House property

HIGH COURT OF CALCUTTA

Commissioner of Income-tax
v.
Biman Behari Shaw Shebait*
BANERJEE AND K. L. ROY, JJ.
IT REFERENCE NOS. 118 TO 121 OF 1963
JULY 19, 1967

Section 23 of the Income-tax Act, 1961 [Corresponding to section 9 of Indian

Income-tax Act, 1922] - Income from house property - Annual value - Assessment
years 1957-58 and 1958-59 - Whether even where a property is not let and even
where it does not produce any income, ITO is to proceed on basis of a Notional
income, which that property might reasonably be expected to yield from year to
year - Held, yes- Whether where a property is not actually let, even then there
ought to be included in annual income of owner a notional income from property -
Held, yes - Whether letting value of a property, whether let or not, can be
objectively ascertained on reasonable basis and if there be restrictions on letting
of premises, that may merely reduce letting value but it cannot be said, without
more, that because of existence of a restrictive clause there can be no notional
annual income deemed to arise from premises - Held, yes
FACTS

For the assessment years 1957-58 and 1958-59, the ITO computed the bona fide annual value of
the two premises at the amounts which they were likely to fetch if let out in the open market.
On appeal, the AAC deleted the addition on the ground that these premises being temples of two
deities, had not been let out and no income accrued therefrom.
On revenue's appeal, the Tribunal upheld that AAC's orders.
On reference :
HELD

According to section 9, even where a property is not let and even where it does not produce any
income, the ITO is to proceed on the basis of a notional income, which the property might
reasonably be expected to yield from year to year. Now, where a property was not actually let,
even then there ought to be included in the annual income of the owner a notional income from
the property. The letting value of a property, whether let or not, can be objectively ascertained
on reasonable basis. If there be restrictions on the letting of the premises, that may merely
reduce the letting value but it could not be said, without more, that because of the existence of a
restrictive clause there could be no notional annual income deemed to arise from the premises.
The Tribunal was not correct in holding that, in view of the injunction contained in the will
against the residence of any body in the premises (apart from the priest performing the worship
of the deity and its servants), the premises had no letting value. That injunction will be of
relevant consideration in finding out the bona fide value and the weight of the injunction may
very much reduce the bona fide letting value of the house. But because of the existence of the
injunction, the premises could not be said to have no letting value, notional or otherwise.
(No opinion was expressed on the point - Whether a temple which is wholly and exclusively
occupied by a diety or for use of the diety, came within the mischief of section 9(2), as the same
was not referred for a decision).
Note : The case was decided in favour of the revenue.
D.M. Vakil
v.
Commissioner of Income-tax
KANIA, AG., CJ. AND CHAGLA, J.
IT REFERENCE NO. 1 OF 1945
SEPTEMBER 17, 1945

Section 22 of the Income-tax Act, 1961 [Corresponding to section 9 of the Indian Income-tax Act, 1922] – Income from
house property – Chargeable as – Assessment year 1942-43 – Whether income from property is artificially defined income
and liability to tax arises from fact that assessee is owner of property and such liability does not depend on power of
owner to let property and it also does not depend on capacity of owner to receive bona fide annual value of property –
Held, yes
FACTS
The late testatrix appointed her husband and her son and three daughters as the trustees under her last will and testament. In that
will it was provided that during the lifetime of the husband of the testatrix, her husband, her daughter and her son would have the
right to use and occupy free of rent such portions of her immovable property as were occupied by her and the other members of
the family. Besides these three, such of her children and grandchildren as might be invited would alone have the right to reside.
In pursuance of that provision, the parties named in the will occupied the property for the relevant assessment year. The trustees
were sought to be assessed under the head of "income from property" in respect of that property. It was contended on their behalf
that the trustees could not be said to have realized any income whatsoever from the property in question which could be
computed under section 9 of the 1922 Act, and, therefore, they were not liable to pay any income-tax in respect of the property.
The ITO rejected that contention of the trustees but, on appeal, they succeeded before the Assistant Commissioner. The taxing
authorities took the matter up to the Tribunal and the Tribunal restored the order of the ITO.
On reference, the assessees contended that the trustees could not by virtue of the express provision of the will let these premises
to any one and were obliged to give the bungalow for occupation to the persons named in the clause free of rent and therefore,
there being no income, sections 3 and 4 of the 1922 Act could not be relied upon to tax the annual letting value of this bungalow,
as was sought to be done by the taxing authorities. It was further argued that under section 41 of the 1922 Act, the liability of the
trustees was only to be taxed to the same extent as the beneficiaries were liable to be taxed, and as the right to occupy premises
did not amount to receipt of any income, the beneficiaries would not be liable to be taxed in respect of this right of occupancy.
HELD
Under section 9 of the 1922 Act, the tax is 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) of the 1922 Act 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 be let from
year to year. The word used is "might" and not "can" or "is". Reading these two paragraphs of section 9 together, it was 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 escape taxation.
The fact that the trustees were prevented from letting out the property to any one by virtue of clause 5 of the will itself, however,
made 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 provided that he should be taxed
on that footing.
Section 41 of the 1922 Act does not help the assessees because under that section two things have to be considered: first, the
trustees become liable in the like manner and to the same amount as the tax would be leviable upon and recoverable from the
beneficiaries; and, secondly, where the individual shares of the persons on whose behalf the income is receivable are
indeterminate or unknown, the tax is ordered to be levied at the maximum rate. In India there is distinction between legal and
equitable estate. The extent of the liability is to be determined on the true interpretations of sections 3, 4, 2 (15), 6 and 9 of the
Indian Income-tax Act. The argument that under section 41 of the 1922 Act the tax was to be levied in the like manner and in the
same manner as to be recoverable from the beneficiaries did not help the assessee. If in the instant case the ownership of this
property was deemed to be vested in the beneficiaries, they could not avoid taxation on the ground that they themselves were
occupying the property. It seemed therefore, that section 41 of the 1922 Act did not help the assessees.
Therefore, upon the facts found by the Tribunal, the annual value of the property in question was rightly included in the
assessment under section 9 of the 1922 Act.
CONCURRING VIEW
(Per Chagla, J.) - It is true that under the 1922 Act 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 scheme of the 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 of the 1922 Act 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 annul 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. Therefore upon the facts found by the Tribunal, the annual
value of the property in question was rightly included in the assessment under section 9 of the 1922 Act.
Note : The case was decided against the assessee.
Sir Currimbhoy Ebrahim Baronetcy Trust
v.
Commissioner of Income-tax*
Y.S. TAMBE AND V.S. DESAI, JJ.
IT REFERENCE NO. 10 OF 1961
AUGUST 13, 1962

