The title to a property is still in my name but somebody else has taken over all the rights and the rent — am I still the owner for income from house property?
No. The Supreme Court held that the 'owner' for house property purposes is the person who can exercise the rights of an owner in his own right, not on behalf of another. A firm whose Lahore hotel had vested in the Pakistan Custodian of Evacuee Property was not the owner: the Custodian had every power of an owner except appropriating the proceeds, so he was the owner in the eye of the law, and the assessee's residual interest was not ownership for the charging section. The firm could not therefore claim the interest as a house property loss.
Decided by the Supreme Court (Supreme Court of India — K.S. Hegde and A.N. Grover JJ (judgment by Hegde J)) on 1971-09-09, reported as 1972 AIR 126; 1972 SCR (1) 639; 1971 SCC (3) 369; 1972 Tax LR 38. It bears on section 22, section 27, section 23 of the Income Tax Act 1961, in House Property and How Tax Law Is Read matters.
This is the leading Indian authority for reading 'owner' in the house property head functionally rather than by formal title. The head taxes the income of the property, not a person's interest in it, and property cannot be owned by two persons each with an independent and exclusive right — so the section has to identify one owner, and it identifies the one entitled to enjoy the income in his own right. The reasoning was later carried into Poddar Cement and Mysore Minerals, where buyers in possession without a registered conveyance were held to be owners. Reach for Jodha Mal whenever the registered title and the beneficial enjoyment of a property have come apart.
Binding on every court and authority in India.
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The assessee was a registered firm with income from securities, property, business and other sources. In 1946 it bought the Nedous Hotel in Lahore for Rs 46 lakhs, funding it with a Rs 30 lakh loan from Bharat Bank Ltd, Lahore and a Rs 18 lakh loan from the Raja of Jubbal. The bank loan was partly repaid; with the Raja the firm agreed that he take a half share in the property in lieu of his loan and one-third of the outstanding bank liability, an arrangement effective from 1 November 1951. On Partition, Lahore fell in Pakistan, the hotel was declared evacuee property and vested in the Custodian under the Pakistan (Administration of Evacuee Property) Ordinance 1949. For assessment years 1952-53, 1955-56 and 1956-57 the firm returned the gross annual letting value as nil but claimed losses of about Rs 1 lakh a year, being interest payable to the bank. The Income-tax Officer disallowed the interest on the ground that the property had vested in the Custodian; the Appellate Assistant Commissioner agreed; the Tribunal held the firm still the owner and the interest allowable. A Full Bench of the Delhi High Court answered the reference against the assessee.
The appeals were dismissed, with no order as to costs. The assessee was not the owner of the Nedous Hotel during the relevant assessment years for the purposes of the charging provision on income from property, and the interest paid on the borrowings was therefore not an allowable deduction under that head. Under the Ordinance the evacuee could not take possession of the property, lease it, sell or mortgage it without the Custodian's consent, or realise its income; the Custodian could take possession, realise the income, alienate the property and in some circumstances demolish it. All the rights the evacuee had were exercisable by the Custodian, save that he could not appropriate the proceeds to his own use. In the eye of the law the Custodian, having all the powers of an owner, was the owner; his position was no less than that of a trustee, and the evacuee retained only a beneficial or residual interest.
The section brings to tax the income from property, not a person's interest in the property. A property cannot be owned by two persons each having an independent and exclusive right over it, so the section must fix on one owner: the person who can exercise the rights of the owner, not on behalf of the owner but in his own right. The focus of the section being the receipt of income, the meaning of 'owner' must be found by asking who is entitled to that income. The Court took that test from Official Assignee for Bengal, Commissioner of Inland Revenue v Fleming and the Privy Council in Sir Currimbhoy Ibrahim Baronetcy Trust, where property vesting in an assignee or trustee carried the income with it. Amar Singh, which spoke of the evacuee retaining ultimate ownership, was distinguished: it decided whether the evacuee's right was 'property' for Article 19(1)(f), not whether it was ownership under the taxing section, and nobody denies the evacuee has a residual right. The dictionary and jurisprudential definitions pressed on the Court were held inapplicable, because 'owner' has different meanings in different contexts and the meaning given here must be in consonance with the principles underlying the Act and must not make the provision an instrument of oppression. Equitable considerations are irrelevant in construing tax laws, but tax laws must still be construed reasonably: if evacuees were treated as owners while the Ordinance stood, thousands would have paid tax on annual letting values without receiving a paisa. The Court declined to rest on the English 'suspended ownership' theory used for enemy property.
