Late Nawab Sir Mir Osman Ali Khan Vs.
Commissioner of Wealth Tax, Hyderabad [1986] INSC 214 (21 October 1986)
MUKHARJI, SABYASACHI (J) MUKHARJI, SABYASACHI
(J) PATHAK, R.S.
CITATION: 1987 AIR 522 1986 SCR (3)1072 1986
SCC Supl. 700 JT 1986 684 1986 SCALE (2)626
ACT:
Wealth Tax Act, 1957-S. 2(m)-Net
wealth-'Assets belonging to the assessee'-Meaning of Properties sold out by the
assessee without executing registered sale deed-Full sale consideration
received-Possession handed over to the purchaser-Whether legal title still
vests in the assessee and properties belong to the assessee for purpose of
inclusion in net wealth.
Transfer of Property Act, 1882, s. 53A-Scope
of. Constitution of India-Art. 136-Dismissal of special leave petition in
limine-Cannot be construed as affirmation by Supreme Court of the decision from
which special leave was sought.
Statutory Interpretation-Though statutes
should be equitably interpreted, no place for equity in taxation laws.
Words and Phrases-'Belonging to'-Meaning of. Wealth
Tax Act, 1957-S. 2(e) (iv)-Assessee-Ruler of erstwhile State-Private properties
taken over by Government- Granting payment of a fixed annual sum of money in
lieu of previous income-Whether such annual payment amounts to
'annuity'-Whether exempt from inclusion in net wealth. Words and
Phrases-'Annuity'-Meaning of:
HEADNOTE:
In the assessment year 1957-58, the Wealth
Tax Officer had included a sum of Rs.4,90,775 representing the market value of
certain immovable properties in respect of which, although the assessee had
received full consideration money, he had not executed any registered sale
deeds in favour of the vendees. The question was whether the properties
belonged to the assessee even after such sale for the purpose of inclusion of
his net wealth within the meaning of s. 2(m) of the Wealth Tax Act, 1957. The
Wealth Tax Officer held that the assessee 1073 still owned those properties and
consequently the value of the same was included in his net wealth.
On appeal, the Appellate Assistant
Commissioner sustained the order of the Wealth Tax Officer with certain
deductions in value. On further appeal, the Tribunal held that the assessee had
ceased to be the owner of the properties because the assessee having received
the consideration money from the purchasers and the purchasers having been put
into possession were protected in terms of s. 53A of the Transfer of Property
Act and the term 'owner' not only included the legal ownership but also the
beneficial ownership. The High Court following the ratio of Commissioner of
Income Tax, A.P. Hyderabad v. Nawab Mir Barkat Ali Khan, [1974] Tax L.R. 90,
reversed the order of Tribunal and upheld that of the Wealth Tax Officer and
the Assistant Appellate Commissioner.
The Assessee-Nizam of Hyderabad, was a
paramount ruler owning certain private properties called Sarf-e-khas. On
surrendering his paramountcy and acceding to the Union of India, his private
properties were taken over by the Government and it was agreed to pay him a sum
of Rs. 1 crore annually distributed as follows: (a) Rs.50 lakhs as a privy
purse; (b) Rs.25 lakhs in lieu of his previous income from the Sarf-e-khas, and
(c) Rs.25 lakhs for the upkeep of palaces etc.
The Government in its letter to the assessee
stated that his Sarf-e-khas estates should not continue as an entirely separate
administration independent of the Diwani administrative structure and it
should, therefore, be completely taken over by the Diwani, its revenue and
expenditure being merged with the revenues and expenditure of the State.
Question was whether the assessee's right to receive the sum of Rs.25 lakhs
O.S. from the State Government was an asset for the purposes of inclusion in
his net wealth under the Wealth Tax Act, 1957.
The Wealth Tax Officer treating the said sum
as an annuity and as an asset or property, capitalised the same to Rs.99,78,572
and included that amount as an asset of the assessee. The Appellate Assistant
Commissioner agreed with this view. The Tribunal, however, refused to call it
as an annuity, characterised it as an annual payment for surrender of life
interest and held that the capitalised value of such life interest be added to
the net wealth and taxed. The High Court agreed with the view taken by the
Tribunal that it was only an annual payment made in compensation for the
property which had been taken over by the Govern- 1074 ment, therefore, it was
a part of the wealth and it was possible to commute the annual payment of Rs.25
lakhs. The High Court found that there was neither any express preclusion nor
any circumstances from which legitimately an inference could be drawn
precluding commutation of the said amount into a lumpsum grant. Consequently,
the High Court upheld the order of the Wealth Tax Tribunal.
Partly allowing the Appeal, ^
HELD: (1) Under s. 3 of the Wealth Tax Act,
1957 the charge of wealth-tax is on the 'net wealth' of the assessee on the
relevant valuation date as defined under s. 2(m) of the Act. [1081E-F] (2) The
material expression for the purposes of this appeal is "belonging to the
assessee on the valuation date".
The properties in respect of which registered
sale deeds had not been executed but consideration for sale of which had been
received and possession in respect of which had been handed over to the
purchasers belonged to the assessee for the purpose of inclusion of his net
wealth. [1081G-H; 1082A] (3) It is not necessary for the purpose of s. 2(m) to
be tied down with the controversy whether in India there is any concept of
legal ownership apart from equitable ownership or not or whether under ss. 9
and 10 of the Indian Income Tax Act, 1922 and ss. 22 to 24 of the Indian Income
Tax Act, 1961, where 'owner' is spoken of in respect of house properties, the
legal owner is meant and not the equitable or beneficial owner. All the rights
embedded in the concept of ownership of Salmond cannot strictly apply either to
the purchasers or the assessee in the instant case. [1082C-D; 1082H; 1083A] (4)
The liability to wealth-tax arises because of the belonging of the asset, and
not otherwise. Mere possession, or joint possession unaccompanied by the right
to be in possession, or ownership of property would, therefore, not bring the
property within the definition of "net wealth" for it would not then
be an asset "belonging" to the assessee.
Unlike the provisions of Income-tax Act, s.
