TMI Blog1974 (11) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... Balabhai had separate properties as well as joint family properties. The deceased had executed a will dated 6th October, 1956, bequeathing his undivided 1/2 share in the joint family properties which consisted of partnership business, shares, securities and immovable properties, as well as individual properties to his grandsons, petitioners Nos. 2 and 3 herein. Though no executor was appointed for carrying out the directions in his said will, petitioner No. 1 administered the properties bequeathed under the will as executor and legal representative of the late Balabhai Damodar. Petitioner No. 1 on the death of his father, the said Balabhai, also received his 1/2 share in the joint family property, he being a coparcener and he, therefore, qua his 1/2 share constituted along with his two sons, petitioners Nos. 2 and 3, and their sons a smaller Hindu undivided family of which he was the karta. In these two petitions, we are concerned only with the 1/2 share of the late Balabhai Damodar in joint family properties which he bequeathed by will to petitioners Nos. 2 and 3 as well as with the 1/2 share in the same which petitioner No. 1 received as coparcener. After the death of Balabhai, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Act, 1961, issued four notices, two of which were served on petitioner No. 1 as the karta of his smaller Hindu undivided family as well as the legal representative of late Balabhai Damodar and the remaining two were served on petitioners Nos. 2 and 3 stating that he had reason to belive that the income of the petitioners chargeable to tax for assessment year 1967-68 had escaped assessment within the meaning of section 147 and he, therefore, proposed to reassess the income for the said assessment year. Similarly, by notices of 30th March, 1972, he intimated to the petitioners that he proposed to reassess the income for assessment year 1968-69, since he had reason to believe that the income of the petitioners chargeable to tax for the said assessment year had escaped assessment. It is common ground that respondent No. 1 proposed to reassess the petitioners in respect of the income from the immovable property, namely, the buildings and the lands occupied by them, under section 147(b) of the Act. The petitioners sent their reply dated 9th May, 1972, contending, inter alia, that the impugned notices were without jurisdiction, bad in law, vague and were also violative of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Valuation Cell of the Income-tax Department was more than Rs. 36,38,000 for the assessment year 1967-68. It has been thereafter stated in the said affidavit-in-reply as under : " ...... I say that for the purposes of estimating the annual value of the said properties for income-tax purposes the petitioners have estimated them at Rs. 30,000. I say that the estimate of the annual value by the petitioners is even less than 1% of the market value of properties estimated by the Executive Engineer. As the value estimated by the petitioners of the aforesaid properties was very much lower than the value that could be reasonably be estimated on the basis of fair market value of the properties estimated by the Executive Engineer it was a case of income escaping assessment and in consequence of the information acquired from the report of the Executive Engineer reassessment proceeding for reopening of assessment was initiated. I say that the information obtained by me both as to facts and as to the correct principles of valuation from the report of the Executive Engineer is " information " which was not in my possession at the stage of original assessment but which I got after the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d notices. The valuation report obtained by respondent No. 1 in his capacity as Wealth-tax Officer for purposes of assessment of the wealth-tax of the petitioners cannot constitute any " information " from an external source, since it was respondent No. 1 who for purposes of valuation under the Wealth-tax Act required the Executive Engineer belonging to the Valuation Cell of the Income-tax Department to value the said immovable property. The report submitted by the Executive Engineer to the Valuation Cell of the Income-tax Department cannot constitute an information from an external source and in any case, it did not give any relevant information as to the annual letting value of the property since the report merely gave the opinion as to capital value for purposes of wealth-tax. On behalf of the Union of India, it was contended by the learned advocate, Mr. K. H. Kaji, that the said valuation report did furnish information in the nature of valuation of the immovable property, which would have a hearing and a relevance on the question of annual letting value of these self-occupied properties. It cannot be said that the valuation report of the Executive Engineer was not an externa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts or particulars or as to law relating to a matter bearing on the assessment. The established position, therefore, is that " information " would mean instruction or knowledge derived from external sources concerning facts or particulars or as to law relating to a matter bearing on the assessment. In our opinion, the contention of the learned Advocate-General that this information was available at the time of original assessment is not well-founded since the Income-tax Officer could have obtained the information by entrusting the work of valuation of property to the Executive Engineer of the Valuation Cell of the Income-tax Department. The observation of Mr. Justice Shah in A. Raman's case clearly negatives this contention. The relevant observation on which reliance was placed by the learned Advocate-General for the Union of India reads : " The High Court in this case was apparently of the view that the information in consequence of which proceedings for reassessment were intended to be started, could have been gathered by the Income-tax Officer in charge of the assessment in the previous years from the disclosures made by the two Hindu undivided families. But that, in our ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition (Butterworths), at page 329. The observation reads: " Where property is of a kind that is rarely let from year to year, recourse is sometimes had to interest on capital value, or on the actual cost, of land and buildings, as