Full Judgment Text
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PETITIONER:
LATE NAWAB SIR MIR OSMAN ALI KHAN
Vs.
RESPONDENT:
COMMISSIONER OF WEALTH TAX, HYDERABAD
DATE OF JUDGMENT21/10/1986
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
PATHAK, R.S.
CITATION:
1987 AIR 522 1986 SCR (3)1072
1986 SCC Supl. 700 JT 1986 684
1986 SCALE (2)626
ACT:
Wealth Tax Act, 1957-S. 2(m)-Net wealth-’Assets
belonging to the assessee’-Meaning of Properties sold out by
the assessee without executing registered sale deed-Full
sale consideration received-Possession handed over to the
purchaser-Whether legal title still vests in the assessee
and properties belong to the assessee for purpose of
inclusion in net wealth.
Transfer of Property Act, 1882, s. 53A-Scope of.
Constitution of India-Art. 136-Dismissal of special
leave petition in limine-Cannot be construed as affirmation
by Supreme Court of the decision from which special leave
was sought.
Statutory Interpretation-Though statutes should be
equitably interpreted, no place for equity in taxation laws.
Words and Phrases-’Belonging to’-Meaning of.
Wealth Tax Act, 1957-S. 2(e) (iv)-Assessee-Ruler of
erstwhile State-Private properties taken over by Government-
Granting payment of a fixed annual sum of money in lieu of
previous income-Whether such annual payment amounts to
’annuity’-Whether exempt from inclusion in net wealth. Words
and Phrases-’Annuity’-Meaning of:
HEADNOTE:
In the assessment year 1957-58, the Wealth Tax Officer
had included a sum of Rs.4,90,775 representing the market
value of certain immovable properties in respect of which,
although the assessee had received full consideration money,
he had not executed any registered sale deeds in favour of
the vendees. The question was whether the properties
belonged to the assessee even after such sale for the
purpose of inclusion of his net wealth within the meaning of
s. 2(m) of the Wealth Tax Act, 1957. The Wealth Tax Officer
held that the assessee
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still owned those properties and consequently the value of
the same was included in his net wealth.
On appeal, the Appellate Assistant Commissioner
sustained the order of the Wealth Tax Officer with certain
deductions in value. On further appeal, the Tribunal held
that the assessee had ceased to be the owner of the
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properties because the assessee having received the
consideration money from the purchasers and the purchasers
having been put into possession were protected in terms of
s. 53A of the Transfer of Property Act and the term ’owner’
not only included the legal ownership but also the
beneficial ownership. The High Court following the ratio of
Commissioner of Income Tax, A.P. Hyderabad v. Nawab Mir
Barkat Ali Khan, [1974] Tax L.R. 90, reversed the order of
Tribunal and upheld that of the Wealth Tax Officer and the
Assistant Appellate Commissioner.
The Assessee-Nizam of Hyderabad, was a paramount ruler
owning certain private properties called Sarf-e-khas. On
surrendering his paramountcy and acceding to the Union of
India, his private properties were taken over by the
Government and it was agreed to pay him a sum of Rs. 1 crore
annually distributed as follows: (a) Rs.50 lakhs as a privy
purse; (b) Rs.25 lakhs in lieu of his previous income from
the Sarf-e-khas, and (c) Rs.25 lakhs for the upkeep of
palaces etc.
The Government in its letter to the assessee stated
that his Sarf-e-khas estates should not continue as an
entirely separate administration independent of the Diwani
administrative structure and it should, therefore, be
completely taken over by the Diwani, its revenue and
expenditure being merged with the revenues and expenditure
of the State. Question was whether the assessee’s right to
receive the sum of Rs.25 lakhs O.S. from the State
Government was an asset for the purposes of inclusion in his
net wealth under the Wealth Tax Act, 1957.
The Wealth Tax Officer treating the said sum as an
annuity and as an asset or property, capitalised the same to
Rs.99,78,572 and included that amount as an asset of the
assessee. The Appellate Assistant Commissioner agreed with
this view. The Tribunal, however, refused to call it as an
annuity, characterised it as an annual payment for surrender
of life interest and held that the capitalised value of such
life interest be added to the net wealth and taxed. The High
Court agreed with the view taken by the Tribunal that it was
only an annual payment made in compensation for the property
which had been taken over by the Govern-
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ment, therefore, it was a part of the wealth and it was
possible to commute the annual payment of Rs.25 lakhs. The
High Court found that there was neither any express
preclusion nor any circumstances from which legitimately an
inference could be drawn precluding commutation of the said
amount into a lumpsum grant. Consequently, the High Court
upheld the order of the Wealth Tax Tribunal.
Partly allowing the Appeal,
^
HELD: (1) Under s. 3 of the Wealth Tax Act, 1957 the
charge of wealth-tax is on the ’net wealth’ of the assessee
on the relevant valuation date as defined under s. 2(m) of
the Act. [1081E-F]
(2) The material expression for the purposes of this
appeal is "belonging to the assessee on the valuation date".
The properties in respect of which registered sale deeds had
not been executed but consideration for sale of which had
been received and possession in respect of which had been
handed over to the purchasers belonged to the assessee for
the purpose of inclusion of his net wealth. [1081G-H; 1082A]
(3) It is not necessary for the purpose of s. 2(m) to
be tied down with the controversy whether in India there is
any concept of legal ownership apart from equitable
ownership or not or whether under ss. 9 and 10 of the Indian
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Income Tax Act, 1922 and ss. 22 to 24 of the Indian Income
Tax Act, 1961, where ’owner’ is spoken of in respect of
house properties, the legal owner is meant and not the
equitable or beneficial owner. All the rights embedded in
the concept of ownership of Salmond cannot strictly apply
either to the purchasers or the assessee in the instant
case. [1082C-D; 1082H; 1083A]
(4) The liability to wealth-tax arises because of the
belonging of the asset, and not otherwise. Mere possession,
or joint possession unaccompanied by the right to be in
possession, or ownership of property would, therefore, not
bring the property within the definition of "net wealth" for
it would not then be an asset "belonging" to the assessee.