Section 22 of the Income-tax Act, 1961 (Corresponding to section 9(1) of the

Indian Income-tax Act, 1922) - Income from house property - Chargeable as
Assessment year 1957-58 - Trustees of Baronetcy Trust created by statute were
owners of certain properties in some of which incumbent to office of Baronetcy
was entitled to reside free of rent - When, in 1949, then incumbent was declared
evacuee under Evacuee Property Act and Custodian of Evacuee Property passed
order declaring said properties to be evacuee property and right of residence of
Baronet free of rent to be vested in custodian, trustees claimed that they were not
liable to be assessed on income from said properties - Tribunal accepted
department's stand that, although interest of evacuee had vested in custodian,
ownership of properties still continued to vest in trustees and income of
properties computed under section 9 was liable to be assessed in hands of
trustees as owners - Whether Tribunal was right in its conclusion - Held, yes
FACTS

The assessee was corporation, created by a statute, viz., Sir Currimbhoy Ebrahim Baronetcy
Trust Act, IV of 1913, and had been all along assessed to tax as trustees of the assessee Trust in
the status of an association of persons. The income of the assessee included income from the two
flats Nos. 7 and 8 of certain property in Bombay, and of another property at Poona. Under the
Act of 1913, these properties were to be allowed to be occupied rent-free by the incumbent of the
office of Baronetcy for the time being in 1949. The then incumbent of that office was declared an
evacuee under the Evacuee Property Act and on the 21-11-1949, the Custodian of Evacuee
Property passed an order under section 7 of Ordinance No. 27 of 1949, declaring the said
properties as evacuee property, and further declaring that the right of residence given to C free of
rent would thenceforth vest into the Custodian. In view of the decision of the High Court,
however, the trustees ultimately admitted the claim of the Custodian that he was entitled to give
on rent the said property and receive the rent therefrom. In the assessment of the assessee, the
ITO held that the trustees continued to be the owners of the said properties in spite of the orders
passed by the Custodian, and assessed the income from the said properties as income of the
assessee under section 9. Assessee's appeal was allowed and the ITO was directed by the AAC to
delete the income of the said properties from the income of the assessee. On further appeal by
revenue, Tribunal accepted the department's contention that, although the interest of the evacuee
had now vested in the Custodian, the ownership of the properties still continued to vest in the
trustees and the income of the properties was liable to be assessed in the hands of the trustees as
heretofore. It accordingly allowed the appeal filed by the department.
On reference :
HELD

Under Act of 1913, the legal ownership of the properties in question was vested in the trustees.
The incumbent of the Baronetcy for the time being had only a right to occupy the said properties
without paying any rent. He had no other claim or interest in respect of the said properties. The
income of property which was to be computed under section 9 was the income of the owner of the
property and, therefore, of the trustees in whom the ownership was vested. As has been held by
the same Court in D.M. Vakil v. CIT[1946] 14 ITR 298, the income from property is an
artificially defined income and the liability arises from the fact that the assessee is the owner of
the property. The liability does not depend on the power of the owner to let the property and it
also does not depend upon the capacity of the owner to receive the bona fide annual value. There
was no doubt and it was also not disputed by the assessee, that before the vesting of the interest
of the Baronet in the Custodian the income from these properties was assessable in the hands of
the trustees. The vesting of the said interest of the Baronet in the Custodian, could not in any way
affect the said position. The criterion of assessment under section 9 is the ownership of the
property and, so far as the ownership of property was concerned, there had been no change by
the interest of the Baronet having vested in the Custodian. That the trustees were not in a
position to obtain any rent from the properties was not material since the liability of the trustees
as owners of the properties did not depend upon their power to let the properties nor on their
capacity to receive income therefrom. It was therefore, to be held that the Tribunal was right that
the ownership of the properties still vested in the trustees and income therefrom had to be
computed under section 9 in hands of assessee-trustees under section 9.
As to the question whether the rent receivable by the Custodian of Evacuee property in respect of
the said properties could be considered to be a charge within the meaning of section 9(1)(iv) ,
and, whether it could be regarded as income effectively alienated at the source and, therefore,
not income assessable in the hands of the trustees, the answer to the first of these question will
be clearly in the negative on a mere perusal of the provisions of section 9(1)(iv) and the counsel
also had very fairly not attempted to support the contention that it would be a charge as it
specified in section 9(1)(iv) . As to the latter part of the contention that it was income alienated
at the source, the said contention was also not well founded. The income computed under section
9 is not real or the actual income received, but is an artificially defined income computed on the
basis of the bona fide letting out. This is the income for tax purposes of the owner which flows
from his ownership of the property and, so long as the ownership remains vested in him, the
liability in respect of the income attaches to him. Even before the interest of the Baronet vested
in the Custodian, the trustees were not getting income of the property. It could not therefore, be
said that it was as a result of the Baronet having been declared evacuee, and his interest having
been vested in the Custodian, that there had been an alienation of the income at the source.
Therefore, the rent receivable by Custodian could not be considered a charge within meaning of
section 9(1)(iv) and it did not constitute an effective alienation at source.
Note : The case was decided against the assessee.
SUPREME COURT OF INDIA
East India Housing and Land Development Trust Ltd.
v.
Commissioner of Income-tax*
S.K. DAS, M. HIDAYATULLAH AND J.C. SHAH, JJ.
CIVIL APPEAL NO. 157 OF 1958
NOVEMBER 2, 1960

Section 22 of the Income-tax Act, 1961 [corresponding to section 9 of the Indian

Income-tax Act, 1922] - Income from house property - Chargeable as -
Assessment year 1953-54 - Whether income derived by assessee company from
tenants of shops and stalls was income received from property falling under
section 9 of 1922 Act and character of that income could not be altered merely
because assessee company had been formed with object of setting up and
developing landed properties and markets - Held, yes
FACTS

