TMI Blog1975 (7) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... tion dated November 26, 1959. On January 4, 1960, the trustees paid the entire amount of consideration to the assessee. A couple of days prior thereto on January 2, 1960, the assessee wrote to the tenants saying that the property had been sold to the trustees and requesting them to attorn their tenancies to the trustees and pay them the rent from January 1, 1960. Thereafter, rents were received by the trustees. There was, however, delay in execution of the conveyance in favour of the trustees. It was ultimately executed on February 12, 1962. For the assessment years 1961-62 and 1962-63 for which the relevant previous years were calendar years 1960 and 1961 the following question which arose for determination has been referred to us: "Whether, on the facts and in the circumstances of the case, the assessee society was liable to be assessed on the income from the property under consideration under the provisions of section 9 of the Indian Income-tax Act, 1922, for the assessment year 1961-62 and under section 22 of the Income-tax Act, 1961, for the assessment year 1962-63 ?" The Income-tax Officer held that the assessee was the owner of the property and as such was liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guage used. His submission was that if the question was approached from such a point of view then as the assessee continued to be the owner until it executed the registered sale deed in favour of the trustees, it is liable to be taxed for the income of the property as computed under section 9 of the Indian Income-tax Act, 1922, and section 22 of the Income-tax Act, 1961. Mr. Kolah, on the other hand, on behalf of the assessee contended that the real test to be applied in such a case is, who is entitled to receive the income of the property ? He emphasised that after the agreement was entered into at the request of the assessee the entire price was paid by the trustees and possession was banded over to them; that tenants were attorned in favour of the trustees and were requested to payment to the trustees; that thereafter the entire income of the property has been realised by the trustees and not a penny has come to the hands of the assessee. He further contended that, having regard to the provisions of section 53A of the Transfer of Property Act, the assessee was debarred from enforcing any right against the trustees in respect of the property. In fact once the possession was hande ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies to be held in trust for the purposes declared therein. The mutawallis were directed to collect the rents, and, after defraying all charges, to pay 1/8th of the balance of the income to the settlor's wife for life and the other 7/8ths to the settlor's children. After the death of the wife the 1/8th was to follow the other 7/8ths and after the extinction of all the childern and remoter issue of the settlor the properties were to be held for the use of charitable, religious or pious purposes for the benefit of Sunni Halai Memons. The Division Bench of this court held that though the mutawallis constituted an association of individuals within the meaning of section 3 of the Indian Income-tax Act, 1922, they were not the "owners" of the properties within the meaning of section 9 of the Act and could not be assessed is regards the income of the wakf properties; but the income-tax authorities were bound to assess the beneficiaries directly in respect of the income of the wakf. Beaumont C. J., who delivered the main judgment of the court, held that though the language of section 9(1) seems to involve that the assessee must be the owner of the property from which the income is derived, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is all the more necessary to keep close to the Hindu law. Their Lordships could not accept the suggestion that because the statute to be interpreted was an Income-tax Act, broader or more general notions of ownership than the Hindu law afforded were to determine the matter. However, the contentions urged by Mr. Joshi are fully supported by the decision of this court in D. M. Vakil v. Commissioner of Income-tax. As laid down in that case, to ascertain what is the total income, the court must look at sections 6 and 9 which contain the heads of income and how computation was to be made in respect of the head "Income from property". It was argued that the scheme of the Income-tax Act was that once a party was shown to be the owner of a property, he must be taxed under the head "Income from property" and the computation of the income must be in accordance with section 9 of the Indian Income-tax Act. It was contended that the actual receipt of the rent in the hands of the owner is quite immaterial for the purposes of assessment. The law has laid down a particular method of computation in respect of income from property and that must be applied to arrive at the figure to be inserte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immovable property of the value of Rs. 100 and upwards can be made only by a registered instrument. A contract of sale of an immovable property by itself does not create any interest in or charge on such property. Strong reliance is placed by Mr. Kolah upon three principal facts, that after the contract of sale by mutual arrangement