Jodha Mal Kuthiala Vs. Commissioner of
Income Tax, Punjab, Jammu & Kashmir, Himacha  INSC 241 (9 September
CITATION: 1972 AIR 126 1972 SCR (1) 639 1971
SCC (3) 369
R 1984 SC 420 (38) E&D 1987 SC 522 (17)
Income-tax Act, s. 9(1)-Property left by
evacuee in Pakistan-Administered by Custodian under provisions of Pakistan
(Administration of Evacuee Property) Ordinance 15 of 1949-Evacuee whether
continues. ,owner' of property for purpose of s. 9 of the Income-tax Act, 1922.
The assessee was a .,registered firm deriving
income from securities, property, business and othersources. In 1946 it
purchased a hotel in 'Lahore for a sum of Rs. 46 lacs.
For that purpose it raised a loan of Rs. 30
lacs from a bank and a loan of Rs. 18 lacs from one R. The 'loan taken from
the, bank was largely repaid but with R the assessee came to an agreement
whereby R accepted a half share in the said property in lieu of the loan
advanced and-. also 1/3rd of the outstanding liability of the bank. This
arrangement came into effect on November 1, 1951. After the creation of
Pakistan, Lahore became a part of Pakistan and the hotel in question was
declared evacuee property. As such it came to vest in the Custodian in
Pakistan. In its returns for the assessment years 1952-53, 1955-56 and 1956-57
the assessee claimed certain amounts as losses on account of interest payable
to the bank but showed the gross annual letting value from the said property at
Nil. The Income-tax Officer held that since the property had vested in the
Custodian no income or loss from that property could be considered in the
assessee's case. The Appellate Assistant Commissioner confirmed the order of
the Income-tax Officer. The Appellate Tribunal however came to the conclusion
that the assessee still continued to be the owner of the property for the
purpose of the computation of loss, and the interest paid was a deductible
allowance under s. 9(1) (iv) of the Income-tax Act, 1922. In. reference the
High Court on an analysis of the various provisions of the Pakistan
(Administration of Evacuee Property) Ordinance.15 of. 1949 came to the
conclusion that for the purpose of s. 9 of the Act-the assessee could not be
considered as the owner of that property: 'In the assesee's appeal to this
Court it was contended that the property vested in the Custodian only for. the
purpose of administration and the assessee still continued to be itsowner.
HELD : Under the Pakistan (Administration of
Evacuee Property) Ordinance 1949 the evacuee could not take possession of his
property. He could not lease that property. He could not sell the property
without the consent of the custodian. He could not mortgage that property. He
could not realise the income of the property.
All the rights that the evacuee had in the
property were exercisable by the Custodian excepting that he could not
appropriate the proceeds to his own use. The evacuee had only a beneficial
interest in the property. In the eye of the law the Custodian who had all the
powers of the owner was the owner of the property. His position_ was no less
than that a Trustee. [643 F-644 A] Section 9 of the Income-tax Act,1922, 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 s. 9 the owner must
be 640 that person who can exercise the rights of the owner, not on behalf of
the owner but in his own right. Accordingly the assessee was not the owner of
the property in question during the relevant assessment years for the purpose
of s. 9 of the Act. [644 D] 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. If the thousands of
evacuee who left practically all their properties as well as businesses in
Pakistan had been considered as the owners of those properties and businesses as
long as the 'ordinance' was in force then those unfortunate persons would have
had to pay income-tax on the basis of the annual letting value of their
properties and on the income, gains and properties of the business left by them
in Pakistan though they did not get a paisa out of those properties and
business. Fortunately no one in the past interpreted the law in the manner
suggested by the assessee. [644 E-G] Official Assignee for Bengal (Estate of
Jnanendra Nath Pramanik), 5 I.T.R. 233, Commissioner of Inland Revenue v. Fleming,
14 T.C. 78 and .Sir Currimbhoy Ibrahim Baronetcy Trust v. C.I.T., Bombay, 2
I.T.R. 148, applied.
Amar Singh v. Custodian, Evacuee Property,
Punjab,  S.C.R. 801, distinguished.
P.C. Lai Choudhary v. C.I.T., 16 I.T.R. 123
and Nawab Bahadur of Murshidabad v. C.I.T., West Bengal, 28 I.T.R.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1970 to 1973 of 1968.