The appellant assessee was a registered private company incorporated with the objects, amongst
others, to buy and develop landed properties and to promote and develop markets. The appellant
purchased certain land and set up a market therein and constructed shops and stalls on platform
on that land. During the relevant assessment year, the appellant received income from tenants of
shops and from the tenants or occupants of stalls.
The ITO assessed the income derived from shops and stalls under section 9 of 1922 Act. The
order of assessment was confirmed in appeal by the AAC and by the Tribunal. The appellant
obtained special leave to appeal against the Tribunal's order.
On appeal to the Supreme Court:
HELD
The appellant is undoubtedly, under the provisions of the Calcutta Municipal Act, 1951, required
to obtain a licence from the Corporation of Calcutta and to maintain sanitary and other services
in conformity with the provisions of that Act and for that purpose has to maintain a staff and to
incur expenditure. But, on that account, the income derived from letting out property belonging
to the appellant does not become "profits or gains" from business within the meaning of sections
6 and 10 of 1922 Act. By section 6 of 1922 Act the following six different heads of income are
made chargeable: (1) salaries, (2) interest on securities, (3) income from property, (4) profits
and gains of business, profession or vocation, (5) income from other sources and (6) capital
gains. This classification under distinct heads of income, profits and gains is made having
regard to the sources from which income is derived. Income-tax is undoubtedly levied on the
total taxable income of the taxpayer and the tax levied is a single tax on the aggregate taxable
receipts from all the sources; it is not a collection of taxes separately levied on distinct heads of
income. But the distinct heads specified in section 6 of 1922 Act indicating the sources are
mutually exclusive and income derived from different sources falling under specific heads has to
be computed for the purpose of taxation in the manner provided by the appropriate section. If the
income from a source falls within a specific head set out in section 6 of 1922 Act, the fact that it
may indirectly be covered by another head will not make the income taxable under the latter
head.
The income derived by the company from shops and stalls is income received from property and
falls under the specific head described in section 9 of 1922 Act. The character of that income is
not altered because it is received by a company formed with the object of developing and setting
up markets. The income received by the appellant from shops was indisputably income from
property; so was the income from stalls from occupants. The character of the income was not
altered merely because some stalls remained occupied by the same occupants and the remaining
stalls were occupied by a shifting class of occupants. The primary source of income from the
stalls was occupation of the stalls, and it was a matter of little movement that the occupation
which was the source of the income was temporary. The income-tax authorities were, therefore,
right in holding that the income received by the appellant was assessable under section 9 of 1922
Act.
The appeal, therefore, failed and was dismissed.
In Fry v. Salisbury House Estate Ltd. [LR (1930) AC 432] a company formed to acquire, manage and deal
with a block of buildings having let out the rooms as unfurnished offices to tenants was held chargeable
to tax under Schedule A to the Income Tax Act, 1918 and not Schedule D. The company provided a staff
to operate the lifts and to act as porters and watch and protect the building and also provided certain
services, such as heating and cleaning to the tenants at an additional charge. The taxing authorities
sought to charge the income from letting out of the rooms as receipts of trade chargeable under
Schedule D, but that claim was negatived by the House of Lords holding that the rents were profits
arising from the ownership of land assessable under Schedule A and that the same could not be included
in the assessment under Schedule D as trade receipts. 5

Commercial Properties Ltd. v. CIT [(1928) 3 ITC 23] income derived from rents by a company whose sole
object was to acquire lands, build houses and let them to tenants and whose sole business was
management and collection of rents from the said properties, was held assessable under Section 9 and
not under Section 10 of the Income Tax Act. It was observed in that case that merely because the owner
of the property was a company incorporated with the object of owning property, the incidence of
income derived from the property owned could not be regarded as altered; the income came more
directly and specifically under the head property than income from business.

In the United Commercial Bank Ltd., Calcutta v. CIT [(1958) SCR 79] this Court explained after an
exhaustive review of the authorities that under the scheme of the Income Tax Act, 1922, the heads of
income, profits and gains enumerated in the different clauses of Section 6 are mutually exclusive, each
specific head covering items of income arising from a particular source.

SUPREME COURT OF INDIA

Commissioner of Income-tax
v.
Podar Cement (P.) Ltd.*
B.N. KIRPAL, K. VENKATASWAMI AND K.S. PARIPOORNAN, JJ.
TAX REFERENCE CASE NOS. 9-10 OF 1986
MAY 27, 1997

Section 22, read with sections 27 and 56, of the Income-tax Act, 1961 - Income
from house property - Chargeable as - Assessment years 1975-76 and 1976-77 -
Whether for purpose of section 22 'owner' is a person who is entitled to receive
income in his own right and as such, where a 'house property' is handed over to a
purchaser to enjoy fruits of that property by contractor/builder the purchaser is to
be treated as 'owner' of that property for purpose of section 22 even though no
registered documents as required under section 54 of the Transfer of Property
Act or the Registration Act are executed - Held, yes
Section 27(iii) of the Income-tax Act, 1961 - Income from house property - Deemed
owner - Whether amendment by Finance Act, 1987 with effect from 1-4-1988
relating to clauses (iii), (iiia) and (iiib) was declaratory/ clarificatory in nature and
as such, provisions are retrospective in operation - Held, yes
Words & phrases : Expression 'of which the assessee is the owner' as occurring
in section 22 of the Income-tax Act, 1961
Interpretation of statutes : Rule of beneficial construction
FACTS

The assessee-company purchased four flats from a builder and took possession thereof after
paying full consideration amount in 1973. It let out those flats and for that received rents. During
the assessment years 1975-76 and 1976-77 it claimed the rental income to be assessable as
'income from other sources' on the ground that it was not the 'owner' of the said flats as
ownership had not been transferred in its name. The Assessing Officer rejected the assessee's
claim and assessed the income under the head 'Income from house property' under section 22.
However, the Commissioner (Appeals) as well as the Tribunal accepted the claim of the
assessee.
On reference under section 257:
HELD