a guide to the ascertainment of annual value. There was some apparent, if not real, conflict of decisions upon the question whether interest on capital value, or on cost, might be considered at all ; but the difficulty disappears if the rule be thus stated ; the measure of net annual value is defined by statute as the rent which might reasonably be expected ; interest on cost, or on capital value, cannot be substituted for the statutory measure, but in the absence of the best ; evidence, that is, actual rents, it can be looked at as prima facie evidence in order to answer the question of fact what rent a tenant may reasonably be expected to pay....." The observation of Mr. Justice Cave in R. v. School Board of London has been extracted on the same page 329 as under : " Interest on cost is a rough test undoubtedly. It is a test in some cases but it is not a test in others. If the place is occupied by a tenant, it is not a good test at all, becaus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a well-recognised principle in rating that both gross value and net annual value are estimated by reference to the rent at which the property might reasonably be expected to let from year to year. Various methods of valuation are applied in order to arrive at such hypothetical rent, for instance, by reference to the actual rent paid for the property or for others comparable to it or where there are no rents by reference to the assessments of comparable properties or to the profits earned from the property or to the cost of construction. " In New Manek Chowk Spg. and Wvg. Mills Co. Ltd. v. Municipal Corporation of the City of Ahmedabad the Supreme Court referred with approval to the observations to be found in Faraday on Rating, 5th edition page 24. The said observation from Faraday on Rating, at page 24, reads " The 'competitive or comparative methods', i.e., by finding out rents actually paid for the hereditament in question and/or others of a similar kind, adjusting them to bring into line with the statutory conditions, and thus arriving directly at an estimate of the rent. 2. The 'profits basis', or calculation by reference to receipts and expenditure, which is now requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various decisions of the Supreme Court. Negativing the contention, Mr. Justice Grover observed: " We are unable to agree. When the, expression 'information' is understood in the sense of instruction or knowledge derived from an external source concerning facts or particulars or as to law, relating to a matter bearing on the assessment, it is difficult to see how determination of valuation for the purpose of assessment of estate duty would not squarely fall within the meaning of the expression 'information', in the context in which it occurs in section 59 of the Act. It has not been disputed, and can indeed not be disputed, that the provisions of section 59 are in pari materia with section 34 of the Indian Income-tax Act, 1922, and section 147 of the Income-tax Act, 1961. The opinion expresed by the Board of Revenue, in the present case, as to valuation, was clearly 'information' in the sense in which that expression has been held to have been used in these enactments. The view of the High Court on this point cannot be sustained for the aforesaid reasons." In that view of the matter, therefore, We, must reject the first and second contentions of the learned Advocate-General. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is tax on the income under the said entry. We must frankly state that we are not impressed by this contention of the learned Advocate-General. It is no doubt true that, for purposes of tax on income, it must be money or money's worth. It is not necessary that income must be received in cash. It may also be received in kind but that may represent money's worth, that is, something which is capable of being converted in terms of money (vide Achraya D. V. Pande v. Commissioner of Income-tax ). The question which has been raised by the learned Advocate-General is in our view concluded long back by the decison of the Bombay High Court in D. M. Vakil v. Commissioner of Income-tax. The facts before the Bombay High Court were that one Bai Bhicaiji Dhunjibhoy appointed her husband and her son and three daughters as the trustees under her last will and testament dated 28th January, 1937. According to clause 5 of the said will, the husband of the testatrix, her son, Motabhoy, and daughter, Motibai, had the right to use and occupy free of rent such portion of the Warden Road property as was at the time of the making of the will occupied by the testatrix.. Besides the husband, the son and the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reside in the building of the bank for purposes of performing his duty, which he owed to his employers. The observation was to the effect that the thing sought to be taxed was not income unless it could be turned into money. On behalf of the Commissioner of Income-tax, it was urged before the Bombay High Court that this line of reasoning was incorrect as the only question to be considered under the Income-tax Act was that what was the income under the charging sections 3, 4, 6 and 9 containing the heads of income and how computation of income was to be made in respect of the income from property. Acting Chief Justice, Kania, speaking for the Division Bench of the Bombay High Court, held as under while rejecting the contention of the trustees : " In my opinion the contention of the trustees is not correct. The word 'income' has not been defined in the Act, but for the purposes of the Indian Income-tax Act, 1922, the expression 'total income' is defined in section 2(15). The legislature has used there the words 'computed in the manner laid down in this Act'. Therefore, in order to ascertain the total income of an assessee his income must be computed in the manner laid down in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r laid down in the Act there must be income to which the mode of computation can be applied. Now it cannot be disputed that income from property is taxable income. The only question is : what is income from property or how is it to be computed ? And for that purpose one must turn to section 9 of the Indian Income-tax Act, 1922. The scheme of the Income-tax Act is that the Income from property which is made liable to tax is not the actual income but an artificial or statutory income as defined in section 9 and that