Case: M/s. R.B. Jodha Mal Kuthiala Vs. Commissioner of Income Tax, Punjab, Jammu &amp; Kashmir &amp; Himachal Pradesh

2. Now turning to the facts of the case, the concerned assessment years are 1952-53, 1955-56 and 1956-57, the relevant accounting periods being financial years ending March 31, 1952, March 31, 1955 and March 31, 1956. The assessee is a registered firm deriving income from interest on securities, property, business and other sources. Sometime in the year 1946 it purchased the Nedous Hotel in Lahore for a sum of Rs. 46 lakhs. For that purpose it raised a loan of Rs. 30 lakhs from M/s. Bharat Bank Ltd., Lahore and a loan of Rs. 18 lakhs from the Raja of Jubbal. The loan taken from the 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 Pakistan. The Nedous Hotel was declared an evacuee property and consequently vested in the Custodian in the Pakistan.3. In its return for the relevant assessment years, the assessee claimed losses of Rs. 1,00,723/-, Rs. 1,16,599/- and Rs. 1,16,599/- respectively 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 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 assessees case. He accordingly disallowed the assessees claim in respect of the interest paid to the bank. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. In second appeal the Tribunal came to the conclusion that the assessee still continued to be the owner of the property for the purpose of computation of loss. The Tribunal held that the interest paid is a deductible allowance under Section 9 (1) (iv) of the Act. In arriving at that conclusion, the Tribunal relied on its earlier decision in the case of the assessee in respect of the assessment year 1951-52. Thereafter at the instance of the assessee, the Tribunal submitted the question set out earlier. The High Court on an analysis of the various provisions of the Pakistan (Administration of Evacuee Property) Ordinance, 1949 (XV of 1949) (to be hereinafter referred to as the Ordinance) came to the conclusion that for the purpose of Section 9 of the Act, the assessee cannot be considered as the owner of that property.

Reasoning: It must be remembered that Section 9 brings to tax the income from property and not the interest of a person in the property. A property cannot be owned by two persons, each one having independent and exclusive right over it. Hence for the purpose of Section 9, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his ownis true that equitable consideration are irrelevant in interpreting tax laws. But those laws, like all other laws have to be interpreted reasonably and in consonance with justice.The learned Judges of the High Court in reaching their conclusion that the assessee was not the owner of the property in the relevant assessment years, took assistance from the decisions of English Courts dealing with the question of levy of Income-tax on the income from enemy properties taken possession of by the Custodian during war. In those cases the English Judges have enunciated the theory of suspended ownership. We do not think that we need call assistance from those decisions.Those observations have to be understood in the context in which they were made. Therein, their Lordships were considering whether the right of an evacuee in respect of the property left by him in the country from which he migrated was property right for the purpose of Article 19 (1) (f) of the Constitution. No one denies that an evacuee from Pakistan has a residual right in the property that he left in Pakistan. Butthe real question is, can that right be considered as ownership within the meaning of Section 9 of the Act.As mentioned earlier that section seeks to bring to tax income of the property in the hands of the owner. Hence the focus of that section is on the receipt of the income. The word "owner" has different meanings in different contexts. Under certain circumstances a lessee may be considered as the owner of the property leased to him. In Strouds Judicial Dictionary (3rd Edn.), various meanings of the word "owner" are given. It is not necessary for our present purpose to examine what the word "owner" means in different contexts. The meaning that we give to the word "owner" in Section 9 must not be such as to make that provision capable of being made an instrument of oppression. It must be in consonance with the principles underlying the Act.It is not necessary to consider whether those observations hold good even now because of the various legislative measures enacted during the last about forty years after those observations were made. Suffice it to say that those observations are inapplicable to the case of the "owner" under Section 9 of theright.10. For the minute, let us look at things from the practical point of view. If the thousands of evacuees who left practically all their properties as well as businesses in Pakistan had been considered as the owners of those properties and businesses as long as the Ordinance was in force then those unfortunate persons would have had to payon the basis of the annual letting value of their properties and on the income, gains and profits of the businesses left by them in Pakistan though they did not get a paisa out of those properties and businesses. Fortunately no one in the past interpreted the law in the manner Mr. Mahajan