Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Nawab Mir BARKAT ALI KHAN VS Respondent: COMMISSIONER OF WEALTH TAX
Court Name: Andhra Paradesh High Court Judge(s): B. Sudershan Reddy, P. S. Mishra, Syed Shah Mohammad Quadri Title: Nawab Mir BARKAT ALI KHAN vs COMMISSIONER OF WEALTH TAX Case No.: R. C. No,71 of 1986, Date of Judgment:1996-10-04 Reported As: 1999 PTD 1623 Result: Reference answered
JUDGMENT
JUDGMENT OF DIVISION BENCH ' SYED SHAH MOHAMMED QUADRI, J. [14-7-19941.---The following questions are referred to us for decision by the Income-tax Appellate Tribunal:-- "(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 properties in possession of the Sahebzadas and Sahebzadis regarding which the assessee granted Firmans? (3) Whether, on the facts and in the circumstances of the case, the assessee's right to receive the sum of Rs,25,00,000 from the State Government was an asset for the purpose of inclusion in the net wealth under the Wealth Tax Act, 1957? (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 All Khan (1974) Tax LR 90, and also another decision of a Division Bench of this High Court in Nawab Mir Barkat All Khan. v.
---
## Page 2
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 Barkat All Khan v. CIT (1988) 171 ITR 541 (AP), the Division Bench referred to the judgment of the Supreme Court in Nawab Sir Mir Osman Ali Khan v. Pm CWT (1986) 162 ITR 888 but relied on the judgment of the Supreme Court in Jodha Mal Kuthialia (R.B.) v. CIT (1971) 82 ITR 570. However, in none of these decisions, the Explanation to section 4 defining the expression "transfer" was considered. There is a conflict of opinion between the two Division Benches of this Court. ' In so far as the second question is concerned, learned counsel for the assessee contends that this question is covered by the judgment of a Division Bench of this Court in Nawab Mir Barkat Ali Khan v. CIT (1988) 171 ITR 541. But learned standing counsel for the Revenue submits that the necessary factual basis with regard to the date of the Firman was not brought on record before the Tribunal and, therefore, the question cannot be said to be covered. Here, we may observe that in that case also the expression "transfer" contained in the Explanation to section 4 of the Act, has not been considered. ' Regarding the third question, learned counsel for the assessee submits that it is covered against the Revenue by the judgment of the Supreme Court in Nawab Sir Mir Osman Ali Khan v. CWT (1986) 162 ITR 888. This is not disputed by learned standing counsel for the Revenue. Therefore, we answer the question in the negative, i,e, in favour of the assessee and against the Revenue. ' Now, the question that remains to be considered is question No,4 This question, it is represented, is covered by the judgment of this Court in Vadrevu Venkappa Rao v. CWT (1968) 69 ITR 552. There is no dispute about this. Therefore, we answer this question in the affirmative, i,e, in favour of the Revenue and against the assessee. ' Reference regarding questions Nos.3 and 4 is answered accordingly. ' Regarding question No,1, it has been noticed that there is a conflict of opinion between the two Division Benches of this Court. The answer to question No,2 was arrived at by the Division Bench in the assessee's case (supra) without taking into consideration the definition of the expression, "transfer" in the Explanation to section 4 of the Act. As these questions are recurring and of considerable importance, we feel that it is necessary to have an authoritative pronouncement by a larger Bench. We direct the office to place the papers before the Chief Justice for orders as to posting the case before a larger Bench. ' Y. Ratnakar for the Assessee. ' S.R. Ashok for the Commissioner. JUDGMENT OF FULL BENCH ' 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 question is, 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 properties in possession of the Sahebzadas and Sahebzadis regarding which the assessee granted firmans?" ' Accordingly, this reference has come up before us.