possession had been handed over to the trustees in exchange of the receipt of price by the assessee; that the tenants were attorned to the trustees and they have been directed to pay the rent to the trustees and that from and after the (late of handing over possession not a penny by way of income has been realised by the asssessee and so for all practical purposes no vestige of ownership was left outstanding in the assessee at all from and after that date. Having regard to the provisions of section 54 of the Transfer of Property Act and section 17 of the Registration Act sale of the property with which we are concerned can never be effected or completed without a registered conveyance. The short question that we have to consider is that simply because possession has been handed over and the trustees who are the purchasers are authorised and entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's total income. The Appellate Assistant Commissioner was also of the same view. The Tribunal, however, was of opinion that though the assessee remained the legal owner, the beneficial ownership passed to the purchaser on March 29, 1956, and that under section 9 of the Indian Income-tax Act, 1922, the income from the property was assessable in the hands of the beneficial owner, that is the purchaser, and not the assessee. The view taken by the Tribunal was reversed on a reference to the High Court. The High Court held that in the case of a sale of immovable property a registered document is necessary to give effect to the sale and the sale takes effect only from the date of execution of the document; that in Indian law beneficial ownership is unknown; there is but one owner, namely, the legal owner, both in respect of vendor and purchaser, and trustee and cestui que trust; and that the expression "income from property" used in sections 6 and 9 of the Indian Income-tax Act, 1922, refers to the income of the legal owner of the property and he is the only person assessable to tax on the basis of the bona fide annual value thereof. The court, inter alia, referred to the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement. The sale deed recited the agreement of March 16, 1946, and referred to the two classes of properties agreed to be sold thereunder. The actual conveyance under the deed was only of the immovable properties specified in the first part of the schedule and the price thereof was stated to be Rs. 2,00,600. The Appellate Tribunal held that, so far as the movable properties were concerned, title passed when they were delivered to the company on March 30, 1946, and capital gains tax was not payable in regard to these properties under section 12B (this section applied only to transfers effected after March 31, 1946) but the coal company was liable to pay capital gains tax for the immovable properties covered by the sale deed dated May 17, 1946. The Supreme Court has held, inter alia, that the title to immovable properties covered by the sale deed passed to the transferee on the date it was executed, namely, May 17, and the title to the movable properties passed to the company on the date they were handed over, namely, March 30, and not on the date of the agreement, and, therefore, the firm was liable for tax only in respect of profits made with reference to the immovable propertie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of their bungalows in 1953 or 1954 and they were realising the rents of the bungalows rented out by them in pursuance of oral agreements with the vendor. The Appellate Tribunal held that, as there were no conveyances and completed sales, the assessee would still be the owner of the bungalows within the meaning of section 9 of the Indian Income-tax Act, 1922, and that the department rightly taxed the rental income in the hands of the assessee. It was, inter alia, held by the Division Bench of this court that the rental income from the bungalows, the possession whereof was given to the intending purchasers along with the right to receive rent, without transferring ownership, was assessable in the hands of the assessee. The word "owner" in section 9 of the Act must be construed in its ordinary meaning of a legal owner under the general law. The liability to income-tax on property depends on the fact that the assessee is the owner of the property. Section 9 deals with income from property and the income from that source is an artificially defined income. The assessee is made liable to pay the income-tax on the value of the property computed in the manner prescribed. That liability doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rship and would be equally just when arising out of a lesser degree of ownership. It is further pointed out that the use of the premises by the railways was essential to the earning of the profits and applying the rule of construction laid down by them the word "owner" must be interpreted in a wide and popular sense and, having regard to the object and intention of the legislature, it is clear that the railway comes within the rule granting this allowance. This majority view was, however, not accepted by the Division Bench of this court on the ground that in the first place it seemed to them that the very principle of interpretation with which the judgment commenced was not correct, namely, that where the object and intention of the