Mrs. M.P Gnanambal v. Commissioner Of Income-Tax, Madras.

Sethuraman, J.:— The following question has been referred to this court under s. 256(1) of the I.T Act, 1961:

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee is the owner of the properties situated at 26/110, Raja Street, and 325, Rangai Gowder Street, Coimbatore, within the meaning of section 22 of the Income-tax Act, 1961, and sustaining the inclusion of the rental income from the properties in the assessments made on the assessee for the assessment years 1966-67 and 1968-69 to 1970-71?”

2. There was one A.K Krishna Iyer, who had a prosperous business in running hotels. On 19th October, 1963, he executed a will creating a life estate in favour of his wife, Thirumathi M.P Gnanambal, with regard to the properties now under consideration. The question which arose before the ITO was, whether on the occupation of the properties by her sons free of rent, as contemplated by the will, she was liable to be assessed to income-tax on the usual value thereof. The contention of the assessee was that she could not be assessed and this contention was rejected by the ITO and he added a sum of Rs. 7,000 as income from these properties. On appeal before the AAC, it was contended that the assessee never acquired any legal interest in the properties, that only her sons are using the properties for their business, that they could not be evicted, that even when the will was executed, her sons alone were occupying the said properties, that till they exercised the option to vacate the properties voluntarily, she had no right to take possession of the property and to enjoy the income therefrom by letting them out to other tenants. The AAC accepted this contention and accordingly deleted the income of Rs. 7,000 from the hands of the assessee with reference to these properties for these years. The department took the matter on appeal to the Tribunal and it held that subject to the restriction regarding the realisation of the rental income, the life estate in the properties vested in the assessee and that the assessee as life estate holder was the owner thereof, assessable under s. 22 of the I.T Act. It is this conclusion of the Tribunal which is challenged in these references for the different years.

3. It may be mentioned here that for the assessment year 1967-68 which is not under consideration in the present references, the AAC held in this order dated 17th January, 1972, that the assessment of the sum of Rs. 7,000 as income from the properties could not stand. There is no information as to whether the said order was challenged in any appeal before the Appellate Tribunal. As he had discussed the contention in the earlier order dated January 17, 1972, he did not consider the contention elaborately in the present order, which was taken on appeal by the department.

4. Section 22 of the I.T Act, which relates to the assessment of income from house properties, reads thus:

“The annual value of the property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner……shall be chargeable to income-tax under the head income from house property.”

5. Under this provision an assessee would have to pay tax on the annual value of the property, if he or she was the owner of the said property. We have, therefore, to consider the question whether the assessee, who is the wife of the testator, was the owner of the properties under consideration. That the husband left a will on October 19, 1963, has already been mentioned. In the said will the following are the two passages, which are relevant for our present purpose. After her lifetime the properties were to go to her sons. In the latter portion of the will dealing with the properties under consideration it is stated thus:

The first of the two vernacular passage may be freely translated as follows:

After my lifetime, my wife, Smt. M.P Gnanambal, should enjoy the income from the properties described in the schedule subject to the conditions mentioned hereunder, during her lifetime without encumbering or effecting any alienation and keep them in her hands.

6. The second of the vernacular passages may again be freely translated as follows:

“If my sons want to reside or carry on business in the buildings in the aforesaid Raja Street and Rangai Gowder Street then with reference to the properties which are in their possession they could remain there. When they decide to vacate the properties voluntarily, then the aforesaid M.P Gnanambal would take possession of the properties, let them out at her own discretion and appropriate the rental income therefrom.”