Appeals from the judgment and order dated
September 20, 1967 of the Delhi High Court in Income-tax Reference Nos. 2 :and
3 of 1967.
V.C. Mahajan and H. K. Puri, for the
appellant (in all the appeals) V.S. Desai, R. N. Sachthey and B. D. Sharma, for
the respondent (in all the appeals).
The Judgment of the Court was delivered by
Hegde, J. In these appeals by certificate, the only question arising for
decision is : "whether on the facts and in the circumstances of the case,
the assessee. continued to be the owner of the property for the purposes of
computation of income under S. 9 of the Income-tax Act, 1922" (to be
hereinafter referred to as the Act). A Full Bench of the Delhi High Court
speaking through S. K. Kapur, J. answered that question in the negative. Being
dissatisfied with that decision the assesses has brought these appeals.
Now turning to the facts of the case, the
concerned assessment years are 1952-53, 1955-56 and 1956-57, the relevant
accounting periods being financial years ending March 31, 1952, March 31, 1955
and March 31, 1956. The assesses is a registered 641 firm deriving income from
interest on securities, property, business and other sources. Sometime In the
year 1946 it purchased the Nedous Hotel in Lahore for a sum of Rs' 46 lakhs.
For that purpose it raised a loan of Rs. 30 lakhs from M/s. Bharat Bank Ltd.,
Lahore and a loan of Rs. 18 lakhs from the Raja of Jubbal. The loan taken from
the bank was partly repaid but as regards the loan taken from the Raja, the
assessee came to an agreement with the Raja under which the Raja accepted a
half share in the said property in lieu of the loan advanced and also 1/3rd of
the outstanding liability of the bank. This arrangement came into effect on
November 1, 1951. After the creation of Pakistan, declared an evacuee property
and consequently vested in the Custodian in the Pakistan.
In its return for the relevant assessment
years, the assessee claimed losses of Rs. 1,00,723.Rs. 1,16,599/and Rs.
1,16,599/respectively 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 has vested in the Custodian of
Evacuee Property, in Pakistan, the Income-tax Officer held that no income or
loss from that property can be considered in the assessee's case. He
accordingly disallowed the assessees claim in respect of the interest paid to
the bank. The Appellate Assistant Commissionerconfirmed the order of the
Income-tax Officer. In second appeal the Tribunal 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
deductable allowance under s. 9(1)(iv) of the Act. In arriving it that
conclusion, the Tribunal relied on its earlier decision in the case of the
assessee in respect of the assessment year 1951-52. thereafter at the instance
of the assessee, the Tribunal submitted the question set out earlier. Ile High
Court on an analysis of the various provisions of the Pakistan (Administration
of Evacuee property) Ordinance, 1949 (XV of 1049) (to be hereinafter erred to
as the 'Ordinance) came to the conclusion that for the purpose of s. 9 of the
Act, the assasee cannot be considered as .he owner of that property.
It was urged by Mr. V. C. Mahajan, learned
Counsel for the assessee that the High Court erred in opining that the assessee
was not the owner of the property, for the purpose of s. 9 of the Act.
According to him the property vested in the Custodian only for the purpose of
administration and the assessee still continued to be its owner. He contended
that the expression "owner" means the person having the ultimate
right to the property. He further contended that the so long as the assessee
had a right to that 7-L3Sup.C.I./72 property in whatever manner that right
might have been hedged in or restricted, he still continued to be the owner.
On the other hand, it was contended on behalf
of the Revenue that the Income tax is concerned with income, gains and profits.
Therefore for the purpose of that Act, the owner is that person who is entitled
to the income. According to the Revenue the word "owner" in s. 9
refers to the legal ownership and not to any beneficial interest in the
For deciding the question whether the
assessee was the owner of the property for the purpose of S. 9 of the Act
during the relevant accounting years, we have to look to the provisions of the
Ordinance. Let us first take a survey of the relevant provisions of the
Ordinance and thereafter analyse the effect of those provisions.
