TMI Blog1996 (10) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... ? 4. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the amount of Rs. 13,00,578 representing the accrued interest and rentals due could be considered as part of the net wealth of the assessee for the assessment year 1964-65 ? " These questions relate to the assessment years 1964-65 to 1966-67. They arise under the Wealth-tax Act, 1957. In so far as the first question is concerned, learned standing counsel submits that it is covered against the assessee by the decision of this court in CIT v. Nawab Mir Barkat Ali Khan [1974] Tax LR 90, and also another decision of a Division Bench of this High Court in Nawab Mir Barkath Ali Khan v. CIT [1988] 171 ITR 541. But learned counsel for the assessee has brought to our notice the judgment of a Division Bench of this court in CIT v. Sahney Steel and Press Works (P.) Ltd. [1987] 168 ITR 811. In the last mentioned judgment, i.e., CIT v. Sahney Steel and Press Works (P.) Ltd. [1987] 168 ITR 811 (AP) as well as in the judgment in Nawab Mir Barkath Ali Khan v. CIT [1988] 171 ITR 541 (AP), the Division Bench referred to the judgment of the Supreme Court in Nawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ratnakar for the assessee. S. R. Ashok for the Commissioner. JUDGMENT OF FULL BENCH The judgment of the court was delivered by SYED SHAH MOHAMMED QUADRI J. --- In the reference under section 27(1) of the Wealth-tax Act, 1957 (for short " the Act "), four questions were referred by the Income-tax Appellate Tribunal (for short " the Tribunal ") to this court. While answering two questions, the Division Bench of this court, of which one of us (Syed Shah Mohammed Quadri J.) was a member, referred the following two questions to a Full Bench : " (1) Whether, on the facts and in the circumstances of the case, the assessee was the owner in respect of properties agreed to be sold and in respect of which sale consideration was received but no sale deeds had been executed or registered ? (2) Whether, on the facts and in the circumstances of the case, the assessee was the owner of the properties in possession of the Sahebzadas and Sahebzadis regarding which the assessee granted firmans ?" Accordingly, this reference has come up before us. The facts leading to the reference of these questions may be noted here : The late Nizam Nawab Sir Mir Osman Ali Khan, for short " the late N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal dismissed the appeal of the assessee. On the application of the present Nizam, the abovesaid questions are referred to this court. The point that arises for consideration in this reference is : " Whether, on the execution of the agreement for sale, receipt of consideration thereunder and delivery of possession of the properties to the vendee and whether on retroceding the properties in favour of the Sahebzadas and Sahebzadis by ' firmans ', the late Nizam ceased to hold the properties in question ; if so, whether the value of those properties should not have been included in his net wealth for assessment to wealth-tax under the Act ?" Section 3 of the Act is the charging section. In the relevant assessment years, it was thus worded : " 3. Charge of wealth-tax. --- Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule. From a plain reading of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz., March 31, 1964, March 31, 1965, and March 31, 1966. We may note here that a similar issue came up for consideration of this court in CIT v. Nawab Mir Barkat Ali Khan [1974] Tax LR 90 with reference to the assessment year There the question was whether the late Nizam was the owner of the properties which he agreed to sell ; received the whole sale consideration and handed over possession of those properties to the purchasers but did not execute sale deed and also of the properties which were in the possession of Sahebzadas and Sahebzadis and which he retroceded by " firmans " within the meaning of section 9 of the Indian Income-tax Act, 1922 (section 22 of the Income-tax Act, 1961). After an elaborate discussion of English law and Indian law, the Division Bench concluded : " We are, therefore, satisfied that the agreement to sell does not create any beneficial, ownership according to Indian law in the purchaser. Nor does it create any equitable ownership in him. It is the vendor who continues to be the owner of the properties agreed to be sold until a lawfully registered sale deed is executed by him. The word ' owner ' in section 9 or 22, therefore, must be understood in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in R. B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570. In that case the question before the Supreme Court was, whether the assessee was the owner of the property which has vested in the Custodian of Evacuee Property in Pakistan and whether the income from the said property could be included in the income of the assessee. The Supreme Court was considering the question with reference to taxability of income under section 9 of the 1922 Income-tax Act for the assessment years 1952-53, 1955-56 and 1956-57. The assessee there was a registered firm deriving its income from interest on securities, properties, business and other sources. One of its properties, viz., Nedous Hotel, was situated in Lahore and it was declared as evacuee property and consequently vested in the Custodian in Pakistan. For those assessment years, they claimed losses and showed the annual letting value of that property as " nil ". The loss was claimed on account of interest payable to the bank on the loan amount which the assessee had taken to purchase that property. The Income-tax Officer held that the income or loss from the property which had vested in the Custodian, could not be taken into account and thus disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years for the purposes of section 9 of the Act. In Nawab Sir Mir Osman Ali Khan (Late) v. CWT [1986] 162 ITR 888 (SC), one of the two questions considered by the Supreme Court