2(m) of the Act uses the expression 'belonging to' to indicate that the person
having lawful dominion of the assets would be assessable to wealth tax.
[1083C-E] (5) Though the expression 'belonging to' no doubt was capable of
denoting an absolute title was neyertheless not confined to connoting that
sense. Full possession of an interest less than that of full ownership could
also be signified by that expression. [1086G-H] 1075 Commissioner of
Wealth-tax, West Bengal v. Bishwanath Chatterjee and Others, 103 I.T.R. 536 and
Raja Mohammad Amir Ahmed Khan v. Municipal Board of Sitapur and another. A.I.R.
1965 S.C. 1923, relied upon.
Webster's Distionary and Aiyar's Law Lexicon
of British India, [1940] edn., p. 128 and Salmond on Jurisprudence, 12th edn.,
pp. 246 to 264, referred to.
(6) The property is owned by one to whom it
legally belongs. The property does not legally belong to the vendee as against
the vendor, the assessee. The precise sense in which the words 'belonging to'
were used in s. 2(m) of the Act must be gathered only by reading the instrument
or the document as a whole. [1090C-D] (7) Though all statute including the
Wealth Tax Act should be equitably interpreted, there is no place of equity as
such in taxation laws. The concept of reality in implementing fiscal provision
is relevant and the Legislature in s. 2(m) has not significantly used the
expression 'owner' but used the expression 'belonging to'.
The Legislature having designedly used the
expression 'belonging to' and not the expression 'owned by' had perhaps
expected Judicial statesmanship in interpretation of this expression. [1089G-H]
(8) On a distinction being made between 'belonging to' and 'ownership' the
following facts emerge: (1) the assessee has parted with the possession which
is one of the essentials of ownership; (2) the assessee was disentitled to
recover possession from the vendee and assessee alone until document of title
is executed was entitled to sue for possession against others i.e. others than
the vendee in possession in this case. The title in rem vested in the assessee;
(3) the vendee was in rightful possession against the vendor; (4) the legal
title, however, belonged to the vendor; and (5) the assessee had not the
totality of the rights that constitute title but a mere husk of it and a very
important element of the husk. [1088H; 1089A-B] (9) The property in question
legally cannot be said to belong to the vendee. The vendee is in rightful
possession only against the world. Since the legal title still vests with the
assessee, the property should be treated as belonging to the assessee. It will
work some amount of injustice in such a situation because the assessees would
be made liable to bear the tax burden in such situations without having the
enjoyment of the property in question.
But times perhaps are not ripe to transmute
equity on this aspect in the interpretation of law. [1089C-F] 1076 (10) Under
s. 53A of the Transfer of Property Act, 1908 where possession had been handed
over to the purchasers and the purchasers are in rightful possession of the
same as against the assessee, secondly that the entire consideration has been
paid, and thirdly the purchasers were entitled to resist eviction from the
property by the assessee in whose favour the legal title vested because
conveyance has not yet been executed by him and when the purchasers were in
possession had right to call upon the assessee to execute the conveyance, it
cannot be said that the property legally belonged to the assessee in terms of
s. 2(m) of the Act in the facts and circumstances of the case, even though the
statute must be read justly and equitably and with the object of the section in
view. If a person has the user and is in the enjoyment of the property it is he
who should be made liable for the property in question under the Act, yet the
legal title is important and the Legislature might consider the suitability of
an amendment if it is so inclined. [1090F-H; 1091A] Commissioner of Wealth-tax,
Gujarat-IV v. H.H. Maharaja F.P. Gaekwad, 144 I.T.R. 304 approved.
Commissioner of Income-tax, A.P. Hyderabad v.
Nwab Mir Barkat Ali Khan, [1974] Tax L.R. 90 referred to.
Commissioner of Wealth-tax, A.P. v. Trustees
of H.E.H. Nizam's family (Remainder Wealth) Trust, 108 I.T.R. 555, R.B. Jodha
Mal Kuthiala v. Commissioner of Income-tax, Punjab, Jammu & Kashmir and
Himachal Pradesh, 82 I.T.R. 570, Commissioner of Income-tax, West Bengal II v.
Ganga Properties Ltd., 77 I.T.R. 637, Commissioner of Wealth-tax- Gujarat-I v.
Kum Manna G. Sarabhai, 86 I.T.R. 153, Commissioner of Income-tax, Gujarat v.
Ashaland Corporation, 133 I.T.R. 55, Commissioner of Income-tax, Bombay City
III v. Smt. T.P. Sidhwa, 133 I.T.R.840, Smt. Kala Rani v.
Commissioner of Income-Tax, Patiala I, 130
I.T.R. 321, Mrs. M.P. Gnanambal v. Commissioner of Income-tax, Madras, 136
I.T.R. 103, S.B. (House & Land) Pvt. Ltd. v. Commissioner of Income-tax,
West Bengal, 119 I.T.R. 785 and Addl.
Commissioner of Income-tax Bihar v. Sahay
Properties and Investment Co. (P) Ltd., 144 I.T.R. 357 distinguished.
(11) Special leave is a discretionary
jurisdiction and the dismissal of a special leave petition cannot be construed
as affirmation by the Supreme Court of the decision from which special leave
was sought for. [1087E] Daryao & Ors. v. State of U.P. & Ors., AIR 1961
SC 1457 relied upon.
1077 Sahu Govind Prasad v. Commissioner of
Income-tax, 144 I.T.R. 851 at 863 approved.