The controversy revolved around the meaning to be given to the words 'of which the assessee is
the owner' occurring in section 22 of the Act. In the Supreme Court decision in R.B. Jodha Mal
Kuthiala v. CIT [1971] 82 ITR 570, under section 9(1) of the 1922 Act, liability was fixed on a
person who received or was entitled to receive the income from the property in his own right.
The High Courts of Allahabad, Punjab and Haryana, Rajasthan, Calcutta and Patna have taken
the view by correctly understanding the ratio laid down in R.B. Jodha Mal Kuthiala's case
(supra) and the High Courts of Bombay, Delhi and Andhra Pradesh have taken a different view
wrongly distinguishing facts in R.B. Jodha Mal Kuthiala's case (supra). The High Courts are
sharply divided on this issue, one set of High Courts taking the view that the
promoters/contractors after parting with possession on receipt of full consideration thereby
enabling the 'purchasers' to enjoy the fruits of the property, even though no registered document
as required under section 54 of the Transfer of Property Act was executed, can be 'owner' for the
purpose of section 22. The other set of High Courts such as Delhi, Bombay and Andhra Pradesh
have taken a contrary view holding that unless a registered sale document transferring the
ownership as required under the Transfer of Property Act is executed, the so-called purchasers
cannot become owner for the purpose of section 22. The law laid down in R.B. Jodha Mal
Kuthiala's case (supra) has been rightly understood by the High Courts of Punjab and Haryana,
Patna, Rajasthan, etc., and the requirement of registration of the sale deed in the context of
section 22 is not warranted. Assuming that there are two possible interpretations on section 22,
which is akin to a charging section, it is well settled that one which is favourable to the assessee
has to be preferred. Even on that principle the view taken by the High Courts of Patna, Punjab
and Haryana, etc., has to be preferred rather than the contrary view taken by the High Courts of
Delhi and Andhra Pradesh.
The view expressed above is strengthened/supported by a subsequent amendment to section 27 of
the Act. The said amendment was introduced to section 27 by the Finance Act, 1987 by
substituting clauses (iii ), (iiia) and (iiib) in place of old clause (iii) with effect from 1-4-1988.
The amendment of section 27 was intended to supply an obvious omission or to clear up doubts
as to the meaning of the word 'owner' in section 22. The amendment introduced by the Finance
Act, 1987 was clarificatory in nature so far as it relates to section 27(iii), (iiia) and (iiib ).
Consequently, these provisions are retrospective in operation and, thus, view taken by Patna,
Rajasthan, Punjab and Haryana High Courts, etc., gets added support and is good law.
Though under the common law 'owner' means a person who has got valid title legally conveyed
to him after complying with the requirements of law such as the Transfer of Property Act, the
Registration Act, etc., but in the context of section 22 having regard to the ground realities and
further having regard to the object of the Act, namely, 'to tax the income', 'owner' is a person
who is entitled to receive income from the property in his own right.
Therefore, the Tribunal was not justified in holding that the income derived by the assessee-
company from the flats was taxable under the head 'Income from other sources'.
 SUPREME COURT OF INDIA
R.B. Jodha Mal Kuthiala
v.
Commissioner of Income-tax*
K.S. HEGDE AND A.N. GROVER , JJ.
CIVIL APPEAL NOS. 1970 TO 1973 OF 1968
SEPTEMBER 9, 1971

Section 22 of the Income-tax Act, 1961 [Corresponding to section 9 of the Indian

Income-tax Act, 1922] - Income from house property - Chargeable as -
Assessment years 1952-53, 1955-56 and 1956-57 - Assessee was half owner of a
hotel in Lahore - With creation of Pakistan said hotel was declared an evacuee
property and consequently, vested in Custodian in Pakistan - As per relevant
Evacuee Property Ordinance All rights that evacuee had in property he left in
Pakistan were exercisable by Custodian excepting that he could not appropriate
proceeds for his own use - ITO held that since property in question vested in
Custodian, no income or loss from that property could be considered in
assessee's case - However, Tribunal held that assessee still continued to be
owner of property for purpose of computation of loss - Whether section 9 of 1922
Act brings to tax income from property and not interest of a person in that
property, and therefore, for purpose of section 9 of 1922 Act, owner must be that
person who could exercise rights of owner, not on behalf of owner but in his own
right - Held, yes - Whether therefore, though assessee had residual interest in
property left in Pakistan, he was not owner of said property for purpose of
section 9 of 1922 Act - Held, yes
FACTS

The assessee-firm deriving income from interest on securities, etc. had purchased a hotel in
Lahore by raising loans from a bank as well as from one 'R'. The bank loan was partly repaid.
Thereafter, by an arrangement, 'R' accepted a half share in the said property in lieu of the loan
advanced and also one-third of the outstanding liability of the bank. With the creation of
Pakistan, the hotel was declared an evacuee property and, consequently, vested in the custodian
in Pakistan.
For the assessment years 1952-53, 1955-56 and 1956-57, the assessee claimed losses on account
of interest payable to the bank, but showed the gross annual letting value from the said property
at nil. Since the property had vested in the custodian in Pakistan, the ITO held that no income or
loss from that property could be considered in the assessee's case, and, thus, disallowed the
assessee's claim in respect of interest paid to the bank. On second appeal the Tribunal held that
the assessee still continued to be the owner of the property for the purpose of computation of
loss, and, therefore, the interest paid was a deductible allowance under section 9(1)(iv).
On reference, the High Court was of the opinion that for the purpose of section 9, the assessee
could not be considered as the owner of that property.
On appeal before the Supreme Court:
HELD