Unlike the provisions of Income-tax Act, s. 2(m) of the Act
uses the expression ’belonging to’ to indicate that the
person having lawful dominion of the assets would be
assessable to wealth tax. [1083C-E]
(5) Though the expression ’belonging to’ no doubt was
capable of denoting an absolute title was neyertheless not
confined to connoting that sense. Full possession of an
interest less than that of full ownership could also be
signified by that expression. [1086G-H]
1075
Commissioner of Wealth-tax, West Bengal v. Bishwanath
Chatterjee and Others, 103 I.T.R. 536 and Raja Mohammad Amir
Ahmed Khan v. Municipal Board of Sitapur and another. A.I.R.
1965 S.C. 1923, relied upon.
Webster’s Distionary and Aiyar’s Law Lexicon of British
India, [1940] edn., p. 128 and Salmond on Jurisprudence,
12th edn., pp. 246 to 264, referred to.
(6) The property is owned by one to whom it legally
belongs. The property does not legally belong to the vendee
as against the vendor, the assessee. The precise sense in
which the words ’belonging to’ were used in s. 2(m) of the
Act must be gathered only by reading the instrument or the
document as a whole. [1090C-D]
(7) Though all statute including the Wealth Tax Act
should be equitably interpreted, there is no place of equity
as such in taxation laws. The concept of reality in
implementing fiscal provision is relevant and the
Legislature in s. 2(m) has not significantly used the
expression ’owner’ but used the expression ’belonging to’.
The Legislature having designedly used the expression
’belonging to’ and not the expression ’owned by’ had perhaps
expected Judicial statesmanship in interpretation of this
expression. [1089G-H]
(8) On a distinction being made between ’belonging to’
and ’ownership’ the following facts emerge: (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 assessee alone until
document of title is executed was entitled to sue for
possession against others i.e. others 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. [1088H; 1089A-B]
(9) The property in question legally cannot be said to
belong to the vendee. The vendee is in rightful possession
only against the world. Since the legal title still vests
with the assessee, the property should be treated as
belonging to the assessee. It will work some amount of
injustice in such a situation because the assessees would be
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made liable to bear the tax burden in such situations
without having the enjoyment of the property in question.
But times perhaps are not ripe to transmute equity on this
aspect in the interpretation of law. [1089C-F]
1076
(10) Under s. 53A of the Transfer of Property Act, 1908
where possession had been handed over to the purchasers and
the purchasers are in rightful possession of the same as
against the assessee, secondly that the entire consideration
has been paid, and thirdly the purchasers were entitled to
resist eviction from the property by the assessee in whose
favour the legal title vested because conveyance has not yet
been executed by him and when the purchasers were in
possession had right to call upon the assessee to execute
the conveyance, it cannot be said that the property legally
belonged to the assessee in terms of s. 2(m) of the Act in
the facts and circumstances of the case, even though the
statute must be read justly and equitably and with the
object of the section in view. If a person has the user and
is in the enjoyment of the property it is he who should be
made liable for the property in question under the Act, yet
the legal title is important and the Legislature might
consider the suitability of an amendment if it is so
inclined. [1090F-H; 1091A]
Commissioner of Wealth-tax, Gujarat-IV v. H.H. Maharaja
F.P. Gaekwad, 144 I.T.R. 304 approved.
Commissioner of Income-tax, A.P. Hyderabad v. Nwab Mir
Barkat Ali Khan, [1974] Tax L.R. 90 referred to.
Commissioner of Wealth-tax, A.P. v. Trustees of H.E.H.
Nizam’s family (Remainder Wealth) Trust, 108 I.T.R. 555,
R.B. Jodha Mal Kuthiala v. Commissioner of Income-tax,
Punjab, Jammu & Kashmir and Himachal Pradesh, 82 I.T.R. 570,
Commissioner of Income-tax, West Bengal II v. Ganga
Properties Ltd., 77 I.T.R. 637, Commissioner of Wealth-tax-
Gujarat-I v. Kum Manna G. Sarabhai, 86 I.T.R. 153,
Commissioner of Income-tax, Gujarat v. Ashaland Corporation,
133 I.T.R. 55, Commissioner of Income-tax, Bombay City III
v. Smt. T.P. Sidhwa, 133 I.T.R.840, Smt. Kala Rani v.
Commissioner of Income-Tax, Patiala I, 130 I.T.R. 321, Mrs.
M.P. Gnanambal v. Commissioner of Income-tax, Madras, 136
I.T.R. 103, S.B. (House & Land) Pvt. Ltd. v. Commissioner of
Income-tax, West Bengal, 119 I.T.R. 785 and Addl.
Commissioner of Income-tax Bihar v. Sahay Properties and
Investment Co. (P) Ltd., 144 I.T.R. 357 distinguished.
(11) Special leave is a discretionary jurisdiction and
the dismissal of a special leave petition cannot be
construed as affirmation by the Supreme Court of the
decision from which special leave was sought for. [1087E]
Daryao & Ors. v. State of U.P. & Ors., AIR 1961 SC 1457
relied upon.
1077
Sahu Govind Prasad v. Commissioner of Income-tax, 144
I.T.R. 851 at 863 approved.