was, : " 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 ?", their Lordships of the Supreme Court referred to the judgment of our High Court in CIT v. Nawab Mir Barkat Ali Khan [1974] Tax LR 90, and observed that there the position was different and that they were not concerned with the expression " owner " but were concerned, whether the assets on the facts and in the circumstances of that case " belong " to the assessee any more. Referring to the judgment of the Supreme Court in Jodha Mal Kuthiala's case [1971] 82 ITR 570, it was pointed out that it had to be borne in mind that in interpreting the liability for wealth-tax, normally equitable considerations were irrelevant, but it was well to remember that in the scheme of the administratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf, 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 since in view of the position that legal title still vests with the assessee and 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-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch that the earlier ruling of the Supreme Court in Jodha Mal Kuthiala's case [1971] 82 ITR 570 (SC), was referred to by the Supreme Court in Nawab Sir Mir Osman Ali Khan's case [1986] 162 ITR 888, but the statement of law contained in Jodha Mal Kuthiala's case [1971] 82 ITR 570 (SC) was neither disapproved nor departed from ; the Division Bench, therefore, came to the conclusion that it was not possible to depart from the principles laid down in Jodha Mal Kuthiala's case [1971] 82 ITR 570 (SC) and in that view of the matter it agreed with the earlier judgment of the Division Bench in the case of the same assessee for an earlier assessment year in Sahney Steel and Press Works (P.) Ltd. [1987] 165 ITR 399 (AP). Now, from the above discussion it becomes evident that for inclusion in the net wealth of an individual, what is relevant is not who owns the property, but " to whom the property belongs ". Therefore, it is necessary to understand the true import of the expression " belonging to " in section 2(m) of the Act. We have extracted section 2(m) above. We shall now endeavour to discover the intention of Parliament in using the expression " belonging to " in contradistinction to " o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses to him . . . Explanation. --- For the purposes of this section,--- (a) the expression ' transfer ' includes any disposition, settlement, trust, covenant, agreement or arrangement, and . . . " A close reading of section 4, the Explanation thereto and section 2(m) of the Act makes the intention of Parliament evident as to what should be treated as belonging to the individual for the purposes of computing the net wealth. It appears to us that a property which has been transferred by the individual in favour of another under any disposition, settlement, trust, covenant, even an agreement or arrangement will cease to belong to him and cannot be brought within the fold of " belonging to " under section 2(m) of the Act and it is for that purpose that section 4 of the Act specifically provides that the properties. held by persons enumerated in clause (a) of sub-section (1) under such inchoate transfer shall be included as belonging to that individual. Therefore, it follows that in the case of a transfer as defined in the Explanation to section 4 by the individual, the property cannot be said to belong to the individual unless it is within the clutches of section 4 of the Act, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 4 of the Act were not brought to the notice of the Supreme Court and were not considered in Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888 (SC). There was, however, no occasion for consideration of those provisions in the other cases referred to above. For the purpose of construing the expression " belonging to " in section 2(m) of the Act and in view of the judgment of the Supreme Court in Nawab Sir Mir Osman Ali Khan's case [1986] 162 ITR 888, the judgments of our High Court in CIT v. Nawab Mir Barkat Ali Khan [1974] Tax LR 90, Nawab Mir Barkath Ali Khan v. CIT [1988] 171 ITR 541 and CIT v. Sahney Steel and Press Works (P.) Ltd. [1987] 168 ITR 811, will not be of much assistance much less will they be binding authorities on the interpretation of the expression " belonging to " in section 2(m) of the Act for the term considered in those income-tax cases was " owner " within the meaning of section 9 of the 1922 Indian Income-tax Act (section 22 of the 1961 Income-tax Act). For the aforementioned reasons, in our considered view, the expression " belonging to " in section 2(m) of the Act will have to be understood as interpreted above in answering the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s back to the cedent ". In the Oxford Dictionary " retrocede " is given the meaning " 1. move back, recede 2. cede back again ". We consider it unnecessary to construe the term " retrocede " in any depth as that is now used in the order of the Tribunal but not in any statutory provision or any document. In the absence of the " firmans " or relevant material, it is not possible to say whether it was copied from the " firmans ". Suffice it to say that the term " retrocede " connotes that a thing which originally belonged to a person but was held by another is given back to that person to whom it really belonged. The private estate of the Nizam comprised the properties of the royal family of his fore-fathers. He used to have overall supervision and control of the properties of the royal family though the properties in the possession and enjoyment of the members of the royal families called Sahebzadas and Sahebzadis used to devolve on their respective heirs of the members of the family in accordance with the Sharia. If the properties really belonged to the members of the royal family as Sahebzadas and Sahebzadis and were being dealt with and divided among the heirs as " matruka " on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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