(12) Section 2(e) (iv) of the Wealth Tax Act,
1957 provides that "assets" includes property of every description,
movable or immovable, but does not include a 'right to any annuity' in any case
where the terms and conditions relating thereto preclude the commutation of any
portion thereof into a lump sum grant. [1091B-D] (13) The term 'annuity' is not
defined in the Act. It must be given the signification which it has assumed as
a legal term owing to judicial interpretation and not its popular and
dictionary meaning. An 'annuity' is a certain sum of money payable yearly
either as a personal obligation of the grantor or out of property. The hall
mark of an annuity is: (1) it is a money; (2) paid annually; (3) in fixed sum;
and (4) usually it is a charge personally on the grantor. [1091G-H] (14) In
this case, in view of the background of the terms of payment and the
circumstances why the payment was made, there cannot be any doubt that Rs.25
lakhs annually was an 'annuity'. It was a fixed sum to be paid out of the
property of the Government of India in lieu of the previous income of the
assessee from Sarf-e-khas. Therefore, it was an'annuity'. [1093C-D] (15) In the
instant case, there is no express provision in the document itself which
prevented commutation of this annuity into a lump sum. For inferring whether
such as express provision precluding commutation exists, the background of the
facts and circumstances of the payment has to be kept in mind. The assessee was
given Rs.25 lakhs in lieu of his previous income from the Sarf-e-khas. Income
is normally meant for expenditure. The assessee had to incur various
exenditures. Commutation is often made when one is not certain as to whether
the source from which that income comes. In this case, this being an agreement
between earstwhile ruler and the Government of India, there is no such
motivation and this payment of Rs.25 lakhs in lieu of the previous income of
Sarf-e-khas must be read in conjunction with two other sums namely Rs.50 lakhs
as privy purse and Rs.25 lakhs for upkeep of palaces. This bears the same
character. [1093E-H; 1094A-B] (16) As privy purses were not commutable, from
the circumstances and keeping in background of the payment, there was an express
provision flowing from the circumstances precluding the 1078 commutation of
this amount of Rs.25 lakhs and, therefore, it was exempt under s. 2(e) (iv) of
the Act. [1094B-C] (17) There was no right granted and can be gathered from the
terms of the grant of payment for the assessee to claim commutation of the
amount of Rs.25 lakhs. That would defeat the purpose of the set up of the
arrangement under which the payment of the amount was made. From the nature of
the sum stipulated in the letter written by the Government to the assessee, the
assessee had no right to claim commutation. Taking that fact in conjunction
with the circumstances under which the payment of Rs.25 lakhs was agreed to, it
is held that from the terms of the agreement, there was an express stipulation
precluding commutation and, therefore, it comes within cl. (iv) of s. 2(e) of
the Act and the assessee was entitled to exemption. [1094C-F] Oxford
Dictionary: Jarman on Wills (P. 1113), relied on and Ahmed G.H. Ariff and
Others v. Commissioner of Wealth- tax, Calcutta, 76 I.T.R. 471, Commissioner of
Wealth-tax Gujarat v. Arundhati Balkrishna, 77 I.T.R. 505, Commissioner of
Wealth-tax, Rajasthan v. Her Highness Maharani Gayatri Devi of Jaipur, 82
I.T.R. 699, Commissioner of Wealth-tax, Lucknow v. P.K. Banerjee, 125 I.T.R.
641 and H.H.
Maharajadhiraja Madhav Rao Jiwaji Rao Scindia
Bahadur & Ors. v. Union of India, [1971] 3 SCR 9 referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1763 (NT) of 1974 From the Judgment and Order dated 2.2.1973 of the Andhra
Pradesh High Court in Case Reference No. 67 of 1971.
Y. Ratnakar, Mrs, A.K. Verma and D.N. Misra
for the Appellant.
S.C. Manchanda, Ms. A. Subhashini and B.B.
Ahuja for the Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This appeal by Special leave arises from the decision
of the High Court of Andhra Pradesh and it seeks answers to two questions:
1079 "(i) Whether, on the facts and in
the circumstances of the case, the properties in respect of which registered
sale deeds had not been executed, but consideration had been received, belonged
to the assessee for the purpose of inclusion in his net wealth within the
meaning of section 2(m) of the Wealth-tax Act, 1957? (ii) Whether, on the facts
and in the circumstances of the case, the assessee's right to receive the sum
of Rs.25 lakhs O.S. from the State Government was an asset for the purposes of
inclusion in his net wealth under the Wealth-tax Act, 1957?" The year
involved in this case is the assessment year 1957-58 under the Wealth-tax Act,
1957 (hereinafter called the 'Act'). It may be mentioned that the valuation
date is the first valuation date after coming into operation of the Act which
came into force on 1st April, 1957. The assessee was the Nizam of Hyderabad, an
individual. There were several questions involved in the assessment with all of
which the present appeal is not concerned.
So far as the first question indicated
hereinbefore which was really question No. (ii) in the statement of case before
the High Court, it may be mentioned that the Wealth- tax Officer had included a
total sum of Rs.4,90,775 representing the market value of certain immovable
properties in respect of which, although the assessee had received full
consideration money, he had not executed any registered sale deeds in favour of
the vendees. The Wealth- tax Officer held that the assessee still owned those
properties and consequently the value of the same was included in his net
wealth.
On appeal the Appellate Assistant
Commissioner sustained the order with certain deductions in value. On further
appeal the Tribunal held that the assessee had ceased to be the owner of the
properties. The Tribunal was of the opinion that the assessee having received
the consideration money from the purchasers and the purchasers having been put
into possession were protected in terms of section 53A of the Transfer of
Property Act and the term 'owner' not only included the legal ownership but
also the beneficial ownership. The first question arises in the context of that
situation. The High Court following the ratio of Commissioner of Income-Tax,
A.P., Hyderabad v.
Nawab Mir Barkat Ali Khan, (infra) answered
the question in favour of the revenue.
1080 The second question set out before,
which was question no. (v) before the High Court, has to be understood in the
context of the facts of this case. The right of the assessee to get the amount
in question i.e. Rs.25 lakhs a year, arose in the wake of accession of the
Hyderabad State to the Union of India. Several communications followed between
the Military Governor of Hyderabad,.Maj. Gen. Chaudhuri and the Nizam of Hyderabad
as well as other officers. It has to be borne in mind that the assessee was a
paramount ruler owning certain private properties called Sarf-e-khas. He
surrendered his paramountcy and acceded to the Union of India. His private
properties were taken over by the Government and it was agreed by the
Government that in lieu of his income from the said properties, he would be
paid Rs.25 lakhs in Osmania currency annually.