Hence for the purpose of s. 9, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his own right.
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held that the 'owner' for house property purposes is the person who can exercise the rights of an owner in his own right, not on behalf of another. A firm whose Lahore hotel had vested in the Pakistan Custodian of Evacuee Property was not the owner: the Custodian had every power of an owner except appropriating the proceeds, so he was the owner in the eye of the law, and the assessee's residual interest was not ownership for the charging section. The firm could not therefore claim the interest as a house property loss. This was decided by the Supreme Court (Supreme Court of India — K.S. Hegde and A.N. Grover JJ (judgment by Hegde J)) and bears on section 22, section 27, section 23 of the Income Tax Act 1961. It is reported as 1972 AIR 126; 1972 SCR (1) 639; 1971 SCC (3) 369; 1972 Tax LR 38. This is the leading Indian authority for reading 'owner' in the house property head functionally rather than by formal title. The head taxes the income of the property, not a person's interest in it, and property cannot be owned by two persons each with an independent and exclusive right — so the section has to identify one owner, and it identifies the one entitled to enjoy the income in his own right. The reasoning was later carried into Poddar Cement and Mysore Minerals, where buyers in possession without a registered conveyance were held to be owners. Reach for Jodha Mal whenever the registered title and the beneficial enjoyment of a property have come apart. If it applies to you, the first step is this: Identify who can actually exercise the owner's rights — possess, let, sell, mortgage, and take the income — and assess the property income in that person's hands.
The assessee was a registered firm with income from securities, property, business and other sources. In 1946 it bought the Nedous Hotel in Lahore for Rs 46 lakhs, funding it with a Rs 30 lakh loan from Bharat Bank Ltd, Lahore and a Rs 18 lakh loan from the Raja of Jubbal. The bank loan was partly repaid; with the Raja the firm agreed that he take a half share in the property in lieu of his loan and one-third of the outstanding bank liability, an arrangement effective from 1 November 1951. On Partition, Lahore fell in Pakistan, the hotel was declared evacuee property and vested in the Custodian under the Pakistan (Administration of Evacuee Property) Ordinance 1949. For assessment years 1952-53, 1955-56 and 1956-57 the firm returned the gross annual letting value as nil but claimed losses of about Rs 1 lakh a year, being interest payable to the bank. The Income-tax Officer disallowed the interest on the ground that the property had vested in the Custodian; the Appellate Assistant Commissioner agreed; the Tribunal held the firm still the owner and the interest allowable. A Full Bench of the Delhi High Court answered the reference against the assessee. The matter was decided on 1971-09-09 by the Supreme Court (Supreme Court of India — K.S. Hegde and A.N. Grover JJ (judgment by Hegde J)). On those facts the Supreme Court held as follows. The appeals were dismissed, with no order as to costs. The assessee was not the owner of the Nedous Hotel during the relevant assessment years for the purposes of the charging provision on income from property, and the interest paid on the borrowings was therefore not an allowable deduction under that head. Under the Ordinance the evacuee could not take possession of the property, lease it, sell or mortgage it without the Custodian's consent, or realise its income; the Custodian could take possession, realise the income, alienate the property and in some circumstances demolish it. All the rights the evacuee had were exercisable by the Custodian, save that he could not appropriate the proceeds to his own use. In the eye of the law the Custodian, having all the powers of an owner, was the owner; his position was no less than that of a trustee, and the evacuee retained only a beneficial or residual interest.
