R.B. Jodha Mal Kuthiala v. C.I.T. (1971) 3 SCC 369

FACTS

• The assessee purchased the Nedous Hotel in Lahore in 1946. After partition, the hotel became evacuee property and vested in the Custodian in Pakistan.

• For purchasing the property, the assessee took a loan from a bank and the Raja of Jubbal.

• The assessee claimed losses on the basis of loan interest paid for certain assessment years but showed no income from the hotel due to it being considered evacuee property.

• The Income Tax Officer disallowed the assessee's claim for interest paid to the bank for the property loan.

• The Tribunal initially ruled in favor of the assessee, allowing the interest paid as a deductible allowance under Section 9(1)(iv) of the Act.

• The High Court analyzed various provisions of the Pakistan (Administration of Evacuee Property) Ordinance, 1949, and concluded that the assessee cannot be considered the owner of the property for the purpose of Section 9 of the Act.

• Hence the present appeal before SC.

ISSUE

• Whether the assessee continued to be the owner of a property for the computation of income under Section 9 of the Income Tax Act, 1922?

RULE

• The individual or entity with the legal authority to control and derive income from the property is considered the owner, even if they hold such ownership subject to certain restrictions or limitations. In the present case, the Custodian was the owner, not the assessee.

HELD

• The Supreme Court affirmed the High Court's decision, stating that the Custodian effectively became the legal owner of the property under the Ordinance.

• The Court emphasized that for tax purposes, the owner refers to the person entitled to the income from the property. Even though the evacuee retained some beneficial interest, the Custodian had all the powers of ownership.

• In Official Assignee for Bengal (Estate of Jnanendra Nath Pramanik) 5 ITR 233 (HC)], The property of an insolvent vested in the Official Assignee under the Presidency Towns Insolvency Act. The Official Assignee was considered the "owner" for tax purposes as per Section 17 of the Act, which vested the property in him for administration among the creditors.

• In Commissioner of Inland Revenue v. Fleming, court held that income derived from sequestrated estates (i.e., hidden) vested in the trustee for the creditors, making the trustee the owner of the income for tax purposes. The income did not belong to the insolvent individual.

• In Nawab Bahadur of Murshidabad v. Commissioner of Income-tax, West Bengal: The word "owner" in Section 9 of the Act applies to those with ownership of the income, even with restrictions on property alienation.

• Appeal Dismissed. The appellant cannot claim deduction u/s 9 of the Act as he is not the owner of the property.

COMMENTARIES RATIO/NOTE

• MEANING OF THE WORD "OWNER" –

  • The word "owner" means a legal owner. For the purpose of section 22, the annual value of property is assessed to tax in the hands of the owner even if he is not in receipt of income or even if income is received by some other person. For instance, if a person makes a gift of rental income to a friend or a relative, without transferring ownership of the property, the annual value of the property is taxable in the hands of the donor (S. Kartar Singh v. CIT [1969] 73 ITR 438 (Delhi)).

  • "Owner" for the purpose of section 22 is a person who is entitled to receive income in his own right and as such where a property is handed over to a purchaser to enjoy the fruits of that property by the builder, the purchaser is treated as "owner" of that property even though a non-registered document has been executed in his favour—CIT v. Podar Cement (P.) Ltd [1997] 92 Taxman 541 (SC).

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