(12) Section 2(e) (iv) of the Wealth Tax Act, 1957
provides that "assets" includes property of every
description, movable or immovable, but does not include a
’right to any annuity’ in any case where the terms and
conditions relating thereto preclude the commutation of any
portion thereof into a lump sum grant. [1091B-D]
(13) The term ’annuity’ is not defined in the Act. It
must be given the signification which it has assumed as a
legal term owing to judicial interpretation and not its
popular and dictionary meaning. An ’annuity’ is a certain
sum of money payable yearly either as a personal obligation
of the grantor or out of property. The hall mark of an
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annuity is: (1) it is a money; (2) paid annually; (3) in
fixed sum; and (4) usually it is a charge personally on the
grantor. [1091G-H]
(14) In this case, in view of the background of the
terms of payment and the circumstances why the payment was
made, there cannot be any doubt that Rs.25 lakhs annually
was an ’annuity’. It was a fixed sum to be paid out of the
property of the Government of India in lieu of the previous
income of the assessee from Sarf-e-khas. Therefore, it was
an’annuity’. [1093C-D]
(15) In the instant case, there is no express provision
in the document itself which prevented commutation of this
annuity into a lump sum. For inferring whether such as
express provision precluding commutation exists, the
background of the facts and circumstances of the payment has
to be kept in mind. The assessee was given Rs.25 lakhs in
lieu of his previous income from the Sarf-e-khas. Income is
normally meant for expenditure. The assessee had to incur
various exenditures. Commutation is often made when one is
not certain as to whether the source from which that income
comes. In this case, this being an agreement between
earstwhile ruler and the Government of India, there is no
such motivation and this payment of Rs.25 lakhs in lieu of
the previous income of Sarf-e-khas must be read in
conjunction with two other sums namely Rs.50 lakhs as privy
purse and Rs.25 lakhs for upkeep of palaces. This bears the
same character. [1093E-H; 1094A-B]
(16) As privy purses were not commutable, from the
circumstances and keeping in background of the payment,
there was an express provision flowing from the
circumstances precluding the
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commutation of this amount of Rs.25 lakhs and, therefore, it
was exempt under s. 2(e) (iv) of the Act. [1094B-C]
(17) There was no right granted and can be gathered
from the terms of the grant of payment for the assessee to
claim commutation of the amount of Rs.25 lakhs. That would
defeat the purpose of the set up of the arrangement under
which the payment of the amount was made. From the nature of
the sum stipulated in the letter written by the Government
to the assessee, the assessee had no right to claim
commutation. Taking that fact in conjunction with the
circumstances under which the payment of Rs.25 lakhs was
agreed to, it is held that from the terms of the agreement,
there was an express stipulation precluding commutation and,
therefore, it comes within cl. (iv) of s. 2(e) of the Act
and the assessee was entitled to exemption. [1094C-F]
Oxford Dictionary: Jarman on Wills (P. 1113), relied on
and
Ahmed G.H. Ariff and Others v. Commissioner of Wealth-
tax, Calcutta, 76 I.T.R. 471, Commissioner of Wealth-tax
Gujarat v. Arundhati Balkrishna, 77 I.T.R. 505, Commissioner
of Wealth-tax, Rajasthan v. Her Highness Maharani Gayatri
Devi of Jaipur, 82 I.T.R. 699, Commissioner of Wealth-tax,
Lucknow v. P.K. Banerjee, 125 I.T.R. 641 and H.H.
Maharajadhiraja Madhav Rao Jiwaji Rao Scindia Bahadur & Ors.
v. Union of India, [1971] 3 SCR 9 referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1763
(NT) of 1974
From the Judgment and Order dated 2.2.1973 of the
Andhra Pradesh High Court in Case Reference No. 67 of 1971.
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Y. Ratnakar, Mrs, A.K. Verma and D.N. Misra for the
Appellant.
S.C. Manchanda, Ms. A. Subhashini and B.B. Ahuja for
the Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This appeal by Special leave
arises from the decision of the High Court of Andhra Pradesh
and it seeks answers to two questions:
1079
"(i) 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?
(ii) Whether, on the facts and in the
circumstances of the case, the assessee’s right to
receive the sum of Rs.25 lakhs O.S. from the State
Government was an asset for the purposes of
inclusion in his net wealth under the Wealth-tax
Act, 1957?"
The year involved in this case is the assessment year
1957-58 under the Wealth-tax Act, 1957 (hereinafter called
the ’Act’). It may be mentioned that the valuation date is
the first valuation date after coming into operation of the
Act which came into force on 1st April, 1957. The assessee
was the Nizam of Hyderabad, an individual. There were
several questions involved in the assessment with all of
which the present appeal is not concerned.
So far as the first question indicated hereinbefore
which was really question No. (ii) in the statement of case
before the High Court, it may be mentioned that the Wealth-
tax Officer had included a total sum of Rs.4,90,775
representing the market value of certain immovable
properties in respect of which, although the assessee had
received full consideration money, he had not executed any
registered sale deeds in favour of the vendees. The Wealth-
tax Officer held that the assessee still owned those
properties and consequently the value of the same was
included in his net wealth.
On appeal the Appellate Assistant Commissioner
sustained the order with certain deductions in value. On
further appeal the Tribunal held that the assessee had
ceased to be the owner of the properties. The Tribunal was
of the opinion that the assessee having received the
consideration money from the purchasers and the purchasers
having been put into possession were protected in terms of
section 53A of the Transfer of Property Act and the term
’owner’ not only included the legal ownership but also the
beneficial ownership. The first question arises in the
context of that situation. The High Court following the
ratio of Commissioner of Income-Tax, A.P., Hyderabad v.
Nawab Mir Barkat Ali Khan, (infra) answered the question in
favour of the revenue.
1080
The second question set out before, which was question
no. (v) before the High Court, has to be understood in the
context of the facts of this case. The right of the assessee
to get the amount in question i.e. Rs.25 lakhs a year, arose
in the wake of accession of the Hyderabad State to the Union
of India. Several communications followed between the
Military Governor of Hyderabad,.Maj. Gen. Chaudhuri and the
Nizam of Hyderabad as well as other officers. It has to be
borne in mind that the assessee was a paramount ruler owning
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certain private properties called Sarf-e-khas. He
surrendered his paramountcy and acceded to the Union of
India. His private properties were taken over by the
Government and it was agreed by the Government that in lieu
of his income from the said properties, he would be paid
Rs.25 lakhs in Osmania currency annually.