legislature is clear and undoubted, that meaning should be given, when possible, to the words used which will best carry out its clear object and intention. The Division Bench pointed out that the words in the statute by themselves should first be attempted to be construed and it was only in the event of doubt or difficulty that the object and intention of the legislature should be brought into play. The majority view was also not followed on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to his house property in favour of his father. In the preamble to the deed it was recited that the assessee was desirous of making provision for the maintenance of his father for his lifetime. Clause 1 of the deed provided that the assessee "transfers in favour of" his father for the lifetime of the latter "the right to the usufruct and income" of the property "and for that purpose transfers in his favour and authorises him to exercise all the powers and rights of an owner that (the assessee) himself possesses and enjoys". By way of clarification clause 2 provided that the father would be entitled to receive all the rents and income from the existing or any future leases, to enter into contracts of leases, to evict and to induct tenants and "in short he shall possess during his lifetime all the powers and rights of the owner of the property except that he cannot sell, mortgage or gift away the corpus of the property which it to remain intact and unencumbered and will after the demise of (the father) revert" to the assessee or his heirs and successors. Under clause 3 the father was himself to pay the taxes and municipal dues. Clause 4 provided that the assessee "or his heirs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted a half share in the said property in lieu of the loan advanced and also 1/3rd of the outstanding liability of the bank. This arrangement came into effect on November 1, 1951. After the creation of Pakistan, Lahore became a part of Pakistan. The Nedous Hotel was declared an evacuee property and, consequently, vested in the Custodian in Pakistan. The question that arose for consideration was that having regard to the provisions of the Pakistan (Administration of Evacuee Property) Ordinance, 1949, whether the assessee can be regarded as owner within the meaning of section 9 of the Indian Income-tax Act, 1922. The Supreme Court 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. An assessee whose property remains vested in the Custodian of Evacuee Property by virtue of section 6(1) of the said Ordinance, as evacuee property, is not the owner of the property for the purposes of section 9 of the Indian Income-tax Act, 1922. The assessee cannot exercise any rights in that property except with the consent of the Custodian; he merely has so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty. He could not realise the income of the property. On the other hand, the Custodian could take possession of that property. He could realise its income. He could alienate the property and he could under certain circumstances demolish the property. All the rights that the evacuee had in the property he left in Pakistan were exercisable by the Custodian excepting that he could not appropriate the proceeds for his own use. The evacuee could not exercise any rights in that propertv except with the consent of the Custodian. He merely had some beneficial interest in that property. No doubt that residual interest in a sense is ownership. The property having vested in the Custodian, who had all the powers of the owner, he was the legal owner of the property. In the eye of the law, the Custodian was the owner of that property. It was upon scrutiny of the effect of the Ordinance that the Supreme Court first took the view that the Custodian should be regarded as the owner and it was in that light the test was considered whether the assessee was the person entitled to the income of that property. It will not be possible for us to divorce a test of mere receipt of income apart from vesting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny right in respect of the property of which they have taken possession. What is the effect of section 53A of the Transfer of Property Act is not a matter of doubt. The right conferred by section 53A is a right only available to a defendant to protect his possession. Section 53A does not create a title in favour of the defendant. It merely operates as a bar to the plaintiff for asserting his title. When the conditions mentioned in section 53A are fulfilled it debars the transferor from enforcing against the transferee any right or interest expressly provided by the contract. This section merely creates a right in the transferee to protect his possession against any challenge to it by the transferor contrary to the terms of the contract. However, it is well-settled that this section does not confer title on the defendant in possession and he cannot maintain a suit on title. It will be sufficient if reference be made to a decision of the Supreme Court in Ram Gopal Reddy v. Addl. Custodian, Evacuee Property, Hyderabad. It is also a case of an evacuee under the Administration of Evacuee Property Act. Two questions arose for consideration before the Supreme Court: Whether in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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