artificial or statutory income is the bona fide annual value of the property. Therefore, the fact that the owner of the property receives no income in fact or even that there is no possibility of his receiving an income is irrelevant for the consideration of the question as to what the artificial or statutory income of an assessee is from property. The test and the only test laid down in the Act is the bona fide annual value of the property, and in the case of every property that test can be complied with and the annual value of the property can be determined. Therefore, what the Act does is to make the annual rental value of the property the income of the owner of that p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al value of any property would be deemed to be the sum for which the property might reasonably be expected to be let from year to year. The contention of the learned Advocate-General that there is no fiction provided to treat the annual letting value of self-occupied property as income is not at all well-founded. It cannot be gainsaid that income from property is a taxable income. How income from property is to be assessed to tax is indicated by section 22, which lays down, in effect, that annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, shall be chargeble to income-tax as income from property except those properties which are used by the owner for business or profession for profits chargeable to income-tax. How annual value of property is to be determined is provided by section 23(1). The scheme of the Income-tax Act is that income from property which is made liable to tax is not its actual income in money but an artificial or statutory income as defined in section 23 and that artificial or statutory income is the annual value of the property. The contention that the properties are self-occupied and, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, Lahore became a part of that country. The Nedous Hotel was declared an evacuee property and, consequently, vested in the Custodian in Pakistan. In its return for the relevant assessment years, the assessee claimed losses, but showed the gross annual letting value from the said property at nil. The loss claimed was stated to be on account of interest payable to the bank. Since the property in question had vested in the Custodian of Evacuee Property, in Pakistan, the Income-tax Officer held that no income or loss from that property can be considered in the assessee's case. He accordingly, disallowed the assessee's claim in respect of the interest paid to the bank. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. When the appeal was taken to the Tribunal, it came to the conclusion that the assessee still ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the decision of the Bombay High Court in Baronetcy Trust's case relied on the decision of D. M. Vakil's case , the ratio of Vakil's case would not hold the field in view of the decision of the Supreme Court in R. B. Jodha Mal Kuthiala's case confirming the decision of the Delhi High Court in Commissioner of Income-tax v. R. B. Jodhamal Kuthiala . We are not inclined to accept this contention of the learned Advocate-General because the question which arose before the Bombay High Court in Currimbhoy Baronetcy Trust's case was in the following context : The trustees of a Baronetcy Trust created by a statute were the owners of certain properties. Under the statute, the incumbent for the time being of the office of Baronetcy was entitled to reside free of rent in two flats and a bungalow which formed part of the trust properties. In 1949, the then Baronet was declared an evacuee and the Custodian of Evacuee Property passed an order declaring the flats and the bungalow to be evacuee property and the rights of residence of the Baronet free of rent to vest in him. The question was whether the trustees could thereafter be assessed to tax on the annual rental value of the flats ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed in the hands of the trustees under section 9. The decision of the Bombay High Court in Sir Currimbhoy Baronetcy Trust's case was not cited before the Delhi High Court in Commissioner of Income-tax v. R. B. Jodhamal , where a question arose in a slightly different context. The property in question in R. B. Jodhamal's case was situated in Lahore which formed part of Pakistan and, therefore, was declared an evacuee property and vested in the Custodian of Evacuee Property, Lahore. The assessee-firm which was in India claimed that it still continued to be the owner thereof within the meaning of section 9 of the Indian Income-tax Act, 1922, and it was entitled to claim losses which it had suffered on account of the payment of interest to Bharat Bank Ltd. on the loan which it had raised for purchasing the said property in Lahore. It is no doubt true that the Delhi High Court held on a consideration of the provisions of Pakistan (Administration of Evacuee Property) Ordinance, 1949, and more particularly section 6(1) thereof that during the period that the assessee's property remained vested in the Custodian of Evacuee Property as evacuee property, the right of the assessee to cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evacuees were divested of their ownership right while as observed in Amar Singh's case the effect of Indian legislation was not to divest the right of ownership and an evacuee cannot be said to have lost his ownership in it. The decision of the Supreme Court in R. B. Jodha Mal's case , therefore, would not by implication render the ratio of the decision of the Bombay High Court in Sir Currimbhoy Baronetcy Trust's case as of no effect. In any case, in our opinion, the decision of the Supreme Court in R.B. Jodha Mal's case was on the construction of the Evacuee Property Ordinance, 1949, of Pakistan and more particularly on the question, whether the assessee continued to be the owner in view of the provisions of the Pakistan Ordinance. That decision cannot, therefore, be of any assistance to the petitioners before us and in our opinion the decision in D. M. Vakil's case on this point that the fact of the actual receipt of income from property is not at all conclusive of the question of liability of the owner of the self-occupied property to pay on its fictional or statutory income still holds the field as good law with which we are in respectful agreement. In that view of the matter, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