The communication between Major General Chaudhuri, the
Military Governor and the Nizam about this particular sum in
contained in the letter dated 1st February, 1949. It stated
inter alia as follows:
"After this merger H.E.H. will be paid annually a
total sum of Rs. 1 crore distributed as follows:
(a) Rs.50 lacs as a privy purse,
(b) Rs.25 lacs in lieu of his previous income from
the Sarf-e-khas, and
(c) Rs.25 lacs and for the upkeep of Palaces etc."
The letter which appears in the Paper Book of this
appeal from Military Governor of Hyderabad, Major General
Chaudhuri to the Nizam of Hyderabad, states, inter alia,
that Nizam’s Sarf-e-khas estates should not continue as an
entirely separate administration independent of the Diwani
administrative structure. The Sarf-e-khas, it was stated in
that letter, should therefore be completely taken over by
the Diwani, its revenue and expenditure being merged with
the revenues and expenditure of the State. Thereafter we
have extracted the relevant portion of the letter which
stipulated for the payment of Rs.25 lakhs. The other parts
of the agreement contained in that letter are not relevant
for the present purpose.
The Wealth-tax Officer treating the said sum as an
annuity and secondly as an asset or property, capitalised
the same to Rs.99,78,572
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and included that amount as an asset of the assessee. The
appellate Assistant Commissioner agreed with the view taken
by the Wealth-tax Officer. The Tribunal, however, refused to
call it as an annuity and characterised it as an annual
payment for surrender of life interest. The Tribunal
therefore held that the capitalised value of such life
interest be added to the net wealth and taxed.
The High Court in the judgment under appeal agreed with
the view taken by the Tribunal that it was only an annual
payment made in compensation for the property which had been
taken over by the Government. It was, therefore, a part of
the wealth, according to the High Court. The High Court was
of the view that it was possible to commute the annual
payment of Rs.25 lakhs. The High Court found that there was
neither any express preclusion nor any circumstances from
which legitimately an inference could be drawn precluding
commutation of the said amount into a lumpsum grant. The
High Court, therefore, was of the view that the Wealth-tax
Tribunal had rightly rejected the contention of the
assessee. The question was accordingly answered by the High
Court in the affirmative and against the assessee and in
favour of the revenue.
The first question involved in this case is whether the
properties in respect of which registered sale deeds had not
been executed, but full consideration had been received by
the assessee, belonged to the assessee for the purposes of
inclusion in his net wealth in terms of section 2(m) of the
Act. Under section 3 of the Act, the charge of wealth-tax is
on the net wealth of the assessee on the relevant valuation
date. Net wealth is defined under section 2(m) of the Act.
The relevant portion of section 2(m) is as follows:
"(m) "net wealth" means the amount by which the
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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 Act, is in excess of the aggregate value of
all the debts owed by the assessee on the
valuation date......."
The material expression with which we are concerned in
this appeal is ’belonging to the assessee on the valuation
date’. Did the assets in the circumstances mentioned
hereinbefore namely, the properties in respect of which
registered sale deeds had not been
1082
executed but consideration for sale of which had been
received and possession in respect of which had been handed-
over to the purchasers belonged to the assessee for the
purpose of inclusion in his net wealth? Section 53A of the
Transfer of Property Act gives the party in possession in
those circumstances the right to retain possession. Where a
contract has been executed in terms mentioned hereinbefore
and full consideration has been paid by the purchasers to
the vendor and where the purchasers have been put in the
possession by the vendor, the vendees have right to retain
that possession and resist suit for specific performance.
The purchasers can also enforce suit for specific
performance for execution of formal registered deed if the
vendor was unwilling to do so. But in the eye of law, the
purchasers cannot and are not treated as legal owners of the
property in question. It is not necessary in our opinion,
for the purpose of this case to be tied down with the
controversy whether in India there is any concept of legal
ownership apart from equitable ownership or not or whether
under sections 9 and 10 of the Indian Income-tax Act, 1922
and sections 22 to 24 of the Indian Income-tax Act, 1961,
where ’owner’ is spoken in respect of the house properties,
the legal owner is meant and not the equitable or beneficial
owner. Salmond On Jurisprudence, Twelfth Edition, discusses
the different ingredients of ’ownership’ from pages 246 to
264. ’Ownership’, according to Salmond, denotes the relation
between a person and an object forming the subject-matter of
his ownership. It consists of a complex of rights, all of
which are rights in rem, being good against all the world
and not merely against specific persons. Firstly, Salmond
says, the owner will have a right to possess the thing which
he owns. He may not necessarily have possession. Secondly,
the owner normally has the right to use and enjoy the thing
owned: the right to manage it, i.e., the right to decide how
it shall be used; and the right to the income from it.
Thirdly, the owner has the right to consume, destroy or
alienate the thing. Fourthly, ownership has the
characteristic of being indeterminate in duration. The
position of an owner differes from that of a non-owner in
possession in that the latter’s interest is subject to be
determined at some future time. Fifthly, ownership has a
residuary character. Salmond also notes the distinction
between legal and equitable ownership. Legal ownership is
that which has its origin in the rules of the common law,
while equitable ownership is that which proceeds from rules
of equity different from the common law. The courts of
common law in England refused to recognize equitable
ownership and denied the equitable owner as an owner at all.
All the rights embedded in the concept of ownership of
Salmond
1083
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cannot strictly be applied either to the purchasers or the
assessee in the instant case.