7. The will makes it clear that whatever estate was created in the earlier part of the will, was subject to the conditions set out in the will itself in its latter portion. We, therefore, have to concentrate our attention on the rights conferred on her in the latter portion of the will. The relevant portion is the second passage in the vernacular language which has also been translated above. If the sons decided to live in any of the said properties or carry on their business then they were free to do so and Smt. M.P Gnanambal Ammal had no right to collect any rent from them, she could not even take possession of the properties by evicting them, even if she needed the buildings for her own occupation. It is only when they voluntarily vacated the properties and surrendered possession, she was in a position to recover possession of the properties and let them out to others and appropriate the rental income. The point for consideration is whether the right so conferred on Smt. M.P Gnanambal Ammal could be equated to any ownership in the property. The meaning to the word “ownership” has been given in the Dictionary of English Law by Earl Jowitt, to the extent of our cases, as follows:

“Ownership:— The most extensive right allowed by law to a person, of dealing with a thing to the exclusion of all other persons, or of all except one or more specified persons. It is, therefore, right in them. Ownership is essentially indefinite in its nature, but in its most absolute form it involves the right to possess and use or enjoy the thing, the right to its produce and accessions, and the right to destroy, encumber, alienate it…”

8. In Mulla's Transfer of Property Act, 6th edition, at page 50, the following has been taken as the proposition laid down in a Full Bench decision of the Allahabad High Court in Indar Sen v. Naubat Singh, [1885] ILR 7 All 553 at 556:

“Absolute ownership is an aggregate of component rights such as the right of possession, the right of enjoying the usufruct of land and so on.”

9. It is not in dispute that in given cases a life estate holder can be equated to the owner of the property, so long as he or she was in a position to enjoy the property or the income therefrom. It is not necessary for the purpose of assessment under s. 22 that she must be the absolute owner, in the sense in which it is understood in the above passages. However, even a life estate holder must have some vestige of rights in the property, before she can be treated as the owner of the property. In the present case, the rights with reference to these properties can only be described as a delusion and a snare so Iong as the sons continued to occupy the property, which they were entitled to under the will. To describe her rights on the facts here as owner of the property is, in our opinion, a complete misnomer. The I.T Act does not purport to tax a person who does not even have a vestige of a right in a property. As pointed out by the Supreme Court in R.B Jodhamal Kuthiala v. CIT, [1971] 82 ITR 570, 571:

“It is true that equitable considerations are irrelevant in interprteing tax laws. But, those laws, like all other laws, are to be interpreted reasonably and in consonance with justice.”

10. In that case, the property remained vested in the Custodian of Evacuee Properties by virtue of s. 6(1) of the Pakistan (Administration of Evacuee Property) Ordinance, 1949, as evacuee property. It was held that so long as the property remained vested in the Custodian, the person who was the owner of the property was not the owner for the purpose of s. 9 of the Indian I.T Act, 1922, which corresponds to s. 22 of the present Act. In that case also, the assessee could not exercise any right in that property except with the consent of the Custodian and he had merely some residual interest in the property. It was held that the residual beneficial right could not be considered as the ownership right for the purpose of s. 9. The same position would hold good in the present case also because during the period of occupation, as a matter of right by the sons, the assessee did not have any right in the property.

11. Mr. A.N Rangaswamy, appearing for the revenue, contended that any conclusion as if the lady is not the owner of the property during her lifetime consistently with her life interest, would practically create a vacuum in ownership and the law abhors such a vacuum. We do not consider that there would be such a vacuum on the facts here. It is, however, unnecessary for us now to determine as to who would be the owner during the period of occupation of the sons. The question would have to be determined as and when the occasion arises in the context of all the facts. We are concerned with the limited question as to whether she can be described as the owner of the property for these years. We have seen that she had in fact no rights on the property. When the sons vacate the properties, different considerations would arise. We do not propose to consider any such question here as it does not arise here. The learned counsel for the Commissioner drew our attention to the following cases: Raja Mohammad Ahmad Khan v. Municipal Board of Sitapur, [1965] AIR 1965 SC 1923, CIT v. Biman Behari Shaw Shebait, [1968] 68 ITR 815 (Cal), CIT v. Union Land and Building Society Private Ltd., [1972] 83 ITR 794 (Bom) and S.B (House & Land) Pvt. Ltd. v. CIT, [1979] 119 ITR 785 (Cal). As pointed out by the Calcutta High Court itself in the last mentioned decision, the question of ownership has to be considered only in the light of the particular facts and we have to consider the question only in the light of the peculiar terms of the document before us and also the nature of the interest created in favour of the lady. The result is, the question referred to us is answered in the negative and in favour of the assessee. The assessee will be entitled to her costs. Counsel's fee Rs. 500 one set.