---
## Page 3
' The facts leading to the reference of these questions may be noted here. The late Nizam Nawab Sir Osman All Khan, for Short "the late Nizam", former ruler of the erstwhile State of Hyderabad, executed agreements of sale in respect of some of his personal properties under which he took the entire sale consideration and delivered possession of the immovable properties to the purchasers who have been in actual domain and control of those properties from the date of the agreements. On the ground that the late Nizam continued to be the legal owner of the properties in question, the Wealth Tax Officer while rejecting the contention of the assessee that those properties did not belong to him, included the value of those properties in the net wealth of the late Nizam for the assessm ent years 1964-65, 1965-66 and 1966-67. It appears that same questions fell for consideration of our High Court in respect of the assessment years 1959-60 to 1963-64 wherein the High Court took the view that the Nizam continued to be the legal owner. In that view of the matter both the appellate authority as well as the Tribunal upheld the assessment. ' The facts relevant to the second question are: Certain properties which originally belonged to the parents of the ladies in position in his palace, were held by the late Nizam but they were retroceded in favour of various Sahebzadas and Sahebzadis. No document, however, was executed to record the retrocession of those properties by the late Nizam but some firmans were issued by him in that respect. Negativing the contention that the late Nizam did not have title or interest in the properties, the Wealth Tax Officer took the view that the firmans were invalid and that the late Nizam alone held the properties in question and accordingly included the value of those properties in the net wealth of the late Nizam. The assessee's appeal before the Commissioner of Wealth Tax failed. The matter was then taken to the Tribunal in second appeal and it was contended on behalf of the assessee that the Sahebzadas and Sahebzadis were in exclusive possession and enjoyment of those properties, as such the value of those properties could not be included in the net wealth of the late Nizam. In the cases arising out of the earlier assessment years our High Court had taken the view that the firmans were issued by the late Nizam at a time when he ceased to be the sovereign, therefore, title in the properties did not pass in favour of the Sahebzadas and Sahebzadis. Following that judgment, the 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 assessm ent 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 assessm ent 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 above provision, it is evident that the wealth tax is charged 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. The expression "net wealth" is defined in section 2(m) of the Act, which runs 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
---
## Page 4
Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than,-- (i) debts which under section 6 are not to be taken into account; (ii) debts which are secured on, or which have been incurred in relation to, any property in respect of which wealth tax is not chargeable under this Act; and (iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 of 1953), the Expenditure Tax Act, 1957 (29 of 1957), or the Gift-tax Act, 1958 (18 of 1958),-- (a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him, or (b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date." ' It may be pointed out here that the definition of "net wealth" takes in not only all the assets belonging to the assessee but also the assets belonging to others which are required to be included, under section 4 of the Act, to which we shall refer presently, in his net wealth on "the valuation date". By "valuation date" is meant in relation to any year for which an assessment is made under the Act, the last day of the previous year as defined in section 3 of the Income tax Act, if an assessm ent were to be made under that Act for that year (see section 2(q) of the Act). This would lead us to the enquiry as to whether the properties sought to be included in his net wealth did belong to the late Nizam on the respective valuation date in respect of the said assessment years, 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 assessm ent year 1959-60. 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 (page 95):-- "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 this sense and cannot be understood in any other sense." ' and held that the late Nizam, in spite of the agreements, continued to be liable to pay tax on the income from such properties under section 9 of the Indian Income-tax Act. ' With regard to the properties in the possession of the Sahebzadas and Sahebzadis in whose favour some "Firmans" were issued, the Bench noted that the position of law was admittedly not very different as the "firmans" were not transfer deeds whereby title could be validly transferred as the "firmans" were issued at a time when the late Nizam had lost his sovereignty. ' For the assessm ent years 1975-76 and 1976-77 identical questions arose for consideration of a Division Bench of this Court in Nawab Mir Barkat Ali Khan v. CIT (1988) 171 ITR 541. In that case also the meaning of the word "owner" in the context of section 22 of the Income-tax Act, 1961, was Considered by the Division Bench. It was held that a purchaser under an agreement for sale did not hold the property adversely to the owner and at the end of possession for twelve years, the purchaser was not liable to be taxed as the owner of the property. However, in respect of the properties said to have been granted by the "Firmans" it was observed that the Firmans could be treated as invalid documents of transfer and, therefore, the possession of the transferees would be
---
