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TMI Blog1967 (9) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,70,104 in respect of the ownership of the said property ? (3) Whether, on the facts and in the circumstances of the case, the assessee was entitled to the loss claimed by it by conversion of the purchase price from Pakistan currency to Indian currency in respect of the business carried on at Hoshiarpur with the purchases mentioned above? " The question referred in the other reference 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 section 9 of the Indian Income-tax Act, 1922 ? " Rai Bahadur Jodha Mal Kuthiala (hereafter referred to as the assessee) is a registered firm. The assessee purchased a property known as Nedous Hotel and the adjoining Mela Ram Buildings in Lahore in February, 1946, for Rs. 46,00,000, and for acquiring this property, the assessee raised interest bearing loan of Rs. 30,00,000 from Bharat Bank Limited. During the previousyear relevant to the assessment year 1951-52, the assessee credited a sum of Rs. 1,14,875 on account of interest payable to the lender and paid Rs. 15,000 as interest in the said year. The assessee claimed a loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th that as the point that arises before us is with respect to the claim of the assessee for interest payable to the Bharat Bank Limited. The facts relevant to the third question in reference No. 3 of 1967 set out hereinbefore are that the assessee had an office at Hoshiarpur where it dealt in cotton seeds, gram, oil and salt imported from Pakistan. According to the assessee's books the transactions had resulted in a gross profit of Rs. 4,842 but the assessee claimed a loss of Rs. 1,09,870 on the ground that the price of the purchases made in Pakistan in terms of Indian rupee worked out to Rs. 3,75,422 as against the amount of Rs. 2,60,710 actually paid in Pakistan in Pakistan currency. The Income-tax Officer did not accept the assessee's books as, according to him, the prices of salt and oil cake were inflated and there was suppression of sales. He, therefore, disallowed the loss claimed by the assessee and estimated an income of Rs. 15,000. In appeal the Appellate Assistant Commissioner held that the loss claimed on the basis of exchange ratio between the currencies of India and Pakistan was merely artificial and the profit or loss in the transactions should be taken according to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritten law, but what the law is as shown by its expositions. interpretation and adjudication, and the English courts are not, in general, entitled to construe a foreign code themselves without expert assistance. " He also relied on Cheshire's Private International Law, 7th edition, page 115, for the proposition that foreign law must be proved, as facts are proved, by appropriate evidence, that is, by properly qualified witnesses. Mr. Veda Vyasa placed strong reliance on Buerger v. New York Life Assurance Co., wherein Atkin L. J., while dealing with Russian law, said : " Now this being the uncontradicted evidence of a Russian lawyer, and the Russian Department of Justice, as to what the law is in Russia today, the defendants, without calling any evidence, ask us to say that the lawyer and the department are mistaken; that the Russian law is something different and that the law in Russia really is that Russian subjects cannot claim against foreign insurance companies. They say that we are bound to come to this conclusion on the interpretation of the decree of November 18, 1919, on which we are to put our own construction. Such a result would appear to me to go far beyond the law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at evidence is accepted by the court, that may be a finding of fact. If, on the other hand, the expert produces the foreign law and thus proves the contents thereof, his opinion as to the construction of that law will be subject to scrutiny by the court and is placed at par with the evidence of other experts. It is only where the matter enquired of lies within the range of the peculiar skill and experience of the witness and is one of which the ordinary knowledge and experience of mankind does not enable the courts to see what inferences should be drawn from the facts that the witness may supply opinion as their guide. The afore-mentioned basic difference in laws in the two countries calls for caution in applying English decisions. It follows, therefore, that when the contents of a foreign law in the language or translated into the language known to the courts in India are proved by an expert, what that law means must always be left to the determination by the courts. If Mr. Veda Vyasa's argument were to be accepted, the result would be that in a case where judicial notice of a foreign law is taken under section 38 of the Indian Evidence Act and the court of fact construes that law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns ; and that such burdens may weigh down the rights of the owner for some time but, the moment they are determined, the ownership will again spring to its full stature and, consequently, the presence of such temporary encumbrance; will not prejudice the ownership rights. According to Mr. Veda Vyasa, owner is a person who comes after the possessor of the temporary rights and his permanent rights, which last so long as the physical object lasts. He relied on the following passage from Salmond's jurisprudence, 12th edition, page 414 : " The second class of restrictions upon an owner's right of use consists of those which flow from the existence of encumbrances vested in other persons. My land may be mortgaged, leased, charged, bound by restrictive covenants, and so on, yet I remain the owner of it none the less. For I am still entitled to the residue of its uses, and whatever right over it is not specifically vested in some one else is vested in me. The residuary use so left to me may be of very small dimensions; some encumbrancer may own rights over it much more valuable than mine; but the ownership of it is in me and not in him. Were his right to determine tomorrow in any manner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property which is treated as evacuee property under any law for the time being in force in India, or in any area occupied by India, or (iii) is resident in any place in the territories now comprising India or in any area occupied by India and who for that reason is unable to occupy, supervise or manage in person his property in Pakistan or whose property in Pakistan has, whether wholly or partially, ceased to be occupied, supervised or managed by any person, or is being occupied, supervised or managed by an unauthorised person. " Under that definition, therefore, there are three classes of persons who are treated as evacuees--- (1) persons who leave the territories comprised in Pakistan on or after the 1st day of March, 1947, for specified reasons ; (2) persons who acquire, on or after the said date, any right or interest in or benefit from any property in India; and (3) residents in India who are unable to occupy, supervise or manage their properties in Pakistan. Under sections 7 and 8 any person in possession, supervision or management of any evacuee property after 28th day of February, 1947, is deemed to hold the same on behalf