions and the like differ according as to whether the property in question is owner-occupied or tenant occupied. In both cases, however, it is necessary that the assessee must be the owner; but that is not the last word on the subject of charge. The charge depends upon the house being either under the owner's occupation or under the tenant's occupation. Under third dichotomous taxation scheme, there really is no scope for a third course. This precisely in the position of the assessee in the present case.
10. All these consideration which very much arise in the present discussion were apparently not touched in the judgment of this court in this very assessee's case for the earlier assessment years, apparently for the reason that the court's attention had been concentrated on different considerations.
11. The following two questions of law have been referred to us in the present reference :
'(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the appellant is the owner of the properties situate at 26/110, Raja Street and 26/324 and 325, Rangai Gowdar Street, Coimbator, with in the meaning of section 22 of the Income-tax Act, 1961
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in sustaining the inclusion of a sum of Rs. 7,000 for the assessment year 1967-68, being the rental income from the said three properties in the assessment of the assessee ?'
12. The first question pertinently requires an answer to the issue whether the assessee is the owner of the houses. While we hold that she is the owner to the extent, and subject to the conditions under which, an interest in the house properties has been conferred on her by the testator under the will, we must also hold that such rights of ownership as were given to her have practically become a delusion and a snare, in the words of the earlier Bench Judgment.
13. The second question proceeds as though rental income had, in fact, arisen during the year form the house properties in question. This is a mistake, because it is nobody's case that the houses were let out to any one. Even the sons who were in permissive occupation of the houses under the terms of the will were not tenants. Nor were they bound to pay anything resembling a rent to the assessee. Since the houses were neither occupied by the owner nor occupied by any tenants, our answer to this question is that the assessment to property income in respect of these items of house properties is not in accordance with law. The Tribunal was in error in sustaining the assessment. Having regard to the peculiar circumstances of the case, however, there will be no order as to costs.