In the instant appeal, however, we are concerned with
the expression ’belonging to’ and not with the expression
’owner’. This question had come up before this Court before
a bench of five learned judges in Commissioner of Wealth-
tax, West Bengal, v. Bishwanath Chatterjee and others, 103
I.T.R. 536. At page 539 of the report, this Court referred
to the definition of the expression ’belong’ in the Oxford
English Dictionary "To be the property or rightful
possession of". So it is the property of a person, or that
which is in his possession as of right, which is liable to
wealth-tax. In other words, the liability to wealth-tax
arises because of the belonging of the asset, and not
otherwise. Mere possession, or joint possession
unaccompanied by the right to be in possession, or ownership
of property would therefore not bring the property within
the definition of "net wealth" for it would not then be an
asset "belonging" to the assessee. The first limb of the
definition indicated in the Oxford Dictionary may not be
applicable to these properties in the instant appeal because
these lands were not legally the properties of the vendees
and the assessee was the lawful owner of these properties.
The vendees were, however, in rightful possession of the
properties as against the vendor in view of the provisions
of section 53A of the Transfer of Property Act, 1908. The
scheme of the Act has to be borne in mind. It has also to be
borne in mind that unlike the provisions of Income-Tax Act,
section 2(m) of the Act uses the expression ’belonging to’
and as such indicates something over which a person has
dominion and lawful dominion should be the person assessable
to wealth tax for this purpose.
In Commissioner of Wealth-tax, A.P. v. Trustees of
H.E.H. Nizam’s family (Remainder Wealth) Trust, 108 I.T.R.
555, the question as to what is the meaning of the
expression ’belonging to’ was raised (page 594 of the
report) but this Court did not decide whether the trust
property belonged to the trustee and whether the trustee was
liable under section 3 of the Act apart from or without
reference to section 21 of the Act. The case was disposed of
in terms of sections 21 of the Act.
In Commissioner of Income-tax, A.P. Hyderabad v. Nwab
Mir Barkat Ali Khan, [1974] Tax L.R. 90, it was held by the
Andhra Pradesh High Court that when a vendor had agreed to
sell his property as in the instant case and had received
consideration thereof but had
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not executed a registered sale deed, his liability to pay
tax on income from that property did not cease. His position
as ’owner’ of the property within the meaning of section 9
of the Indian Income-tax Act, 1922 and section 22 of the
Income-tax Act, 1961 did not thereby change. According to
the said decision, the agreement to sell and the receipt of
consideration by the assessee, the Nizam of Hyderabad did
not create any beneficial ownership according to Indian law
in the purchaser neither did it create any equitable
ownership in him. The ownership did not change until
registered sale-deed was executed by the vendor. The term
’owner’ in section 9 of the 1922 Act or section 22 of the
1961 Act did not mean beneficial or equitable owner which
concept was not recognised in India.
In the instant case as we have noticed the position is
different. We are not concerned with the expression ’owner’.
We are concerned whether the assets in the facts and
circumstances of the case belonged to the assessee any more.
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This Court had occasion to discuss section 9 of the
Income-tax Act, 1922 and the meaning of the expression
’owner’ in the case of R.B. Jodha Mal Kuthiala v.
Commissioner of Income-tax, Punjab, Jammu & Kashmir and
Himachal Pradesh, 82 I.T.R. 570. There it was 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.
As assessee whose property remained vested in the Custodian
of Evacuee Property was not the owner of the property. This
again as observed dealt with the expression of section 9 of
the Indian Income-tax Act, 1922. At page 575 of the report
certain observations were relied upon in order to stress the
point that these observations were in consonance with the
observations of the Gujarat High Court which we shall
presently note. We are, however, not concerned in this
controversy at the present moment. It has to be borne in
mind that in interpreting the liability for wealth-tax
normally the equitable considerations are irrelevant. But it
is well to remember that in the scheme of the administration
of justice, tax law like any other laws will have to be
interpreted reasonably and whenever possible in consonance
with equity and justice. Therefore, specially in view of the
fact that the expression used by the legislature has
deliberately and significantly not used the expression
’assets owned by the assessee’ but assets ’belonging to the
assessee’, in our opinion, is an aspect which has to be
borne in mind.
The bench decision of the Calcutta High Court in
Commissioner
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of Income-tax, West Bengal II v. Ganga Properties Ltd., 77
I.T.R. 637. rested on the terms of section 9 of the Income-
tax Act, 1922 and the Court reiterated again that in Indian
law beneficial ownership was unknown; there was but one
owner, namely, the legal owner, both in respect of vendor
and purchaser, and trustee and cestui que trust. The income
from house property refers to the legal owner and further
that in case of a sale of immovable property a registered
document was necessary. But these propositions as noted
hereinbefore rested on the use of the expression in section
9 of the Income-tax Act, 1922. It used the expression
’owner’ unlike ’belonging to’.
The Gujarat High Court in Commissioner of Wealth-tax-
Gujarat-I v. Kum Manna G. Sarabhai 86 I.T.R. 153, held that
a spes successionis is a bare and naked possibility such as
the chance of a relation obtaining a legacy and that could
not form the basis of assessment under section 26 of the
Act. At page 174 of the report, the Gujarat High Court
referred to the expression ’belonging to’ and referred to
the fact that the expression has been the subject matter in
a number of judicial decisions. The Court observed that the
words ’property’ and ’belonging to’ were not technical
words.