of the custodian and he must render full in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he may think fit to impose. Under the proviso to sub-section (3) of section 19 any allotment made by the rehabilitation authorities is not prejudiced by restoration unless cancelled or determined by the rehabilitation authorities. Sub-section (4) of section 19 enjoins upon the custodian, on an application made to him by the person to whom the property is restored, to furnish a statement containing an abstract of the account of the income received and expenditure incurred in respect of the property restored. Section 20, inter alia, authorises the custodian to institute, defend or continue any legal proceeding in any civil or revenue court on behalf of the evacuee or refer any dispute between the evacuee and any other person to arbitration or compromise any claims, debts, or liabilities on behalf of the evacuee and to " sell any evacuee property, notwithstanding anything contained in any law or agreement to the contrary relating thereto. " Section 22 requires the custodian to maintain a separate account of the property of each evacuee. Mr. Veda Vyasa, the learned counsel for the assessee, said that in spite of the evacuee laws, the property remained the property of the evacuees, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the other decisions cited at the bar later but it is appropriate to consider at this stage the two English decisions, mentioned above, which turn on the provisions of laws dealing with enemy properties in times of war. Munster's case concerned the Trading with the Enemy Amendment Act, 1914, the preamble of which recited that " it is expedient to make further provision for preventing the payment of money to enemies and ' for preserving, with a view to arrangements to be made at the conclusion of peace, such money and certain other property belonging to enemies ' ". Under section 4, the High Court or a judge thereof could by order vest in the custodian any such real or personal property and confer on the custodian such powers of selling, managing and otherwise dealing with the property as to the court or judge may seem proper. Real estate in England and shares and securities belonging to Munster in British companies were by order vested in the custodian. The Special Commissioners for Income-tax assessed the custodian to super-tax as agent or receiver for Munster and the custodian, having disputed the legality of assessment, it was held that Munster's beneficial ownership of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stee, during sequestration, of income-tax on the full annual value of the properties was a payment on behalf of Fleming. He, therefore, claimed that 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 and the right to the said abatement passed to him in virtue of the reinvestment in his estate which occurred upon his discharge on composition. It was observed by the Lord President : " . . . and accordingly everything depends upon the soundness of the proposition that the income consisting in the annual value of 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 respondent's creditors. Any income that did arise from those estates was income of the trustee as such, and he (and he alone) had the right to put it into his pocket as income. It was not income that went or could go into the pocket of the respondent as income in any of the years in question. How then can it be said to have reached his pocket as income on his subsequent reinvestiture ? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sohan Lal v. Mohanlal . When faced with the objection that all the abatements provided section 9 out of the annnal letting value indicate that the person can be termed as owner only if he has the control or dominion over the property from which he is in a position to earn, Mr. Veda Vyasa sought to overcome the difficulty by suggesting that, though under some of the provisions of the said Act it is the actual income in the Commercial sense that is taxed, yet under section 9 the potentiality to produce income is indifferent as the tax is on notional income. The distinction between the heads of income from business and that from property, subject to some special provisions is of course there and it may be said that the man who hides his talent in a napkin instead of lending it to the usurers pays no income-tax upon the usury he might have earned, but the man who leaves his house property unlet pays tax thereon on the annual letting value irrespective of the fact whether he earns or can earn any income therefrom, still, as shall be discussed hereafter, the scheme of the Act shows that a person can be termed as an owner only if he has such control over property as may enable him to earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. It is a comprehensive and generic term and must be construed in the setting in which it is used. It may be used to convey a meaning, sometimes broad and sometimes quite restricted. In some statutes it may mean a person in whom the property is for the time being beneficially vested and who has the occupation or control or usufruct of it. It may also be used to describe a person not having a full title but only a bare legal title. Again, in a given context the term " owner " may signify any person having any estate or interest in the land no matter how slight. Mr. Veda Vyasa's argument that notwithstanding restrictions, howsoever extensive on the right of occupation and use of the property, the original owner must still be treated as the owner minus the restrictions must necessarily be judged in the light of the provisions of the Income-tax Act. Section 6 of the Act describes six heads of income and the third head is " income from property ". The said provision shows that section 9 merely prescribes the notional method of arriving at the income from property on which an assessee has to be taxed but basically the tax is on income. It follows that the property must be such from whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sposed of. " That again shows that though the evacuee legislation may have contemplated return of properties ultimately to the evacuees, but their title remained in statutory suspense till it was restored. That statutory suspension takes away the right of the assessee to claim to be the owner of the property during that period. There are really two ways of approaching the problem : (1) that Harnam Singh's case is the only case in which their Lordships of the Supreme Court construed the Pakistan Ordinance and held that the evacuees were divested of their ownership rights; and (2) that evacuee legislation in India being pari materia with the evacuee legislation in Pakistan, the decision in Amar Singh's case equally governs the construction of Pakistan Ordinance. Whatever approach is resorted to, it is apparent that, in any event, till the properties are restored, the evacuees are not possessed of substratum of ownership and are not owners within section 9. Some decisions were cited by Mr. Veda Vyasa to show that even after mortgage, the mortgagor continues to be the owner within the meaning of section 9. Such a construction appears to follow from the express provisions of the sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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