The communication between Major General
Chaudhuri, the Military Governor and the Nizam about this particular sum in
contained in the letter dated 1st February, 1949. It stated inter alia as
follows:
"After this merger H.E.H. will be paid
annually a total sum of Rs. 1 crore distributed as follows:
(a) Rs.50 lacs as a privy purse, (b) Rs.25
lacs in lieu of his previous income from the Sarf-e-khas, and (c) Rs.25 lacs
and for the upkeep of Palaces etc." The letter which appears in the Paper
Book of this appeal from Military Governor of Hyderabad, Major General
Chaudhuri to the Nizam of Hyderabad, states, inter alia, that Nizam's
Sarf-e-khas estates should not continue as an entirely separate administration
independent of the Diwani administrative structure. The Sarf-e-khas, it was
stated in that letter, should therefore be completely taken over by the Diwani,
its revenue and expenditure being merged with the revenues and expenditure of
the State. Thereafter we have extracted the relevant portion of the letter
which stipulated for the payment of Rs.25 lakhs. The other parts of the
agreement contained in that letter are not relevant for the present purpose.
The Wealth-tax Officer treating the said sum
as an annuity and secondly as an asset or property, capitalised the same to
Rs.99,78,572 1081 and included that amount as an asset of the assessee. The
appellate Assistant Commissioner agreed with the view taken by the Wealth-tax
Officer. The Tribunal, however, refused to call it as an annuity and
characterised it as an annual payment for surrender of life interest. The
Tribunal therefore held that the capitalised value of such life interest be
added to the net wealth and taxed.
The High Court in the judgment under appeal
agreed with the view taken by the Tribunal that it was only an annual payment
made in compensation for the property which had been taken over by the
Government. It was, therefore, a part of the wealth, according to the High
Court. The High Court was of the view that it was possible to commute the
annual payment of Rs.25 lakhs. The High Court found that there was neither any
express preclusion nor any circumstances from which legitimately an inference
could be drawn precluding commutation of the said amount into a lumpsum grant.
The High Court, therefore, was of the view that the Wealth-tax Tribunal had
rightly rejected the contention of the assessee. The question was accordingly
answered by the High Court in the affirmative and against the assessee and in
favour of the revenue.
The first question involved in this case is
whether the properties in respect of which registered sale deeds had not been
executed, but full consideration had been received by the assessee, belonged to
the assessee for the purposes of inclusion in his net wealth in terms of
section 2(m) of the Act. Under section 3 of the Act, the charge of wealth-tax
is on the net wealth of the assessee on the relevant valuation date. Net wealth
is defined under section 2(m) of the Act.
The relevant portion of section 2(m) is as
follows:
"(m) "net wealth" means the
amount by which the aggregate value computed in accordance with the provisions
of this Act of all the assets, wherever located, belonging to the assessee on
the valuation date, including assets required to be included in his net wealth
as on that date under this Act, is in excess of the aggregate value of all the
debts owed by the assessee on the valuation date......." The material
expression with which we are concerned in this appeal is 'belonging to the
assessee on the valuation date'. Did the assets in the circumstances mentioned
hereinbefore namely, the properties in respect of which registered sale deeds
had not been 1082 executed but consideration for sale of which had been
received and possession in respect of which had been handed- over to the
purchasers belonged to the assessee for the purpose of inclusion in his net
wealth? Section 53A of the Transfer of Property Act gives the party in
possession in those circumstances the right to retain possession. Where a
contract has been executed in terms mentioned hereinbefore and full
consideration has been paid by the purchasers to the vendor and where the
purchasers have been put in the possession by the vendor, the vendees have
right to retain that possession and resist suit for specific performance.
The purchasers can also enforce suit for
specific performance for execution of formal registered deed if the vendor was
unwilling to do so. But in the eye of law, the purchasers cannot and are not
treated as legal owners of the property in question. It is not necessary in our
opinion, for the purpose of this case to be tied down with the controversy
whether in India there is any concept of legal ownership apart from equitable
ownership or not or whether under sections 9 and 10 of the Indian Income-tax
Act, 1922 and sections 22 to 24 of the Indian Income-tax Act, 1961, where
'owner' is spoken in respect of the house properties, the legal owner is meant
and not the equitable or beneficial owner. Salmond On Jurisprudence, Twelfth
Edition, discusses the different ingredients of 'ownership' from pages 246 to
264. 'Ownership', according to Salmond, denotes the relation between a person
and an object forming the subject-matter of his ownership. It consists of a
complex of rights, all of which are rights in rem, being good against all the
world and not merely against specific persons. Firstly, Salmond says, the owner
will have a right to possess the thing which he owns. He may not necessarily
have possession. Secondly, the owner normally has the right to use and enjoy
the thing owned: the right to manage it, i.e., the right to decide how it shall
be used; and the right to the income from it.
Thirdly, the owner has the right to consume,
destroy or alienate the thing. Fourthly, ownership has the characteristic of
being indeterminate in duration. The position of an owner differes from that of
a non-owner in possession in that the latter's interest is subject to be
determined at some future time. Fifthly, ownership has a residuary character.
Salmond also notes the distinction between legal and equitable ownership. Legal
ownership is that which has its origin in the rules of the common law, while
equitable ownership is that which proceeds from rules of equity different from
the common law. The courts of common law in England refused to recognize
equitable ownership and denied the equitable owner as an owner at all.
All the rights embedded in the concept of
ownership of Salmond 1083 cannot strictly be applied either to the purchasers
or the assessee in the instant case.
In the instant appeal, however, we are
concerned with the expression 'belonging to' and not with the expression
'owner'. This question had come up before this Court before a bench of five
learned judges in Commissioner of Wealth- tax, West Bengal, v. Bishwanath
Chatterjee and others, 103 I.T.R. 536. At page 539 of the report, this Court
referred to the definition of the expression 'belong' in the Oxford English
Dictionary "To be the property or rightful possession of". So it is
the property of a person, or that which is in his possession as of right, which
is liable to wealth-tax. In other words, the liability to wealth-tax arises
because of the belonging of the asset, and not otherwise. Mere possession, or
joint possession unaccompanied by the right to be in possession, or ownership
of property would therefore not bring the property within the definition of
"net wealth" for it would not then be an asset "belonging"
to the assessee. The first limb of the definition indicated in the Oxford
Dictionary may not be applicable to these properties in the instant appeal
because these lands were not legally the properties of the vendees and the
assessee was the lawful owner of these properties.