The evacuee property ordinance 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 settings of that estate. It is a power to deal with the
estate. The evacuee could not take possession of his property. He could not lease that property.
He could not sell that property without the consent of the Custodian. He could not mortgage that
property. He could not realise the income of the property. On the other hand, the Custodian
could take possession of that property. He could realise its income. He could alienate the
property and he could under certain circumstances demolish the property. All the rights that the
evacuee had in the property he left in Pakistan were exercisable by the Custodian excepting that
he could not appropriate the proceeds for his own use. The evacuee could not exercise any rights
in that property except with the consent of the Custodian. He merely had some beneficial interest
in that property. No doubt that residual interest in a sense is ownership. The property having
vested in the Custodian, who had all the powers of the owner, he was the legal owner of the
property. In the eye of the law, the Custodian was the owner of that property. Section 9 brings to
tax the income from property and not the interest of a person in the property. A property cannot
be owned by two persons, each one having independent and exclusive right over it. Hence, for
the purpose of section 9, the owner must be that person who can exercise the rights of the owner,
not on behalf of the owner but in his own right. It is true that equitable considerations are
irrelevant in interpreting tax laws. But, those laws, like all other laws, have to be interpreted
reasonably and in consonance with justice. No one denies that an evacuee from Pakistan had a
residual right in the property left by him in Pakistan. Section 9 sought to bring to tax income of
the property in the hands of the owner. Hence, the focus was on the receipt of income.
Hence, the assessee was not the owner of the hotel during the relevant assessment year for the
purpose of section 9.
Note : The case was decided in favour of revenue.
Nawab Bahadur of Murshidabad v. Commissioner of Income-tax, West Bengal [28 ITR 510]. The facts
of that case were: Properties which belonged to the ancestors of the Nawab of Murshidabad as Rulers,
were, some time after the territories had been conquered by the British, settled by the Secretary of
State for India in the year 1891 on the then Nawab of Murshidabad under a deed of settlement which
provided that such properties ―shall henceforth and for ever be held and enjoyed by the said Nawab
Bahadur and such one among his lineal male heirs as may be successively entitled to hold the said title in
perpetuity, with and subject to the incidents, powers, limitations and conditions as to the inalienability
and otherwise hereinafter contained‖. One of the conditions was that he was not entitled to sell or
alienate the properties except with the approval of the Governor of Bengal. The Settlement deed was
confirmed by Act XV of 1891. The question arose whether Nawab of Murshidabad was liable to pay tax
in respect of the income of those properties under Section 9 of the Act. The Court held that whatever
might have been the original nature of the ―State properties‖, after the deed of settlement and the Act
of 1891, as the dual status of the Nawab as the bolder of the state and as an individual ceased, it could
not be said that the Nawab for the time being was not the ―owner‖ of such properties for the purposes
of Section 9 of the Act and the Nawab was therefore liable to be assessed to income-tax on the income
of such properties. The Court further held that the word ―owner‖ in Section £9 of the Act applies to
owners of the whole income, even though they are under certain restrictions with regard to the
alienation of the properties. We are unable to see how this decision gives any support to the
contentions advanced on behalf of the assessee. 22

Nawab Bahadur of Murshidabad

v.
Commissioner of Income-tax*
CHAKRAVARTTI, C.J.
AND LAHIRI, J.
INCOME-TAX REFERENCE NO. 16 OF 1953
SEPTEMBER 3, 1954

Section 22 of the Income-tax Act, 1961 (Corresponding to section 9 of the Indian

Income-tax Act, 1922) - Income from house property - Chargeable as -
Assessment years 1944-45 to 1947-48 - Assessee was Nawab Bahadur of
Murshidabad – A deed of settlement was executed by and between Secretary of
State for India and then Nawab Bahadur where under certain properties were
forever to be held and enjoyed by Nawab Bahadur and such one among his lineal
heirs male as might be successively entitled to hold said titles in perpetuity with
and subject to condition that Nawab Bahadur or any of his successors to titles
held by him would have no power to sell, mortgage, devise or alienate any of
house properties except with approval of Governor of Bengal - Even long title of
Murshidabad Estate Administration Act, 1933 showed that properties in question
were properties of Nawab Bahadur – Whether though certain restrictions were
imposed with regard to disposition of properties, assessee was owner of
properties in question who was entitled to whole income and was, thus, rightly
assessed in respect of them under Section 9 of 1922 Act -Held, yes
Section 11 of the Income-tax Act, 1961 (Corresponding to section 4(3)(i) of the
Indian Income-tax Act, 1922) - Charitable or religious trust - Exemption of income
from property held under - Assessment years 1944-45 to 1947-48 - Assessee
derived income from certain Imambara - It was found that assessee owned said
Imambara and Municipality had not exempted said Imambara from general tax - It
was further found that there was no evidence that Maharam was celebrated in it
or if it was celebrated, public were entitled to participate in celebrations - It had
not been established that Imambara was one endowed for a public religious or
charitable purpose or that any portion of it was mausoleum or a tomb - Whether
in view of above findings, it could not be held that income from Imambara was
exempt from taxation - Held, yes
Section 10(1) of the Income-tax Act, 1961 (Corresponding to section 4(3)(viii) of
the Indian Income-tax Act, 1922) - Agricultural income – Assessment years 1944-
45 to 1947-48 - Assessee claimed exemption of income derived from forest
produce - It was found that forest consisted of trees of spontaneous growth and
only circumstance that was relied upon in support of claim of exemption was that
a staff was maintained for purpose of watching supervising and marking of trees
which were not to be cut down there was no evidence led to show that anything
in nature of cultivation or in nature of operation of soil had been carried out –
Whether, on facts, assessee was not entitled to exemption under section 4(3)(viii)
of 1922 Act in respect of income from forest produce - Held, yes
FACTS

The assessee was that Nawab Bahadur of Murshidabad. A deed of settlement was executed by
and between the Secretary of State and the then Nawab Bahadur whereunder he surrendered his
claim to the status of Nawab Nazim in lieu of the titles of Nawab Bahadur and Amir-ul-Omrah.
The said deed made provision with regard to some properties which were thenceforth and forever
to be held and enjoyed by the said Nawab Bahadur and such one among his lineal heirs male as
may be successively entitled to hold the said titles in perpetuity with and subject to the incidents,
powers, limitations and conditions as to inalienability and otherwise one of those conditions was
that the Nawab Bahadur or any of his successors to the titles held by him would have no power
to sell, mortgage, devise or alienate the properties or any of them otherwise than by lease or
demise, the terms and conditions of which had been previously approved by the Governor of
Bengal in Council. These words were substituted for the words "for a term not exceeding twenty-
one years and under a rent without bonus or selamee". For the relevant assessment years the
assessee was assessed on a certain amount as his income from property, on a second amount as
his income from a certain Imambara and on a third amount as his income from forest produce.
As regards his income from other sources, he was allowed collection charges at the rate of 12½
per cent. His contention was that he was not liable to be assessed on any income from property at
all because he was not the owner of the properties which had been taken into account that the
Imambara was held under a trust wholly for religious purposes, and, therefore, the income
derived from it was exempt from taxation that the income from forest produce was agricultural
income and that the rate at which collection charges had been allowed was unduly low.
On reference :
HELD