wants us to interpret. Itis true that equitable consideration are irrelevant in interpreting tax laws. But those laws, like all other laws have to be interpreted reasonably and in consonance with justice.The question as to who is the owner of a house property under Section 9 of the Act in circumstances similar to those before us came up for consideration before the Calcutta High Court in the matter of the Official Assignee for Bengal (Estate of Jnanendra Nath Pramanik), (1937) 5 ITR 233 (Cal)  . In that case on the adjudication of a person as insolvent underthe Presidency Towns Insolvency Act, 1909, certain house property of the insolvent vested in the Official Assignee. The question arose whether the Official Assignee could be taxed in respect of the income of the property under Section 9. The High Court held that the property did not by reason of the adjudication of the debtor cease to be a subject fit for taxation and in view of the provisions of Section 17 of the Presidency Towns Insolvency Act, the Official Assignee was the "owner" of the property and he could rightly be assessed in respect of the income from that property under Section 9. Section 17 of the Presidency Towns Insolvency Act,the making of an order of adjudication, the property of the insolvent wherever situate shall vest in the official assignee and shall become divisible among his creditors, and thereafter, except as directed by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable in insolvency shall, during the pendency of the insolvency proceedings, have any remedy against the property of the insolvent in respect of the debt or shall commence any suit or other legal proceedings except with the leave of the Court and on such terms as the Court may impose:Provided that this section shall not affect the power of any secured creditor to realize or otherwise deal with his security in the same manner, as he would have been entitled to realize or deal with it if this section had not been passed.We may note that the powers of the Custodian are no less than that of the Official Assignee underthe Presidency Towns Insolvency Act, 1909. Delivering the judgment of the Court in the Official Assignees case, (1937) 5 ITR 233 (Cal)   (supra), Costello, J.regard to the first point, Mr. Page argued that although by Section 17 of the Presidency Towns Insolvency Act these properties vested in the Official Assignee he did not thereby or thereupon become the owner of those properties within the meaning properly ascribable to that word for the purposes of the applicability of Section 9. What Mr. Page really invited us to do was to restrict the meaning of the word by putting before it the qualifying adjective "beneficial". What was argued by Mr.Page was that the Official Assignee had no legal interest in the properties themselves, they were merely vested in him for the purposes of the administration of them in the interest of the creditors of the insolvent. I am unable to accept Mr. Pages contention. In this country there is no difference between "legal estate" and "equitable estate". In this connection the case of Sir Currimbhoy Ebrahim Baronetcy Trust v. Commissioner ofBombay, 61 Ind App 209 = (AIR 1934 PC 116  ) is of assistance. At page 217 (of Ind App) = (at p. 118 of AIR) Sir Sydney Rowlatt when giving the judgment of the Privy Council made this observation: "In their Lordships opinion the effect of the Act creating these trusts is not to give the baronet for the time being any right to any part of the interest or property specifically or any right which, even granting that the legal title is not the only thing that can ever be looked at, would make it true to say that any proportion of the interest is not receivable or any proportion of the property is not owned by the incorporatedthe principles underlying the two statutes are identical. This is clear from the various provisions in that Act.16. The conclusion reached by Castello, J. in Official Assignees case, (1937) 5 ITR 233 (supra) receives support from the decision of the Privy Council in (1934) 2 ITR 148 = (AIR 1934 PC 116  ). The Counsel for the appellant was unable to point out to us any decision which has taken a view contrary to that taken in Official Assignees case, (1937) 5 ITR 233 (Cal)  mentioned earlier that section seeks to bring to tax income of the property in the hands of the owner. Hence the focus of that section is on the receipt of the income. The word "owner" has different meanings in different contexts. Under certain circumstances a lessee may be considered as the owner of the property leased to him. In Strouds Judicial Dictionary (3rd Edn.), various meanings of the word "owner" are given. It is not necessary for our present purpose to examine what the word "owner" means in different contexts. The meaning that we give to the word "owner" in Section 9 must not be such as to make that provision capable of being made an instrument of oppression. It must be in consonance with the principles underlying the Act.It is not necessary to consider whether those observations hold good even now because of the various legislative measures enacted during the last about forty years after those observations were made. Suffice it to say that those observations are inapplicable to the case of the "owner" under Section 9 of the