The vendees were, however, in rightful
possession of the properties as against the vendor in view of the provisions of
section 53A of the Transfer of Property Act, 1908. The scheme of the Act has to
be borne in mind. It has also to be borne in mind that unlike the provisions of
Income-Tax Act, section 2(m) of the Act uses the expression 'belonging to' and
as such indicates something over which a person has dominion and lawful
dominion should be the person assessable to wealth tax for this purpose.
In Commissioner of Wealth-tax, A.P. v.
Trustees of H.E.H. Nizam's family (Remainder Wealth) Trust, 108 I.T.R.
555, the question as to what is the meaning
of the expression 'belonging to' was raised (page 594 of the report) but this
Court did not decide whether the trust property belonged to the trustee and
whether the trustee was liable under section 3 of the Act apart from or without
reference to section 21 of the Act. The case was disposed of in terms of
sections 21 of the Act.
In Commissioner of Income-tax, A.P. Hyderabad
v. Nwab Mir Barkat Ali Khan, [1974] Tax L.R. 90, it was held by the Andhra
Pradesh High Court that when a vendor had agreed to sell his property as in the
instant case and had received consideration thereof but had 1084 not executed a
registered sale deed, his liability to pay tax on income from that property did
not cease. His position as 'owner' of the property within the meaning of section
9 of the Indian Income-tax Act, 1922 and section 22 of the Income-tax Act, 1961
did not thereby change. According to the said decision, the agreement to sell
and the receipt of consideration by the assessee, the Nizam of Hyderabad did
not create any beneficial ownership according to Indian law in the purchaser
neither did it create any equitable ownership in him. The ownership did not
change until registered sale-deed was executed by the vendor. The term 'owner'
in section 9 of the 1922 Act or section 22 of the 1961 Act did not mean
beneficial or equitable owner which concept was not recognised in India.
In the instant case as we have noticed the
position is different. We are not concerned with the expression 'owner'.
We are concerned whether the assets in the
facts and circumstances of the case belonged to the assessee any more.
This Court had occasion to discuss section 9
of the Income-tax Act, 1922 and the meaning of the expression 'owner' in the
case of R.B. Jodha Mal Kuthiala v.
Commissioner of Income-tax, Punjab, Jammu
& Kashmir and Himachal Pradesh, 82 I.T.R. 570. There it was held that for
the purpose of section 9 of the Indian Income-tax Act, 1922, the owner must be
the person who can exercise the rights of the owner, not on behalf of the owner
but in his own right.
As assessee whose property remained vested in
the Custodian of Evacuee Property was not the owner of the property. This again
as observed dealt with the expression of section 9 of the Indian Income-tax
Act, 1922. At page 575 of the report certain observations were relied upon in
order to stress the point that these observations were in consonance with the
observations of the Gujarat High Court which we shall presently note. We are,
however, not concerned in this controversy at the present moment. It has to be
borne in mind that in interpreting the liability for wealth-tax normally the
equitable considerations are irrelevant. But it is well to remember that in the
scheme of the administration of justice, tax law like any other laws will have
to be interpreted reasonably and whenever possible in consonance with equity
and justice. Therefore, specially in view of the fact that the expression used
by the legislature has deliberately and significantly not used the expression
'assets owned by the assessee' but assets 'belonging to the assessee', in our
opinion, is an aspect which has to be borne in mind.
The bench decision of the Calcutta High Court
in Commissioner 1085 of Income-tax, West Bengal II v. Ganga Properties Ltd., 77
I.T.R. 637. rested on the terms of section 9 of the Income- tax Act, 1922 and
the Court reiterated again that in Indian law beneficial ownership was unknown;
there was but one owner, namely, the legal owner, both in respect of vendor and
purchaser, and trustee and cestui que trust. The income from house property
refers to the legal owner and further that in case of a sale of immovable
property a registered document was necessary. But these propositions as noted
hereinbefore rested on the use of the expression in section 9 of the Income-tax
Act, 1922. It used the expression 'owner' unlike 'belonging to'.
The Gujarat High Court in Commissioner of
Wealth-tax- Gujarat-I v. Kum Manna G. Sarabhai 86 I.T.R. 153, held that a spes
successionis is a bare and naked possibility such as the chance of a relation
obtaining a legacy and that could not form the basis of assessment under
section 26 of the Act. At page 174 of the report, the Gujarat High Court
referred to the expression 'belonging to' and referred to the fact that the
expression has been the subject matter in a number of judicial decisions. The
Court observed that the words 'property' and 'belonging to' were not technical
words.
The Gujarat High Court had occasion to deal
with part performance in the case of an agreement of sale in Commissioner of
Income-tax, Gujarat v. Ashaland Corporation, 133 I.T.R. 55. The Gujarat High
Court noted that in case of a person who was a dealer in land, the business
transaction would be completed only when the purchase or sale transaction was
complete. In order to decide whether the business transaction was complete, the
question of vital importance was whether title in the property had passed. It
was only on the passing of the title that the transaction became complete and
unless the transaction was complete, any advance receipt of money towards the
transaction would not form part of income or profit. It was observed by the
Gujarat High Court that the doctrine of part performance embodied in section
53A of the Transfer of Property Act, 1882, had only a limited application and
it afforded only a good defence to the person put in possession under an agreement
in writing to protect his possession to the extent provided in section 53A, but
an agreement in writing to sell, coupled with the parting of possession would
not confer any legal title on the purchaser and take the land out of the
stock-in-trade of the seller if the seller was a dealer in land. The context in
which the Gujarat High Court had to deal this question was entirely different.
The Gujarat High Court had to proceed on the basis that the assessee 1086 under
the Income-tax Act was the owner and he was dealing in land and therefore
whether the land was stock-in-trade was the question. In the instant appeal we
are concerned with the expression 'belonging to'. Therefore the observations of
the Gujarat High Court would not be quite apposite to the problem of the
instant appeal.