The effect of the deed of settlement and the Murshidabad Act, 1891 was clearly to reduce the
Nawab to the State of an ordinary zamindar, owning and holding his properties, although the
exercise of the rights of ownership was placed under restraint in many respects. His position
became virtually like that of the zamindars under the Encumbered Estates Acts who are owners
of their properties, but whose freedom to deal with them is severely restricted. As the status of a
Nawab Nazim ceased to exist and as the Nawab of Murshidabad was no longer to be regarded as
a Ruler holding a State in any sense, a duality of status as the holder of the State and as an
individual ceased to be possible in his case with the deed of settlement and the Murshidabad Act,
1891.
The word 'State' really meant the State of Murshidabad or the State of the Nawab Nazim. The
Government of the country were not the owners of the said property at any time and they were
not the owners now. Thus, any right of ownership in the Government was out of the question.
If the ownership be not in the Government, it must be in some one and it appeared that it could
be in no one other than the Nawab Bahadur himself. Indeed, unless he was the owner and had the
right to deal with and dispose of the properties in that capacity, there could be no meaning in
putting his rights of disposition under restraint. Nor could there be any meaning in section 5 of
the Act of 1891 providing that the properties would descent from Nawab to Nawab. It was
perfectly clear that when the deed said that the properties would be "held and enjoyed by the
Nawab Bahadur" it used words of conveyance in the habendum clause and when it proceeded to
impose limitations on the Nawab's rights of transfer, it did so on the basis that the Nawab use the
owner of the properties and without such limitations would have unfettered rights to deal with
them. Even the bar imposed by the deed of settlement was not absolute since the Nawab Bahadur
was only restrained from making a demise except with the approval of the Governor of Bengal.
Accordingly, the concept on which the deed of settlement was based and its actual provisions
both made it clear that the Nawab Bahadur was made the owner of the properties, subject to
certain restrictions as regards the right of alienation as distinguished from the holder of them for
the time being, which was possible and appropriate when the Nawab was a Nawab Nazim and he
had a notional State.
There are certain indications to show that the Legislature itself regarded the Nawab as the
owners of the properties whenever it had occasion to refer to them. The preamble to the Act of
1873 spoke of "the said Nawab Nazim and his property" and the long title of the Murshidabad
Estate Administration Act, 1933 was: "An Act to provide for the appointment of a Manager on
behalf of the Secretary of State of the properties of the Nawab Bahadur of Murshidabad and to
define the powers and duties of the Manager". Thus, the long title of the Murshidabad Estate
Administration Act did show that, in the view of that Act, the properties referred to in it were
properties of the Nawab Bahadur.
In the instant case the ownership could not be shown to lie vested in anyone else, nor was anyone
else entitled to the income or the annual value. The case was one of a full owner who was
entitled to the whole income, but who was under certain restrictions with regard to the
disposition of the properties. It could not be held that a person in such a position was not an
owner as contemplated by section 9 of the 1922 Act.
Thus, the assessee in the instant case was rightly regarded as the owner of the properties and was
rightly assessed in respect of them under section 9 of the 1922 Act.
Regarding the exemption of the income from Imambara, it was found that the assessee owned the
Imambara and that it had not been established that the Imambara was one endowed for a public
religious or charitable purpose or that any portion of it was mausoleum or a tomb. It had also
been found that there was no evidence that the Maharam was celebrated in it or if it was
celebrated, the public were entitled to participate in the celebrations.
The municipality, it had been found further, had not exempted the Imambara from the general
tax. In view of those findings which must be accepted and proceeded upon, it could not be held
that the income from the Imambara was exempt from taxation.
In respect of the forest produce it was found that the forest consisted of sal trees which were of
spontaneous growth and it was said that the only circumstance that was relied upon in support of
the claim of exemption was that a staff was maintained for the purpose of watching, supervising
and marking of the trees which were not to be cut down. There was thus, according to the
Tribunal, no evidence led to show that anything in the nature of cultivation or in the nature of
any operation on the soil had been carried out. The assessee had been given sufficient
opportunity by the ITO to produce evidence, but none had been produced. The High Court, as a
Court of reference, must proceed on the basis of the facts found and submitted by the statement
of case. On those facts, the assessee's claim of exemption on the ground that the income was
agricultural income had not been made out.
An estimate of the collection charges which ought to be allowed was not and could not a matter
of law, unless it be that some statute had laid down some principle somewhere which had not
been followed. It was not contended that any principle had been laid down in the Act or under
the rules to which no attention had been paid. The question was one of pure fact and hence, did
not arise.
Note : The case was decided in favour of revenue.
The Commissioner of Inland Revenue v. Fleming [14 TC 78]. That appeal related to a claim for
repayment of income-tax to which the respondent claimed to be entitled in respect of ―personal
allowance‖ introduced into the Income-tax system by Section 18 of the Finance Act, 1920. The claim
arose in the following circumstances: The respondent was declared insolvent in 1921. He was then
the owner of heritable properties. His insolvency lasted till May 10, 1926. When he received his
discharge on payment of composition and was reinvested in his estate. At that time his estate consisted
of, (1) Two of the original heritable properties which had not been realised by the trustee in the
insolvency and (2) a balance in cash of £53 odd. During the insolvency, the trustee paid income-tax on
the full annual value of the two properties in question. The contention of the respondent was that the
radical right to these properties was in him all the time, and that, in paying the tax, the trustee was
really paying it on his behalf - that is on his income - and that consequently there arose in each of the
years in which the payment was made a right to deduct his ―personal allowance‖ from the annual value
of the properties. The right to this abatement is said to have passed to the Respondent himself in virtue
of the reinvestment in his estate which occurred upon his discharge on composition. Rejecting this
contention Lord Presided observed: It is obvious that, unless during the years in question the annual
value of the properties was income of the Respondent, he cannot have any claim to abatement of it for
income-tax purposes; and accordingly everything depends upon the soundness of the proposition that
the income consisting in the annual value of those properties was truly income of the Respondent. I do
not see how it can possibly be so described. It was part of the income arising from the sequestrated
estates vested in the trustee for the Respondent‘s creditors. Any income that did arise from those
estates was income of the trustee as such, and he (and he alone) had the right to put it into his pocket
as income. It was not income that went or could go into the pocket of the Respondent as income in any
of the years in question. How then can it be said to have reached his pocket as income on his
subsequent reinvestiture. For determining the person liable to pay tax, the test laid down by the court
was to find out the person entitled to that income.