The long title of the Ordinance says that it
is an Ordinance to provide for the administration of the evacuee property in
Pakistan and for certain matters incidental thereto. The preamble says that
"whereas an emergency has arisen which renders it necessary to provide for
the administration of evacuee property in Pakistan and for certain matters
incidental thereto". Section 6(1) provides that all evacuee property shall
vest and shall be deemed always to have vested in the Custodian with effect
from the 1st day of March 1947. Section 9 gives Dower to the Custodian to take
possession of the evacuee property. Section 11 provides that any amount due to
an evacuee or payable in respect of any evacuee property, shall be paid to the
Custodian by the person liable to pay the same and the payment to the Custodian
discharges the debtor's liability to the extent of the payment made. Section 12
prescribes that the property which hag vested in or of which possession has
been taken by the Custodian shall be exempt from all legal process, including
seizure, distress, ejectment or sale by any officer of a Court or any other
authority a;; no injunction or other order of whatever kind in respect of such
property shall be granted or made by any Court or any to" authority.
Section 14(1) permits the Rehabilitation
Authority, allot evacuee property to the refugees. Section 16(1) says the no
creation or transfer of any right or interest in or encumbrane, upon any
property made in any manner whatsoever on or after the first day of March, 1947
by or on behalf of an evacuee or by or on behalf of a person who has or may
become an evacuee after the date of such creation or transfer, shall be
effective so as to confer any right or remedy on any party thereto or on any
person claiming under any such party, unless it is confirmed by the Custodian.
Section 19 empowers the Custodian to restore
the evacuee property to the lawful owner subject to such conditions as he may
be pleased to impose. Section 20(1) stipulates that the Custodian may take such
measures as he considers 643 necessary or expedient for the purpose of
administering, preserving and managing any evacuee property which has vested in
him and may for any such purpose as aforesaid, do all acts and incur all
expenses necessary or incidental thereto. Sub-s. (2) of that section provides
that "without Prejudice to the generality of the provisions contained in
sub-s. (1), the Custodian may.
(m)sell any evacuee property, notwithstanding
any this contained in any law or agreement to the contrary relating thereto, Provided
that the Custodian shall not under this Clause or the next succeeding clause
sell any immovable evacuee property or any business or undertaking which is
evacuee property, except with the previous approval of the Central
Government." Clause (i) of that sub-section empowers the Custodian to
demolish or dismantle any evacuee property which in his opinion cannot be
repaired, or sell the site of such property and the materials thereof. The
Custodian can recoup all the expenses incurred by him in the administration of
the evacuee property from out of the receipts in his hand in respect of that
property, Section 22(1) requires the Custodian to maintain separate account of
the property of each evacuee of which he has taken possession and shall cause
to be made therein entries of all receipts and expenditure in respect therof.
The Ordinance starts by saying that it is an
Ordinance to provide for the administration of evacuee property and not
management of evacuee property. The expression "administration" in
relation to an estate, in law means managements and settling of that estate. It
is a power to deal with the estate. The evacuee could not take possession of
his property. He could not lease that property. He could not sell that property
without the consent of the Custodian. He could not mortgage that property. He
could not realise the income of the property. On the other hand, the Custodian
could take possession of that property. He could realise its income. He could
alienate the property and he could under certain circumstances demolish the
property. All the rights that the evacuee had in the property he left in
Pakistan were exercisable by the Custodian excepting that he could not
appropriate the proceeds for his own use. The evacuee could not exercise any
rights in that property except with the consent of the Custodian. He merely had
some beneficial. interest in that property. No doubt that residual interest in
a sense is ownership. The property having vested in the Custodian, who bad 644
all the powers of the owner, he was the legal owner or the property. In the eye
of the law, the Custodian was the owner of that property. The position, of the
Custodian was no less than that of a Trustee. Section 9(1) says :
"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 buildings or lands appurtenant
thereto of which he is the owner, other than such portions of such property as
he may occupy for the purposes of any business, profession or vocation carried
on by him the profits of which are assessable to tax subject to the following
allowances namely :The question is who is the "owner" referred to in
this section ? Is it the person in, whom the property vests or is it he who is
entitled to some beneficial interest in the property It must be remembered that
S. 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 s. 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.
For a minute, let us look at things from the
practical point of view. If the thousands of evacuees who left practically all
their properties as well as business in Pakistan had been considered as the
owners, of those properties and business as long as the 'Ordinance' was in
force then those unfortunate persons would have had to pay income-tax on the
basis of the annual letting value of their properties and on the income, gains
and profits of the businesses left by them in Pakistan though they did not get
a paisa out of those properties and businesses. Fortunately no one in the past
interpreted the law in the manner Mr. Mahajan wants us to interpret. It is time
that equitable considerations are irrelevant in interpreting tax laws. But
these laws, like all other laws have to be interpreted reasonably and in
consonance with justice.