This question was again viewed by the Bombay
High Court in a slightly different context in Commissioner of Income- tax,
Bombay City-III v. Smt. T.P. Sidhwa, 133 I.T.R. 840.
The Bombay High Court was not concerned with
the expression 'belonging to'.
Our attention was drawn to another decision
of the Gujarat High Court in Commissioner of Wealth-tax, Gujarat-IV v. H.H.
Maharaja F.P. Gaekwad, 144 I.T.R. 304. There the facts were more or less
identical with the instant appeal on this aspect of the matter. The assessee
owned two properties and had agreed to sell one property to a company. The
vendees had paid Rs.30 lakhs in January, 1964 and were put in possession of the
property. Thereafter, four instalments of Rs. 17-1/2 lakhs each were paid and
the property was conveyed by four deeds executed in 1970-71 and 1972. It was
contended that at the relevant time, the property did not belong to the
assessee. It was held by the Gujarat High Court that receipt of part of the
sale price and parting of possession would not divest the vendor of immovable
property of his title to the property. The doctrine of part performance
embodied in section 53A of the Transfer of Property Act had limited application
and afforded a good defence to the person put in possession. The legal position
and the relevant clauses of the agreement of sale showed that the assessee was
the owner of the property at the relevant valuation dates. Therefore, according
to the Gujarat High Court, the property agreed to be sold which had been parted
with was includible as an asset of the assessee.
Even in some cases the phrase 'belonging to'
is capable of connoting interest less than absolute perfect legal title. See in
this connection the observations of this Court in Raja Mohammad Amir Ahmed Khan
v. Municipal Board of Sitapur and another, A.I.R. 1965 S.C. 1923. This Court
observed in that case that though the expression 'belonging to' no doubt was
capable of denoting an absolute title was nevertheless not confined to
connoting that sense. Full possession of an interest less than that of full
ownership could also be signified by that expression.
Before concluding this aspect of the matter,
there is certain aspect which has to be borne in mind. Reliance was placed as
we have mentioned hereinbefore on the decision of the Gujarat High Court in the
case of Commissioner of Wealth- tax, Gujarat-IV v. H.H. Maharaja F.P. Gaekwad
(supra) It was contended that if the Gujarat High Court's view was correct,
then the assessee's contention on this aspect in the instant appeal cannot be
accepted. On behalf of the assessee it was submitted that the decision of the
Gujarat High Court in Commissioner of Wealth-tax, Gujarat-I v. Kum. Manna G. Sarabhai
(supra) not having been taken into consideration by the Gujarat High Court in
the later decision, the Gujarat High Court the judgment on which revenue relied
was not correct. It is not necessary in the view we have taken on the other
aspect of the matter, namely, the use of the expression 'belonging to' to
discuss this point any further.
It was further submitted before us that from
the said decision of the Gujarat High Court in Commissioner of Wealth-Tax,
Gujarat-IV v. H.H. Maharaja F.P. Gaekwad (supra), a special leave petition was
filed by the assessee, which was dismissed by this Court on 17th January, 1983.
(See in this connection 144 I.T.R. Statute
page 23). It is, however, well-settled that dismissal of special leave petition
in limine does not clothe the decision under appeal in special leave petition
with the authority of the decision of this Court. See in this connection the
observations in Daryao & Ors. v. State of U.P. & Ors., AIR 1961 SC
1457. It may be mentioned as was rightly observed by a full bench of the
Allahabad High Court in Sahu Govind Prasad v. Commissioner of Income-tax, 144
I.T.R. 851 at 863, special leave is a discretionary jurisdiction and the
dismissal of a special leave petition cannot be construed as affirmation by
this Court of the decision from which special leave was sought for.
On this aspect, it may also be mentioned that
our attention was drawn to some decisions which we shall presently note.
The Punjab and Haryana High Court in the case
of Smt. Kala Rani v. Commissioner of Income-tax, Patiala-I, 130 I.T.R. 321 had
occasion to discuss this aspect of the matter. But the Punjab and Haryana High
Court was construing the meaning of the expression 'owner' under section 22 of
the Income-tax Act, 1961. There, the division bench of the Punjab & Haryana
High Court held that the assessee occupied the property after the execution of
the agreement of sale deed in his favour and after completion of the building,
he was in a position to earn income from the property sold to him, though the
registered sale deed was executed subsequently in April, 1969. It was 1088 held
that the assessee was 'owner' in terms of section 22 of the Income-tax Act,
1961.
The Madras High Court had occasion to discuss
this aspect in Mrs. M.P. Gnanambal v. Commissioner of Income-tax, Madras, 136
I.T.R. 103. There the facts were entirely different and the Madras High Court
held that the rights with reference to the properties in question in that case
could only be described as a delusion and a snare so long as the sons continued
to occupy the property which they were entitled to under the will and to
describe the assessee's right as owner of the property would be a complete
misnomer.
There, the court was construing the will and
section 22 of Income-tax Act, 1961 as to who were the owners in terms of the
will.
In all these cases as was reiterated by the
Calcutta High Court in S.B. (House & Land) Pvt. Ltd. v. Commissioner of
Income-tax, West Bengal, 119 I.T.R. 785 the question of ownership had to be
considered only in the light of the particular facts of a case. The Patna High
Court in Addl.
Commissioner of Income-tax Bihar v. Sahay
Properties and Investment Co. (P) Ltd., 144 I.T.R. 357 was concerned with the
construction of the expression 'owner' in section 22 of the Income-tax Act,
1961. There, the assessee had paid the consideration in full and had been in
exclusive and absolute possession of the property, and had been empowered to
dispose of or even alienate the property. The assessee had the right to get the
conveyance duly registered and ex- ecuted in its favour, but had not exercised
that option. The assessee was not entitled to say that because of its own default
in having a deed registered in its name, the assessee was not the owner of the
property. In the circumstances, it was held that the assessee must be deemed to
be the owner of the property within the meaning of section 22 of Income-tax
Act, 1961 and was assessable as such on the income from the property. This is
only an illustrative point where in certain circumstances without any
registered conveyance in favour of a purchaser, a person can be considered to
be 'owner'. It may incidentally be mentioned that this Court has granted
special leave to appeal against this judgment. See in this connection [1983]
143 I.T.R. 60.
Salmond's conception of 'ownership' has been
noted. The meaning of the expression 'belonging to' has also been noted. We
have discussed the cases where the distinction between 'belonging to' and
'ownership' has been considered.