Raja P.C. Lall Choudhary

v.
Commissioner of Income-tax*
 AGARWALA, CJ.
AND MEREDITH, J.
MISC. JUDICIAL CASE NO. 119 OF 1946
MARCH 19, 1948

Section 22 of the Income-tax Act, 1961 [Corresponding to section 9 of the Indian

Income-tax Act, 1922] - Income from house property - Chargeable as -
Assessment year 1943-44 - Whether for property subject to a mortgage,
mortgagor is person liable for tax within meaning of section 9 of 1922 Act – Held,
yes
FACTS

The assessee borrowed money from some persons, and, in order to secure the loan, executed a
mortgage in the English form, transferring the mortgaged property absolutely to the mortgagees,
but subject to a proviso for re-transfer to the mortgagor on payment of the mortgage money as
agreed. The mortgagees brought an action upon the mortgage, and, during the pendency of the
suit the High Court appointed a receiver of the rents, issues and profits of the immovable
properties comprised in the mortgage with power to him to get in and collect the outstanding
debts and claims due in respect of the said property and with all the powers provided for in Order
XL, Rule 1, clause (d), of the Code of Civil Procedure, 1908. The mortgagor defendants and all
persons claiming under them were directed to deliver up quiet possession of the said property to
the receiver and the receiver was given liberty to pay one half of the net collection accumulated
in his hands after payment of his commission and other expenses to the plaintiffs and the other
half to the defendants. The receiver accordingly took possession. The annual value of the house
property in the possession of the receiver was determined at certain amount and the ITO brought
under assessment the annual value in the hands of the assessee on the footing that the assessee
was liable under section 9. The AAC as well as the Tribunal upheld the assessment.
On reference :
HELD

Section 9 itself lays down that where the property was subject to mortgage, the mortgagor would
still be regarded as the owner liable to pay the tax.
The word "mortgage" is used without any qualification or limitation to any particular form of
mortgage, and will, therefore, include a mortgage in English form. The provision means,
therefore, that where the property is under mortgage the person liable for the tax will be entitled
to an allowance for the amount of any interest on the mortgage. This can only refer to the
mortgagor who is liable for the interest. So far property subject to a mortgage, the mortgagor is
the person liable to tax within the meaning of section 9.
That a receiver appointed under Order XL, Rule 1, of the Code of Civil Procedure, 1908 is not an
owner indeed appears from the wording of the rule itself. Rule 1(1)(d) provides that the Court
may by order "confer upon the receiver all such powers, as to bringing and defending suits and
for the realization, management, protection, preservation and improvement of the property, the
collection of the rents and profits thereof, the application and disposal of such rents and profits,
and the execution of documents as the owner himself has, or such of those powers as the Court
thinks fit." The use of the words "as the owner himself has" shows clearly that the receiver is
some one others, than the owner.
Therefore, the owner under the terms of the section must be the mortgagor and cannot be either
the mortgagee or the receiver appointed by the Court.
Note : The case was decided in favour of the revenue.
Trustees of Sir Currimbhoy Ibrahim Baronetcy Trust
v.
Commissioner of Income-tax*
LORD BLANESBURGH, LORD MERRIVALE AND
SIR SYDNEY ROWLATT

FEBRUARY 26, 1934

Section 160, read with section 4 of the Income-tax Act, 1961 [Corresponding to
section 42 read with section 3 of the Indian Income-tax Act, 1922] - Trust/trustees
- Assessment of - Whether scheme of income-tax is that there is to be a statement
of total income of assessee from which is to be deducted for purpose of
assessing income-tax, but not of super-tax, nor for purpose of any graduation of
income-tax by reference to total income, amounts of interest on tax free
securities and of dividends and shares of profits already taxed - Held, yes -
Appellants were a body of trustees incorporated by Act IV of 1913 of Indian
Legislature, for settling certain properties belonging to a Baronet and for
executing trusts, powers and purposes of Act - Certain properties were vested in
Corporation upon trust and Corporation was to pay all rates and taxes out of
income of properties and to maintain two funds, called Sinking Fund and Repair
Fund out of income earned - During assessment, appellants were assessed to
income-tax and super-tax in respect of income of trust - Whether it could not be
said that appellants employed money in maintaining Sinking Fund and Repairs
Fund and in defraying outgoings so they could not be assessed to tax - Held, yes
- Whether effect of Act creating trusts was not to give Baronet for time being any
right to which, even granting that legal title was not only thing that could ever be
looked at, would make it true to say that any proportion of interest was not
'received' or any proportion of property was not 'owned' by incorporated trustees
- Held, yes - Whether since it was not until those liabilities had been met there out
by Corporation that Baronet was entitled to what remained and then simply as so
much money, and, therefore, assessment on appellants could not be disturbed -
Held, yes
FACTS

The appellants were a body of trustees incorporated by Act IV of 1913 of the Indian Legislature,
for settling certain properties belonging to a Baronet, so as to accompany and support the title
and dignity of a Baronet and for other connected purposes. The appellants were incorporated as
trustees for executing the trusts, powers and purposes of the Act, certain freehold and leasehold
properties were vested in the Corporation upon trust. The Corporation was to pay out of the
income from the properties all rates and taxes and it formed two funds, called the Sinking Fund
and the Repair Fund out of the income earned. During assessment, the income of the appellants
was assessed under three heads namely interest on tax free securities, interest on taxed securities
and property. The appellants objected to their liability to be assessed to income-tax and super-tax
in respect of the income of the trust as regards the whole or any part of it, on the ground that they
were not beneficially interested in the trust. However, the High Court held that the appellants
were liable to be assessed in respect of the income of the trust.
On appeal to the Privy Council:
HELD