The Gujarat High Court had occasion to deal with part
performance in the case of an agreement of sale in
Commissioner of Income-tax, Gujarat v. Ashaland Corporation,
133 I.T.R. 55. The Gujarat High Court noted that in case of
a person who was a dealer in land, the business transaction
would be completed only when the purchase or sale
transaction was complete. In order to decide whether the
business transaction was complete, the question of vital
importance was whether title in the property had passed. It
was only on the passing of the title that the transaction
became complete and unless the transaction was complete, any
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advance receipt of money towards the transaction would not
form part of income or profit. It was observed by the
Gujarat High Court that the doctrine of part performance
embodied in section 53A of the Transfer of Property Act,
1882, had only a limited application and it afforded only a
good defence to the person put in possession under an
agreement in writing to protect his possession to the extent
provided in section 53A, but an agreement in writing to
sell, coupled with the parting of possession would not
confer any legal title on the purchaser and take the land
out of the stock-in-trade of the seller if the seller was a
dealer in land. The context in which the Gujarat High Court
had to deal this question was entirely different. The
Gujarat High Court had to proceed on the basis that the
assessee
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under the Income-tax Act was the owner and he was dealing in
land and therefore whether the land was stock-in-trade was
the question. In the instant appeal we are concerned with
the expression ’belonging to’. Therefore the observations of
the Gujarat High Court would not be quite apposite to the
problem of the instant appeal.
This question was again viewed by the Bombay High Court
in a slightly different context in Commissioner of Income-
tax, Bombay City-III v. Smt. T.P. Sidhwa, 133 I.T.R. 840.
The Bombay High Court was not concerned with the expression
’belonging to’.
Our attention was drawn to another decision of the
Gujarat High Court in Commissioner of Wealth-tax, Gujarat-IV
v. H.H. Maharaja F.P. Gaekwad, 144 I.T.R. 304. There the
facts were more or less identical with the instant appeal on
this aspect of the matter. The assessee owned two properties
and had agreed to sell one property to a company. The
vendees had paid Rs.30 lakhs in January, 1964 and were put
in possession of the property. Thereafter, four instalments
of Rs. 17-1/2 lakhs each were paid and the property was
conveyed by four deeds executed in 1970-71 and 1972. It was
contended that at the relevant time, the property did not
belong to the assessee. It was held by the Gujarat High
Court that receipt of part of the sale price and parting of
possession would not divest the vendor of immovable property
of his title to the property. The doctrine of part
performance embodied in section 53A of the Transfer of
Property Act had limited application and afforded a good
defence to the person put in possession. The legal position
and the relevant clauses of the agreement of sale showed
that the assessee was the owner of the property at the
relevant valuation dates. Therefore, according to the
Gujarat High Court, the property agreed to be sold which had
been parted with was includible as an asset of the assessee.
Even in some cases the phrase ’belonging to’ is capable
of connoting interest less than absolute perfect legal
title. See in this connection the observations of this Court
in Raja Mohammad Amir Ahmed Khan v. Municipal Board of
Sitapur and another, A.I.R. 1965 S.C. 1923. This Court
observed in that case that though the expression ’belonging
to’ no doubt was capable of denoting an absolute title was
nevertheless not confined to connoting that sense. Full
possession of an interest less than that of full ownership
could also be signified by that expression.
Before concluding this aspect of the matter, there is
certain as-
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pect which has to be borne in mind. Reliance was placed as
we have mentioned hereinbefore on the decision of the
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Gujarat High Court in the case of Commissioner of Wealth-
tax, Gujarat-IV v. H.H. Maharaja F.P. Gaekwad (supra) It was
contended that if the Gujarat High Court’s view was correct,
then the assessee’s contention on this aspect in the instant
appeal cannot be accepted. On behalf of the assessee it was
submitted that the decision of the Gujarat High Court in
Commissioner of Wealth-tax, Gujarat-I v. Kum. Manna G.
Sarabhai (supra) not having been taken into consideration by
the Gujarat High Court in the later decision, the Gujarat
High Court the judgment on which revenue relied was not
correct. It is not necessary in the view we have taken on
the other aspect of the matter, namely, the use of the
expression ’belonging to’ to discuss this point any further.
It was further submitted before us that from the said
decision of the Gujarat High Court in Commissioner of
Wealth-Tax, Gujarat-IV v. H.H. Maharaja F.P. Gaekwad
(supra), a special leave petition was filed by the assessee,
which was dismissed by this Court on 17th January, 1983.
(See in this connection 144 I.T.R. Statute page 23). It is,
however, well-settled that dismissal of special leave
petition in limine does not clothe the decision under appeal
in special leave petition with the authority of the decision
of this Court. See in this connection the observations in
Daryao & Ors. v. State of U.P. & Ors., AIR 1961 SC 1457. It
may be mentioned as was rightly observed by a full bench of
the Allahabad High Court in Sahu Govind Prasad v.
Commissioner of Income-tax, 144 I.T.R. 851 at 863, special
leave is a discretionary jurisdiction and the dismissal of a
special leave petition cannot be construed as affirmation by
this Court of the decision from which special leave was
sought for.
On this aspect, it may also be mentioned that our
attention was drawn to some decisions which we shall
presently note.
The Punjab and Haryana High Court in the case of Smt.
Kala Rani v. Commissioner of Income-tax, Patiala-I, 130
I.T.R. 321 had occasion to discuss this aspect of the
matter. But the Punjab and Haryana High Court was construing
the meaning of the expression ’owner’ under section 22 of
the Income-tax Act, 1961. There, the division bench of the
Punjab & Haryana High Court held that the assessee occupied
the property after the execution of the agreement of sale
deed in his favour and after completion of the building, he
was in a position to earn income from the property sold to
him, though the registered sale deed was executed
subsequently in April, 1969. It was
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held that the assessee was ’owner’ in terms of section 22 of
the Income-tax Act, 1961.
The Madras High Court had occasion to discuss this
aspect in Mrs. M.P. Gnanambal v. Commissioner of Income-tax,
Madras, 136 I.T.R. 103. There the facts were entirely
different and the Madras High Court held that the rights
with reference to the properties in question in that case
could only be described as a delusion and a snare so long as
the sons continued to occupy the property which they were
entitled to under the will and to describe the assessee’s
right as owner of the property would be a complete misnomer.
There, the court was construing the will and section 22 of
Income-tax Act, 1961 as to who were the owners in terms of
the will.