The section brings to tax the income from property, not a person's interest in the property. A property cannot be owned by two persons each having an independent and exclusive right over it, so the section must fix on one owner: the person who can exercise the rights of the owner, not on behalf of the owner but in his own right. The focus of the section being the receipt of income, the meaning of 'owner' must be found by asking who is entitled to that income. The Court took that test from Official Assignee for Bengal, Commissioner of Inland Revenue v Fleming and the Privy Council in Sir Currimbhoy Ibrahim Baronetcy Trust, where property vesting in an assignee or trustee carried the income with it. Amar Singh, which spoke of the evacuee retaining ultimate ownership, was distinguished: it decided whether the evacuee's right was 'property' for Article 19(1)(f), not whether it was ownership under the taxing section, and nobody denies the evacuee has a residual right. The dictionary and jurisprudential definitions pressed on the Court were held inapplicable, because 'owner' has different meanings in different contexts and the meaning given here must be in consonance with the principles underlying the Act and must not make the provision an instrument of oppression. Equitable considerations are irrelevant in construing tax laws, but tax laws must still be construed reasonably: if evacuees were treated as owners while the Ordinance stood, thousands would have paid tax on annual letting values without receiving a paisa. The Court declined to rest on the English 'suspended ownership' theory used for enemy property. In the words reproduced by the source cited on this page: "Hence for the purpose of s. 9, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his own right."
It was decided by the Supreme Court on 1971-09-09 and is reported as 1972 AIR 126; 1972 SCR (1) 639; 1971 SCC (3) 369; 1972 Tax LR 38. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 22, section 27, section 23, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeals were dismissed, with no order as to costs. The assessee was not the owner of the Nedous Hotel during the relevant assessment years for the purposes of the charging provision on income from property, and the interest paid on the borrowings was therefore not an allowable deduction under that head. Under the Ordinance the evacuee could not take possession of the property, lease it, sell or mortgage it without the Custodian's consent, or realise its income; the Custodian could take possession, realise the income, alienate the property and in some circumstances demolish it. All the rights the evacuee had were exercisable by the Custodian, save that he could not appropriate the proceeds to his own use. In the eye of the law the Custodian, having all the powers of an owner, was the owner; his position was no less than that of a trustee, and the evacuee retained only a beneficial or residual interest. It arises in House Property and How Tax Law Is Read matters, on section 22, section 27, section 23 of the Income Tax Act 1961, and was decided by Supreme Court of India — K.S. Hegde and A.N. Grover JJ (judgment by Hegde J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not assume the registered title settles the matter; the Court read 'owner' by reference to who receives the income in his own right. If a statutory authority, receiver, custodian or trustee has taken over the property, examine the statute or instrument to see which powers passed and which remained. Remember the corollary: a person held not to be the owner cannot claim the interest deduction on borrowings for that property under the house property head either.
Still good law. The test has been applied and extended, not doubted; the source page's citator records it as relied on in later Supreme Court decisions. Its principle was carried forward under the 1961 Act when 'owner' came to be read to cover a buyer in possession without a registered conveyance. Judged from the judgment and its citator entries alone; no later decision was read. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment construes section 9 of the Indian Income-tax Act 1922; sections 22, 23 and 27 of the 1961 Act are the corresponding provisions and are listed on that basis, not because the judgment cites them. Section 27 in particular postdates the decision. The Court did not decide who could claim the interest instead, nor what became of the Raja's half share. The reported citation list from the source carries no ITR reference for this judgment. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed, with no order as to costs. The assessee was not the owner of the Nedous Hotel during the relevant assessment years for the purposes of the charging provision on income from property, and the interest paid on the borrowings was therefore not an allowable deduction under that head. Under the Ordinance the evacuee could not take possession of the property, lease it, sell or mortgage it without the Custodian's consent, or realise its income; the Custodian could take possession, realise the income, alienate the property and in some circumstances demolish it. All the rights the evacuee had were exercisable by the Custodian, save that he could not appropriate the proceeds to his own use. In the eye of the law the Custodian, having all the powers of an owner, was the owner; his position was no less than that of a trustee, and the evacuee retained only a beneficial or residual interest.
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