The question as to who is Vie owner of a
house property under s. 9 of the Act in circumstances similar to those before
us came up for consideration before the Calcutta High Court in the matter of
The Official Assignee for Bengal (Estate of Jnanendra Nath Pramanik) (1). In
that case on the adjudication of a person as insolvent under the Presidency
Towns Insolvency Act, 1909, certain house property of the insolvent vested in
the Official Assignee.
The question arose whether the Official
Assignee (1)5. I.T.R. 233.
645 could be taxed in respect of the income
of the property under s. 9. The High Court held_ that the property did not by
reason of the adjudication of the debtor cease to be a subject fit for taxation
and in view of the provisions of s.
17 of the Presidency Towns Insolvency Act,
the Official Assignee was the, "owner" of the property and he could
rightly be assessed in respect of the income from that property under s. 9.
Section 17 of the, Presidency Towns Insolvency Act, reads:
"On the making of an order of
adjudication, the property of the insolvent wherever situate shall vest in the
official assignee and shall became divisible among his creditors, and
thereafter, except as directed by this Act, no creditor to whom the insolvent
is indebted in respect of any debt provable in insolvency shall, during the
pendency of the insolvency proceedings, have any remedy against the property of
the insolvent in respect of the debt: or shall commence any suit or other legal
proceedings except with the leave of the Court and on such terms as the Court
may impose :
Provided that this section shall not affect
the power of any secured creditor to realize or otherwise deal with his
security in the same manner, as he would have been entitled to realise or deal
with it if this section had not been passed." We may note that the powers
of the Custodian are no less than that of the Official Assignee under the
Presidency Towns Insolvency Act, 1909. Delivering the judgment of the Court in
the Official Assignee's case(1), Costello, J.
"With regard to the first point, Mr.
Page argued that although by section 17 of the Presidency Towns Insolvency Act
these properties vested in the Official Assignee he did not thereby or
thereupon become the owner of those properties within the meaning properly
ascribable to that word for the purposes of the applicability of Section 9.
What Mr. Page really invited us to do was to
restrict the meaning of the word by putting before it the qualifying adjective
"beneficial". What was argued by Mr. Page was that the Official
Assignee had no legal interest in the properties themselves, they were merely
vested in him for the purposes of the administration of them in the interest of
the creditors of the insolvent. I am unable to accept Mr. Page's contention. In
this country there is no difference between "legal estate" and
In this connection the case of Sir Currimbhoy
Ebrahim Baro(1) 5 I.T.R. 233.
646 netcy Trust v. Commissioner of
Income-tax, Bombay 612 I.A.
1209) is of assistance. At page 217 Sir
Sydney Rowlatt when giving the judgment of the Privy Council made this
observation: "In their Lordships" opinion the effect of the Act
creating these trusts is 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 is not the only thing that can ever be looked at,
would make it true to say that any proportion of the interest is not
'receivable' or any proportion of the property is not 'owned' by the
incorporated trustees." The learned judges of the Calcutta High Court in
reaching that conclusion relied on the decision in The Commissioner of Inland
Revenue v. Fleming(1). 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 S. 18
of the Finance Act, 1920. The claim arose in the following circumstances :
The respondent was declared insolvent in
He was then the owner of heritable
His insolvency lasted till May 10, 1926. When
he received his discharge on payment of composition and was reinvested in his
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 pound 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 that 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 President
"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 (1) 14, Tax Cases
647 these 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
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. An attempt was made by Mr. Mahajan to
distinguish this case on the ground that under the corresponding English
statute the liability to tax in respect of income from property is not laid on
the owner of the property. It is true that s. 82 of the English Incometax Act,
1952 is worded differently. But the principles underlying the two statutes are
identical. This is clear from the various provisions in that Act.
The conclusion reached by Costello, J. in
Official Assignee's case(1) receives support from the decision of the Privy
Council in Trustees of Sir Currimbhoy Ibrahim Baronetcy Trust v. Commissioner
of Income-tax, Bombay(2).