## Page 5
adverse to the owners, so they had become owners by adverse possession before the commencement of the accounting year relevant to the assessment year 1975-76 and were liable to be taxed as owners of the property. The Bench, however, declined to reexamine that question in the light of the decision of another Division Bench of this Court in CIT v. Sahney Steel and Press Works P. Ltd. (1987) 168 ITR 811 on the ground that Sahney's case neither pertained to the same assessee nor to the properties. It was observed that when there was a direct decision of this Court with respect to the very same property in CIT v. Nawab Mir Barkat Ali Khan 1974 Tax LR 90 (AP), which was pending consideration of the Supreme Court, it would not be advisable and proper to reconsider the view expressed in that case. ' Before referring to the judgment of the Division Bench of this Court in CIT v. Sahney Steel and Press Works (P.) Ltd. (1987) 168 ITR 811 it would be useful to advert to the judgment of the Supreme Court 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 disallowed the losses incurred due to the payment of interest to the bank. The Appellate Assistant Commissioner agreed with that view. But the Tribunal came to the conclusion that the assessee continued to be the owner of the property and for the purpose of computation of income, losses by way of payment of interest were allowable deductions. At the instance of the assessee, the abovesaid question was referred to the High Court. A Full Bench of the High Court of Delhi (see CIT v. R.B. Jodha Mal Kuthiala (1968) 69 ITR 598 held that the assessee could not be considered the owner of the property. Against the judgment of the High Court, the matter was taken in appeal to the Supreme Court. On behalf of the assessee, it was contended before the Supreme Court that the expression "owner" meant the person having the ultimate right to the property and as the assessee had a right to that property; in whatever manner that right might have been hedged in or restricted, he was still the owner of the property. For the Revenue, it was urged that the income-tax was concerned with income, gains and profits and, therefore, for the purpose of that Act, the owner was that person who was entitled to the income and that the "owner" referred to the legal ownership -but not merely to any beneficial interest in the property. Having considered the provisions of the Pakistan (Administration of Evacuee Property) Ordinance 1949, the Supreme Court posed the question as to who was the owner referred to in section 9 of the Act of 1922. It also posed the question, was it the person in whom the property vested or was it the person who is entitled to some beneficial interest in the property. It was observed that a property could not be owned by two persons, each one having independent and exclusive right over hence for the purpose of section 9, the owner must be that person who could exercise the rights of the owners, not on behalf of the owner but in his own right. On the point as to what meaning should be given to the word "owner" in section 9, it was laid down that the meaning must not be such as to make that provision capable of being made an instrument of oppression, but it must be in consonance with the principles underlying that Act. Confirming the judgment of the Full Bench it
---
## Page 6
was held that the assessee therein was not the owner of the said Nedous Hotel during the relevant assessm ent 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, (page 890): "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 administration of justice, tax law like any other laws would have to be interpreted reasonably and whenever possible in consonance with equity and good conscience and, therefore, the fact that the Legislature had deliberately and significantly not used the expression "assets owned by the assessee" but used the phrase "assets belonging to the assessee", in their Lordships' opinion, was an aspect which had to be borne in mind. Their Lordships also referred to the judgment of the Supreme Court in Raja Muhammad Amir Ahmad Khan v. Municipal Board of Sitapur AIR 1965 SC 1923, and pointed out that the phrase "belonging to" was capable of connoting interest which is less than absolute perfect legal title. They reiterated the observation in Raja Muhammad Amir Ahmed Khan's case, AIR 1965 SC 1923, that though the expression "belonging to" was capable of denoting an absolute title, it was nevertheless not confined to connoting that sense. It was observed that full possession of an interest less than that of full ownership could also be signified by that expression. Speaking for the Supreme Court, his Lordship Sabyasachi Mukherji, J. (as he then was) summarized the position in that case as follows (page 899):-- "The following facts emerge here: (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 the assessee alone until the document of title is executed was entitled to sue for possession against others, i,e, other 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. ' The position is that though all statutes including the statute in question should be equitably interpreted, there is no place for equality as such in taxation laws. The concept of reality in implementing a 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 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
---
## Page 7
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 equality 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'. The Judge cannot innovate at pleasure'. ' The learned Judge, on the facts noted above, held. Albeit hesitatingly, that the property in question must be treated as belonging to the assessee in the following words (page 900) - '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 the 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 hut, as said before, times, are not yet ripe and in spite of some hesitation, 1 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 the Legislature would remedy the hardship of the assessee in such cases if it wants. Even though the assessee had a mere husk of title and as against the vendee no reality of title, as against the world he was…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.