In all these cases as was reiterated by the Calcutta
High Court in S.B. (House & Land) Pvt. Ltd. v. Commissioner
of Income-tax, West Bengal, 119 I.T.R. 785 the question of
ownership had to be considered only in the light of the
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particular facts of a case. The Patna High Court in Addl.
Commissioner of Income-tax Bihar v. Sahay Properties and
Investment Co. (P) Ltd., 144 I.T.R. 357 was concerned with
the construction of the expression ’owner’ in section 22 of
the Income-tax Act, 1961. There, the assessee had paid the
consideration in full and had been in exclusive and absolute
possession of the property, and had been empowered to
dispose of or even alienate the property. The assessee had
the right to get the conveyance duly registered and ex-
ecuted in its favour, but had not exercised that option. The
assessee was not entitled to say that because of its own
default in having a deed registered in its name, the
assessee was not the owner of the property. In the
circumstances, it was held that the assessee must be deemed
to be the owner of the property within the meaning of
section 22 of Income-tax Act, 1961 and was assessable as
such on the income from the property. This is only an
illustrative point where in certain circumstances without
any registered conveyance in favour of a purchaser, a person
can be considered to be ’owner’. It may incidentally be
mentioned that this Court has granted special leave to
appeal against this judgment. See in this connection [1983]
143 I.T.R. 60.
Salmond’s conception of ’ownership’ has been noted. The
meaning of the expression ’belonging to’ has also been
noted. We have discussed the cases where the distinction
between ’belonging to’ and ’ownership’ has been considered.
The following facts emerge here: (1) the assessee has parted
with the possession which is one of the essen-
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tials of ownership, (2) the assessee was disentitled to
recover possession from the vendee and assessee alone until
the document of title is executed was entitled to sue for
possession against others i.e. others 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. (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 of equity as such in taxation laws. The concept
of reality in implementing 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 in view of the position that
legal title still vests with the assessee, 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
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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-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". A Judge cannot innovate at pleasure.
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
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 but as said before
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times are not yet ripe and in spite of some hesitation I
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 legislature would remedy the
hardship of assessee in such cases if it wants. The assessee
had a mere husk of title and as against the vendee the
assessee had no reality of title but as against the world,
he was still the legal owner and real owner.
As has been observed by this Court in Commissioner of
Wealth-tax, West Bengal v. Bishwanath Chatterjee and Others
(supra) the property is owned by one to whom it legally
belongs. The property does not legally belong to the vendee
as against the vendor, the assessee.
In Webstor’s Dictionary ’belonging to’ is explained as
meaning, inter alia, to be owned by, be in possession of.
The precise sense in which the words were used, therefore,
must be gathered only by reading the instrument or the
document as a whole. Section 53A of the Transfer of Property
Act, 1908 is only a shield and not a sword.
In Aiyar’s Law Laxicon of British India, [1940] Edition
page 128, it has been said that the property belonging to a
person has two meanings-(1) ownership; (2) the absolute
right of the user. The same view is reiterated in Stroud’s
Judicial Dictionary 4th Edn. page 260. The expression:
’property belonging to’ might convey absolute right of the
user as well as of the ownership. A road might be said, with
perfect propriety, to belong to a man who has the right to
use it as of right, although the soil does not belong to
him.
Under section 53A of the Transfer of Property Act, 1908
where possession has been handed over to the purchasers and
the purchasers are in rightfuly possession of the same as
against the assessee and the occupation of the property in
question, and secondly that the entire consideration has
been paid, and thirdly the purchasers were entitled to
resist eviction from the property by the assessee in whose
favour the legal title vested because conveyance has not yet
been executed by him and when the purchasers were in
possession had right to call upon the assessee to execute
the conveyance, it cannot be said that the property legally
belonged to the assessee in terms of section 2(m) of the Act
in the facts and circumstances of the case even though the
statute must be read justly and equitably and with the
object of the section in view. We are conscious that if a
person has the user and is in the enjoyment of
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the property it is he who should be made liable for the
property in question under the Act yet the legal title is
important and the legislature might consider the suitability
of an amendment if it is so inclined.
This question therefore must be answered in favour of
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the revenue and in the affirmative. The appeal in this
aspect must therefore fail.
For the second question it is necessary to refer to
section 2(e) which provides for the definition of assets by
stating that "assets" includes property of every
description, movable or immovable, but does not include,-
"...........
(iv) a right to any annuity in any case where the
terms and conditions relating thereto preclude the
commutation of any portion thereof into a lump sum
grant;"
Therefore, in order to be excluded from the assets of
the assessee, the right being the sum which was annually to
be paid under the agreement or letter mentioned hereinbefore
must be by the terms and conditions precluded commutation of
any portion thereof into a lumpsum grant. The question
therefore is-could this lumpsum grant of Rs.25 lakhs be
commuted by the Nizam and the capital value of the
commutation be received? Furthermore, the next question that
arises was whether that commutation was precluded by the
terms and conditions relating to that right. It may be that
preclusion might be either by express terms and conditions
of the right or as an inference from the terms and
conditions of the payment.
We need not go into the rights of the erstwhile princes
before the abolition of the privy purses whether the privy
purses could be commuted or not.
The term ’annuity’ is not defined in the Act. According
to the Oxford Dictionary, ’annuity’ means sums payable in
respect of a particular year; yearly grant. An annuity is a
certain sum of money payable. yearly either as a personal
obligation of the grantor or out of property. The hall-mark
of an annuity, according to Jarman On Wills (page 1113) is:
(1) it is a money; (2) paid annually; (3) in fixed sum; and
(4) usually it is a charge personally on the grantor.
1092
Whether a particular sum is an annuity or not has been
considered in various cases. It is not necessary in the
facts and circumstances of the case and in view of the terms
of the payment indicated to examine all these cases.
