Case: Commissioner of Income Tax, Uttar Pradesh Vs. Abdul Hai Azim Ullah

The facts may be shortly stated. The assessee was being assessed as an individual and derived income from property, business and other sources. In the assessment for all the three years mentioned above theOfficer included a sum of Rs. 2, 550 as income from other sources being rental of certain shops stated to have been let out by the assessee. The shops came into the possession of the assessee by virtue of a registered agreement dated January 2, 1947, the parties to that agreement being the assessee and one Junglee Koiri. A piece of land situated in village Sarso, District Azamgarh, belonged to Junglee Koiri which had been mortgaged by him to a third party. By means of an agreement dated January 2, 1947, it was agreed between him and the assessee that the latter would pay up the earlier mortgage amounting to Rs. 1, 400. The shops were to remain in the possession of the assessee for a period of 10 years who was entitled to rent them out or put them to his own use. After the expiry of that period the shops were to revert to Junglee Koiri or his successors free from all encumbrances. One of the clauses of the agreement was that if a sum exceeding Rs. 1, 000 was required for construction of the shops it would be provided by the assessee and for this additional payment the period of possession of the shops by the assessee would be extended in terms of the agreement to be made between the parties. As the assessee had spent an amount exceeding Rs. 1, 000, another agreement was entered into between the parties on January 8, 1948, by which the period for which the assessee was entitled to remain in possession was extended by 10 years. There was a separate agreement dated June 19, 1947, on similar lines which had been entered into by the five sons of the assessee and the mutwallis of the mosque known as Garhewali Masjid. By virtue of that agreement the mutawallis of the mosque were to construct three shops on a piece of land belonging to the mosque for which a sum of Rs. 8, 000 was to be provided by the sons of the assessee. It was agreed that the shops would be mortgaged for a period of 8 years in favour of the five sons of the assessee who were free either to use the shops themselves or to rent them out. This period of 8 years was extended by 12 years under an agreement dated May 31, 1948, against a sum of Rs. 4, 000 paid by the five sons of the assessee to the mutawallis of the mosque. There was yet another item of Rs. 750 which had been included by theOfficer in the income of the assessee as rent from a house. The assessees case with regard to that item was that, though the house originally belonged to him, he had, in lieu of dower debt, transferred the same to his wife in the year 1937Having failed before the departmental authorities and theAppellate Tribunal the assessee moved an application under section 66(1) of the Act and the Tribunal submitted the statement of the case referring only one question of law which was as follows" Whether, on the facts and circumstances of the case, the income of Rs. 2, 550 derived as rent from the shops on the lands belonging to the other parties was a revenue receipt assessable to? "Subsequent to the reference made by the Tribunal an application was filed in the High Court purporting to be under section 66(2) and section 66(4) of the Act. That application came up before a Bench of that court which made an order on March 24, 1959, directing the Tribunal to submit a further statement of the case and refer the following additional question to the High Court" Whether there was any material for the finding that the house alleged to have been gifted by the assessee to his wife was still the property belonging to him so that the income from that property was liable to be assessed as the income of the assessee ? "2. The Tribunal submitted a further statement of the case. When the reference finally came up before the High Court an objection was raised by the counsel for the revenue that the High Court had no jurisdiction, under section 66(4), to call for a further statement of the case and direct the Tribunal to refer another question of law. The High Court was of the view that in the order dated March 24, 1959, it had nowhere been said that power was being exercised under section 66(4) and not under section 66(2) of the Act. The other objection on the ground of limitation was also repelled3. On the first question, after referring to the terms of the agreements entered into with Junglee Koiri, the High Court expressed the opinion that the entire transaction was in the nature ofng mortgage ; in other words, there was to be no annual return on the capital but the capital itself was to be appropriated within a period of 10 years by use on the part of the assessee. The other agreements between the sons of the assessee and the mutawallis were also considered and it was held that they partook of the nature ofmortgages. The first question was consequently answered in favour of the assessee but the second question was answered against him, the view of the Tribunal and the departmental authorities having been accepted as correctBefore us counsel for the appellant has challenged the correctness of the decision of the High Court on the first question. It has been contended that the agreements in question created leases and not usufructuary mortgages. It is pointed out that in the agreements the following elements were missing: (1) there was no provision for payment of interest and (2) there was no provision for redemption. The points which prevailed before the Tribunal were pressed before us.

Court's reasoning:
8. It is unnecessary for us to decide any other point except the narrow questionthe transactions embodied in the deeds referred to were of leases or of mortgages.The Privy Council decision was based on different facts and is clearly distinguishable. There was no question there of the liquidation of debt by the receipt of rents and profits thereof by the mortgagee. The deed was interpreted as containing a simple grant of land for a fixed term free of rent in consideration of a sum made up of past and present advances. The deeds, in the present case, when examined closely, fall more appositely within the type of instruments which came up for consideration in the other three cases on which reliance was placed by counsel for the respondent