The Counsel for the appellant was unable to
point out to us any decision which has taken a view contrary to that taken in
Official Assignee's case(3).
The learned judges of the High Court in
reaching their conclusion that the assessee was not the owner of the property
in the relevant assessment years, took assistance from the decisions of English
courts dealing with the question of levy of income-tax on the income from enemy
properties taken possession of by the Custodian during war. In those cases the
English judges have enunciated the theory of suspended ownership. We do not
think that we need call assistance from those decisions.
Mr. Mahajan contended that despite the fact
that evacuee property was taken over by the Custodian and that he had been
conferred with large powers to deal with it, an evacuee from Pakistan who owned
that property before he migrated to India still continued to be the owner of
the property. For this contention of his he placed reliance on some of the
observations of this Court in Amar Singh v. Custodian, Evacuee Property,
Punjab(1). Therein delivering judgment of the Court Jagannadhadas, J. observed
(at p. 815 of the report):
(1)5 I.T.R. 233.
(2)2 I. T.R. 148.
(3)  S.C.R.
648 "Stopping here it will be seen that
the position, in its general aspect, is that all evacuee property is vested in
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." Those observations have to be
understood in the context in which they were made. Therein, their Lordships
were considering whether the right of an evacuee in respect of the property
left by him in the country from which he migrated was property right for the
purpose of Art. 19 (1 ) (1) (f ) of the Constitution. No one denies that an
evacuee from Pakistan has a residual right in the property that he left in
Pakistan. But the real question is, can that right be considered as ownership
within the meaning of S. 9 of the Act. As mentioned earlier that section seeks
to bring to tax income of the property in the hands of the owner. Hence the
focus of that section is on the receipt of the income.
The word "owner" has different
meanings in different contexts. Under certain circumstances a lessee may be
considered as the owner of the property leased to him. In Stroud's Judicial
Dictionary (3rd Edn.), various meanings of the word "owner" are
given.' It is not necessary for our present purpose to examine what the word
"owner" means in different contexts. The meaning that we give to the
word " owner" in s. 9 must not be such as to make that provision
capable of being made an instrument of oppression. It must be in consonance
with the principles underlying the Act.
Mr. Mahajan next invited our attention to the
observations in Pollock on Jurisprudence (6th Edn. 1929) 178-80: "Ownership
may be described as the entirety of the powers of use and disposal allowed by
law... The owner of a thing is not necessarily the person who at a given time
has the whole power of use and disposal; very often there is no such person. We
must look for the person having the residue of all such power when we have
accounted for every detached and limited portion of 'it; and he will be the
owner even if the immediate power of control and use is elsewhere".
It is not necessary to consider whether those
observations hold good even now because of the various legislative measures
enacted during the last about forty years after those observations were made.
Suffice it to say that those observations are inapplicable to the case of the
"owner" under S. 9 of the Act.
649 Mr. Mahajan in support of his contention
next placed reliance on the decision of the Patna High Court in Raja P. C. Lal
Choudhary v. Commissioner of Income-tax(1). Therein the question was whether
the receiver of a property appointed by court was the owner of the property for
the purpose of s. 9 of the Act. The court came to the conclusion that he was
not the owner as the property did not vest in him. In fact in the course of the
judgment, the court made a distinction between a receiver and a trustee and an
official assignee. In our opinion this decision instead of supporting the case
of the appellant may lend some support to the contention of the Revenue.
Reliance was next placed on the decision of
the Calcutta High Court in Nawah Bahadur of Murshidabad v. Commissioner of
Income-tax, West Bengal(2). The facts of that case were :
Properties which belonged to the ancestors of
the Nawab of Murshidabad as Rulers, were, sometime 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 forever 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, power, 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 whet-her Nawab of Murshidabad was liable to pay tax
in respect of the income of those properties under s. 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 holder 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 s. 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 s. 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.
After giving our careful consideration to the
question of law under consideration, we have come to the conclusion that the
(1) 16, I.T.R. 123.
(2) 28, I.T.R. 510.
650 assessee was not the owner of Neadous
Hotel during the relevant assessment years for the purpose of s. 9 of the Act.
Hence these appeals fail and they are dismissed. In the circumstances of the
case we make no order as to costs in these appeals.