The following facts emerge here: (1) the
assessee has parted with the possession which is one of the essen- 1089 tials
of ownership, (2) the assessee was disentitled to recover possession from the
vendee and assessee alone until the document of title is executed was entitled
to sue for possession against others i.e. others than the vendee in possession
in this case. The title in rem vested in the assessee, (3) The vendee was in
rightful possession against the vendor, (4) the legal title, however, belonged
to the vendor. (5) The assessee had not the totality of the rights that
constitute title but a mere husk of it and a very important element of the
husk.
The position is that though all statutes
including the statute in question should be equitably interpreted, there is no
place of equity as such in taxation laws. The concept of reality in
implementing fiscal provision is relevant and the Legislature in this case has
not significantly used the expression 'owner' but used the expression
'belonging to'.
The property in question legally, however,
cannot be said to belong to the vendee. The vendee is in rightful possession
only against the vendor. Speaking for myself, I have deliberated long on the
question whether in interpreting the expression 'belonging to' in the Act, we
should not import the maxim that "equity looks upon a thing as done which
ought to have been done" and though the conveyance had not been executed in
favour of the vendee, and the legal title vested with the vendor, the property
should be treated as belonging to the vendee and not to the assessee. I had
occasion to discuss thoroughly this aspect of the matter with my learned
Brother and in view of the position that legal title still vests with the
assessee, the authorities we have noted are preponderantly in favour of the
view that the property should be treated as belonging to the assessee in such
circumstances, I shall not permit my doubts to prevail upon me to take the view
that the property belongs to the vendee and not to the assessee. I am conscious
that it will work some amount of injustice in such a situation because the
assessees would be made liable to bear the tax burden in such situations without
having the enjoyment of the property in question. But times perhaps are yet not
ripe to transmute equity on this aspect in the interpretation of law-much as I
would have personally liked to do that. As Benjamin Cardozo has said, "The
judge, even when he be free, is not wholly free". A Judge cannot innovate
at pleasure.
It may be said that the legislature having
designedly used the expression 'belonging to' and not the expression 'owned by'
had perhaps expected judicial statesmanship in interpretation of this
expression as leading to an interpretation that in a situation like this it
should not be treated as belonging to the assessee but as said before 1090
times are not yet ripe and in spite of some hesitation I have persuaded myself
to come to the conclusion that for all legal purposes the property must be
treated as belonging to the assessee and perhaps legislature would remedy the
hardship of assessee in such cases if it wants. The assessee had a mere husk of
title and as against the vendee the assessee had no reality of title but as
against the world, he was still the legal owner and real owner.
As has been observed by this Court in
Commissioner of Wealth-tax, West Bengal v. Bishwanath Chatterjee and Others
(supra) the property is owned by one to whom it legally belongs. The property
does not legally belong to the vendee as against the vendor, the assessee.
In Webstor's Dictionary 'belonging to' is
explained as meaning, inter alia, to be owned by, be in possession of.
The precise sense in which the words were
used, therefore, must be gathered only by reading the instrument or the
document as a whole. Section 53A of the Transfer of Property Act, 1908 is only
a shield and not a sword.
In Aiyar's Law Laxicon of British India,
[1940] Edition page 128, it has been said that the property belonging to a
person has two meanings-(1) ownership; (2) the absolute right of the user. The
same view is reiterated in Stroud's Judicial Dictionary 4th Edn. page 260. The
expression:
'property belonging to' might convey absolute
right of the user as well as of the ownership. A road might be said, with
perfect propriety, to belong to a man who has the right to use it as of right,
although the soil does not belong to him.
Under section 53A of the Transfer of Property
Act, 1908 where possession has been handed over to the purchasers and the
purchasers are in rightfuly possession of the same as against the assessee and
the occupation of the property in question, and secondly that the entire
consideration has been paid, and thirdly the purchasers were entitled to resist
eviction from the property by the assessee in whose favour the legal title
vested because conveyance has not yet been executed by him and when the
purchasers were in possession had right to call upon the assessee to execute
the conveyance, it cannot be said that the property legally belonged to the
assessee in terms of section 2(m) of the Act in the facts and circumstances of
the case even though the statute must be read justly and equitably and with the
object of the section in view. We are conscious that if a person has the user
and is in the enjoyment of 1091 the property it is he who should be made liable
for the property in question under the Act yet the legal title is important and
the legislature might consider the suitability of an amendment if it is so
inclined.
This question therefore must be answered in
favour of the revenue and in the affirmative. The appeal in this aspect must
therefore fail.
For the second question it is necessary to
refer to section 2(e) which provides for the definition of assets by stating
that "assets" includes property of every description, movable or
immovable, but does not include,- "...........
(iv) a right to any annuity in any case where
the terms and conditions relating thereto preclude the commutation of any
portion thereof into a lump sum grant;" Therefore, in order to be excluded
from the assets of the assessee, the right being the sum which was annually to
be paid under the agreement or letter mentioned hereinbefore must be by the
terms and conditions precluded commutation of any portion thereof into a
lumpsum grant. The question therefore is-could this lumpsum grant of Rs.25
lakhs be commuted by the Nizam and the capital value of the commutation be
received? Furthermore, the next question that arises was whether that
commutation was precluded by the terms and conditions relating to that right.
It may be that preclusion might be either by express terms and conditions of
the right or as an inference from the terms and conditions of the payment.
We need not go into the rights of the
erstwhile princes before the abolition of the privy purses whether the privy
purses could be commuted or not.
The term 'annuity' is not defined in the Act.
According to the Oxford Dictionary, 'annuity' means sums payable in respect of
a particular year; yearly grant. An annuity is a certain sum of money payable.
yearly either as a personal obligation of the grantor or out of property. The
hall-mark of an annuity, according to Jarman On Wills (page 1113) is:
(1) it is a money; (2) paid annually; (3) in
fixed sum; and (4) usually it is a charge personally on the grantor.