For the year to which the instant case related income-tax and super tax, both at graduated rates,
were leviable by virtue of the Finance Act.
The scheme of the income-tax is that there is to be a statement of the total income of the assessee
from which is to be deducted for the purpose of assessing income-tax, but not of super-tax, nor
for the purpose of any graduation of income-tax by reference to total income, the amounts of
interest on tax free securities and of dividends and shares of profits already taxed.
In the result it was clear that so far at least as concerned the money which in the instant case the
appellants employed in maintaining the Sinking Fund and the Repair Fund and in defraying
outgoings no support was to be found in the opinions delivered in Williams v. Singer for the
contention that the appellants could not be assessed. Their effect was exactly the contrary, and in
the end that contention (which would have the effect of exempting that income from all
assessments whatever) was not strongly insisted upon.
The effect of the Act creating the trusts was not to give the Baronet for the time being any right to
any part of the interest or property specifically or any right which, even granting that the legal
title was not the only thing that can ever be looked at, would make it true to say that any
proportion of the interest was not 'receivable' or any proportion of the property was not 'owned'
by the incorporated trustees.
The whole income and every part of it was charged with the provision of the sums necessary to
maintain the Sinking Fund and Repair Fund and to pay the outgoings and it was not until those
liabilities had been met there out by the Corporation that the Baronet was entitled to what
remained and then simply as so much money.
It was suggested that if the appellants were to be assessed as had been done, it would result in
double taxation because the Baronet would also be liable to be assessed on what be received
from the trust and also that the assessment of trustees involved the graduation of the tax being
applied with reference to the total income of the trustees, including that derived from other trusts
or even belonging to them personally, and that, on the other hand, there would be no graduation
with reference to the total income of the beneficiary either in his favour, where he enjoyed only a
small benefit out of large estate with slender other resources, or in favour of the revenue in other
cases.
As regards the question of double taxation, the point did not call for any expression of opinion
on the instant occasion. If and when it comes up for decision it may or may not be found that that
was the position. As regards the graduation it may be that it would be found compatible with the
scheme and machinery of the Act to have the scale of tax adjusted according to the total income
of the Baronet individually. The possibility of such a step which might be either advantageous or
disadvantageous to the Baronet could not be discussed except in proceedings between the
Baronet and the revenue. The instant decision went no further than to affirm that the assessments
on the appellants could not be disturbed.
Accordingly the instant appeal filed by the appellant – trust was dismissed.
Note : The case was decided in favour of the revenue.
HIGH COURT OF CALCUTTA
Official Assignee For Bengal
(Estate of Jnanendra Nath Pramanik), In re
COSTELLO AND PANCKRIDGE, JJ.
IT REFERENCE NO 12 OF 1936
JANUARY 28, 1937

Section 22 of the Income-tax Act, 1961 [Corresponding to section 9 of the Indian Income-tax Act, 1922] - Income from
house property - Chargeable as - One ‘J’ was adjudged insolvent by order of High Court - Whether in view of fact that
house property of ‘J’ vested in official Assignee by virtue of provisions of section 17 of Presidency Towns Insolvency Act,
he became owner of that property within meaning of section 9 of 1922 Act and was assessable as such - Held, yes
FACTS
One ‘J’ was adjudged an insolvent by an order of the High Court. Consequently all his estate and effects vested in the official
assignee by virtue of the provisions of section 17 of the Presidency Towns Insolvency Act. The official assignee since the date of
the adjudication had been administering the estate of the insolvent. That estate consisted of certain house properties. The ITO
took the view that the official assignee was a person falling within the purview of section 41 of 1922 Act and, accordingly, he
issued upon him a notice under section 22(2) of 1922 Act requiring him to submit a return of income of the insolvent’s estate. In
reply to that notice, the official assignee wrote a letter to the Income-tax Officer in which he intimated that no statement of
income in an insolvent estate could be rendered and that all that he could do in the matter was to send a statement of the
deficiency account as disclosed in the schedule of affairs which was filed by the insolvent.
The ITO opined that as the legal ownership of the property remained vested in the official assignee and as before the ultimate
disposal of the property it produced income, profits or gains and as such income, profits or gains were receivable and received by
the official assignee he was a person who was bound in accordance with the provisions of the Act to submit a return. No return
was, however submitted and accordingly, the ITO exercised the powers conferred on him by section 23(4) of 1922 Act and made
an assessment to the best of his judgment.
On appeal, the Commissioner held that when property vested in the official assignee under the provisions of the Presidency
Towns Insolvency Act he became the owner of the property within the meaning of section 9 of 1922 Act, and consequently, in
the case of house property, tax became payable by the official assignee in respect of the bona fide annual value of the property
which had vested in him.
On reference :
HELD

The property had become entirely vested in the official assignee and that the income derived
from the said property became the income of the official assignee for the purpose of income tax
and so subject to taxation. In the instant case the income was in the nature of statutory income
arrived at upon the basis of the bona fide annual value of the property in question. On the
authority of the case on general principles arising out of the provisions of section 17 of the
Presidency Towns Insolvency Act it is right to say that the official assignee was the owner of the
property which was the subject matter of the particular assessment. Upon that view of the
matter, it was not necessary to consider, whether or not the provisions of section 41 of 1922 Act
could be prayed in aid by the Income-tax authority for the purpose of extracting tax from the
official assignee in the circumstances such as the present. Nor it was necessary to consider
whether there were any other assets which might have come into the hands of the official
assignee in connection with this particular insolvency. All the Court was concerned with was the
property which was the subject-matter of the particular assessment.
In such a situation, the Commissioner was right in his view that the official assignee was a
person liable to assessment and that the official assignee was rightly assessed under the
provisions of section 9 of 1922 Act.
Note : The case has been decided in favour of the revenue.