In Ahmed G.H. Ariff and Others v. Commissioner of
Wealth-tax, Calcutta, 76 I.T.R. 471, this Court held that
the word ’annuity’ in clause (iv) of section 2(e) of the Act
must be given the signification which it has assumed as a
legal term owing to judicial interpretation and not its
popular and dictionary meaning.
In Commissioner of Wealth-tax Gujarat v. Arundhati
Balkrishna, 77 I.T.R. 505, there were two deeds of trust.
The assessee’s father had settled certain shares in trust
for the benefit of the assessee and her two brothers. The
trustees were to pay the residue of the income from the
trusts in equal shares to the beneficiaries after deducting
all costs and expenses. The assessee had a right after she
had attained majority and after the birth of her first child
to require the trustees to pay her shares out of the corpus
of the trust fund absolutely up to one-half thereof. Under
another trust created by her mother-in-law of certain sums
of money and certain shares the trustees were required to
pay the income of the trust funds after deducting expenses
to the assessee during her lifetime. It was held that the
payments to the assessee under the trust deeds were not
’annuities’ within the meaning of section 2(e) (iv) of the
Act.
In Commissioner of Wealth-tax, Rajasthan v. Her
Highness Maharani Gayatri Devi of Jaipur, 82 I.T.R. 699,
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this question arose again. The Maharaja of Jaipur had
executed a deed of irrevocable trust whereunder the
properties mentioned in the schedule thereto stood
transferred to the trustee. The trust fund was to include
the assets mentioned in the schedule and also such additions
thereto and other capital moneys which might be received by
the trustee. The assessee was one of the beneficiaries under
the trust to whom the trustee was to pay during her lifetime
50 per cent of the income of the trust fund. The question
was whether the assessee had a life interest in the corpus
of the trust fund and her interest was therefore an ’asset’
liable to wealth-tax or whether the assessee had only a
right to an annuity and as such her right was exempt from
wealth-tax in view of section 2(e) (iv) of the Act. It was
held by this Court that since neither the trust fund nor the
amount payable to the assessee was fixed and the only thing
certain was that she was entitled to 50 per cent of the
income of the trust fund,
1093
what the assessee was entitled to was not an annuity but an
aliquot share in the income of the trust fund. The assessee
had a life interest in the trust fund and the right of the
assessee under the trust deed was not exempt from wealth-tax
by virtue of the provisions of section 2(e) (iv).
In Commissioner of Wealth-tax, Lucknow v. P.K.
Banerjee, 125 I.T.R. 641, it was held that the right of the
assessee in the trust fund in that case was not an ’annuity’
and was not exempt from the wealth-tax under section 2(e)
(iv) of the Act. It was further observed that in order to
constitute an ’annuity’ the payment to be made periodically
should be a fixed or predetermined one and it should not be
liable to variation depending upon or on any ground relating
to the general income of the fund or estate which was
charged for such payment.
In this case, in view of the background of the terms of
payment and the circumstances why the payment was made,
there cannot be any doubt that Rs.25 lakhs annually was an
’annuity’. It was a fixed sum to be paid out of the property
of the Government of India in lieu of the previous income of
the assessee from Sarf-e-khas. Therefore, it was an annuity.
The only question that arises, was there any express
provision which prevented commutation of this annuity into a
lumpsum? Counsel for the revenue contended that there must
be an express provision which must preclude commutation. In
this case indeed there is no express provision from the
document itself. The question is: can, from the
circumstances of the case, such an express provision
precluding commutation be inferred in the facts and
circumstances of this case?
The background of the facts and circumstances of the
payment has to be kept in mind. The Nizam had certain
income. He was being given three sums-one was the privy
purse which was not commutable; the other was payment of
Rs.25 lakhs for the upkeep of palaces etc. and the third of
Rs.25 lakhs in lieu of his previous income from the Sarf-e-
khas. Income is normally meant for expenditure. The Nizam
had to incur various expenditures. Commutation is often made
when one is not certain as to whether the source from which
that income comes for example, when a man retires from
service, he normally commutes in order to ensure for himself
and after his death for his family a certain income which he
can ensure by getting the commuted amount invested in his
private bank or otherwise which he may not be sure because
upon his death the pension will cease.
1094
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In this case this being an aggrement between erstwhile
ruler and the Government of India, there is no such
motivation and this payment of Rs.25 lakhs in lieu of the
previous income of Sarf-e-khas must be read in conjunction
with two other sums namely Rs.50 lakhs as privy purse and
Rs.25 lakhs for upkeep of palaces. This bears the same
character.
As privy purses were not commutable, we are of the
opinion that from the circumstances and keeping in
background of the payment, there was an express provision
flowing from the circumstances precluding the commutation of
this amount of Rs.25 lakhs. If that is the position, then,
in our opinion, it was exempt under section 2(e) (iv) of the
Act.
There was no right granted and can be gathered from the
terms of the grant of payment for the assessee to claim
commutation of the amount of Rs.25 lakhs. That would defeat
the purpose and the set up of the arrangement under which
the payment of the amount was made. The nature of privy
purses have been discussed in H.H. Maharajadhiraja Madhav
Rao Jiwaji Rao Scindia Bahadur & Ors. v. Union of India,
[1971] 3 SCR 9. We are, however, not concerned with the
controversy of the privy purse. But it is quite evident from
the nature of the sum stipulated in the letter, the assessee
had no right to claim commutation. Taking that fact in
conjunction with the circumstances under which the payment
of Rs.25 lakhs was agreed to, we are of the opinion that it
must be held that from the terms of the agreement, there was
an express stipulation precluding commutation. If that is so
then it comes within clause (iv) of section 2(e) of the Act
and the assessee was entitled to exemption. The question
therefore must also be answered in the negative and in
favour of the assessee.
The appeal is disposed of in the aforesaid terms. The
judgment and order of the High Court are modified
accordingly. In view of the divided success, there will be
no order as to costs.
A.P.J. Appeal allowed in part.
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