1092 Whether a particular sum is an annuity
or not has been considered in various cases. It is not necessary in the facts and
circumstances of the case and in view of the terms of the payment indicated to
examine all these cases.
In Ahmed G.H. Ariff and Others v.
Commissioner of Wealth-tax, Calcutta, 76 I.T.R. 471, this Court held that the
word 'annuity' in clause (iv) of section 2(e) of the Act must be given the
signification which it has assumed as a legal term owing to judicial
interpretation and not its popular and dictionary meaning.
In Commissioner of Wealth-tax Gujarat v.
Arundhati Balkrishna, 77 I.T.R. 505, there were two deeds of trust.
The assessee's father had settled certain
shares in trust for the benefit of the assessee and her two brothers. The
trustees were to pay the residue of the income from the trusts in equal shares
to the beneficiaries after deducting all costs and expenses. The assessee had a
right after she had attained majority and after the birth of her first child to
require the trustees to pay her shares out of the corpus of the trust fund
absolutely up to one-half thereof. Under another trust created by her
mother-in-law of certain sums of money and certain shares the trustees were
required to pay the income of the trust funds after deducting expenses to the
assessee during her lifetime. It was held that the payments to the assessee
under the trust deeds were not 'annuities' within the meaning of section 2(e)
(iv) of the Act.
In Commissioner of Wealth-tax, Rajasthan v.
Her Highness Maharani Gayatri Devi of Jaipur, 82 I.T.R. 699, this question
arose again. The Maharaja of Jaipur had executed a deed of irrevocable trust
whereunder the properties mentioned in the schedule thereto stood transferred
to the trustee. The trust fund was to include the assets mentioned in the
schedule and also such additions thereto and other capital moneys which might
be received by the trustee. The assessee was one of the beneficiaries under the
trust to whom the trustee was to pay during her lifetime 50 per cent of the
income of the trust fund. The question was whether the assessee had a life
interest in the corpus of the trust fund and her interest was therefore an
'asset' liable to wealth-tax or whether the assessee had only a right to an
annuity and as such her right was exempt from wealth-tax in view of section
2(e) (iv) of the Act. It was held by this Court that since neither the trust
fund nor the amount payable to the assessee was fixed and the only thing
certain was that she was entitled to 50 per cent of the income of the trust
fund, 1093 what the assessee was entitled to was not an annuity but an aliquot
share in the income of the trust fund. The assessee had a life interest in the
trust fund and the right of the assessee under the trust deed was not exempt
from wealth-tax by virtue of the provisions of section 2(e) (iv).
In Commissioner of Wealth-tax, Lucknow v. P.K.
Banerjee, 125 I.T.R. 641, it was held that
the right of the assessee in the trust fund in that case was not an 'annuity'
and was not exempt from the wealth-tax under section 2(e) (iv) of the Act. It
was further observed that in order to constitute an 'annuity' the payment to be
made periodically should be a fixed or predetermined one and it should not be
liable to variation depending upon or on any ground relating to the general
income of the fund or estate which was charged for such payment.
In this case, in view of the background of
the terms of payment and the circumstances why the payment was made, there
cannot be any doubt that Rs.25 lakhs annually was an 'annuity'. It was a fixed
sum to be paid out of the property of the Government of India in lieu of the
previous income of the assessee from Sarf-e-khas. Therefore, it was an annuity.
The only question that arises, was there any
express provision which prevented commutation of this annuity into a lumpsum?
Counsel for the revenue contended that there must be an express provision which
must preclude commutation. In this case indeed there is no express provision
from the document itself. The question is: can, from the circumstances of the
case, such an express provision precluding commutation be inferred in the facts
and circumstances of this case? The background of the facts and circumstances
of the payment has to be kept in mind. The Nizam had certain income. He was
being given three sums-one was the privy purse which was not commutable; the
other was payment of Rs.25 lakhs for the upkeep of palaces etc. and the third
of Rs.25 lakhs in lieu of his previous income from the Sarf-e- khas. Income is
normally meant for expenditure. The Nizam had to incur various expenditures.
Commutation is often made when one is not certain as to whether the source from
which that income comes for example, when a man retires from service, he
normally commutes in order to ensure for himself and after his death for his
family a certain income which he can ensure by getting the commuted amount
invested in his private bank or otherwise which he may not be sure because upon
his death the pension will cease.
1094 In this case this being an aggrement
between erstwhile ruler and the Government of India, there is no such
motivation and this payment of Rs.25 lakhs in lieu of the previous income of
Sarf-e-khas must be read in conjunction with two other sums namely Rs.50 lakhs
as privy purse and Rs.25 lakhs for upkeep of palaces. This bears the same
character.
As privy purses were not commutable, we are
of the opinion that from the circumstances and keeping in background of the
payment, there was an express provision flowing from the circumstances
precluding the commutation of this amount of Rs.25 lakhs. If that is the
position, then, in our opinion, it was exempt under section 2(e) (iv) of the
Act.
There was no right granted and can be
gathered from the terms of the grant of payment for the assessee to claim
commutation of the amount of Rs.25 lakhs. That would defeat the purpose and the
set up of the arrangement under which the payment of the amount was made. The
nature of privy purses have been discussed in H.H. Maharajadhiraja Madhav Rao
Jiwaji Rao Scindia Bahadur & Ors. v. Union of India, [1971] 3 SCR 9. We
are, however, not concerned with the controversy of the privy purse. But it is
quite evident from the nature of the sum stipulated in the letter, the assessee
had no right to claim commutation. Taking that fact in conjunction with the
circumstances under which the payment of Rs.25 lakhs was agreed to, we are of
the opinion that it must be held that from the terms of the agreement, there
was an express stipulation precluding commutation. If that is so then it comes
within clause (iv) of section 2(e) of the Act and the assessee was entitled to
exemption. The question therefore must also be answered in the negative and in
favour of the assessee.
The appeal is disposed of in the aforesaid
terms. The judgment and order of the High Court are modified accordingly. In
view of the divided success, there will be no order as to costs.
A.P.J. Appeal allowed in part.
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