UNITED BANK LTD. Versus BOMBAY FRONTIER OLD TYRE CO
TANZIL‑UR‑REHMAN, J .‑‑‑This judgment will dispose of I. T. C. No. 186 of 1973 and I. T. R. No. 88 of 1982. I. T. C. No. 186 of 1973 is are application under section 66 (1) of the Income‑Tax Act, 1922 made by the applicants relating to the assessment year 1971‑72, whereby three questions were raised before this Court. Mr. Ali Athar, learned counsel for the applicant, has dropped questions Nos. 2 and 3 before us. The only question which now remains to be decided reads as under:‑
"(1) Whether in the facts and circumstances of the case the Tribunal is right in holding that the notional income of property belonging to the applicants is liable to Income‑tax under section 9 of the Income Tax Act?"
2. I. T. R. 88 of 1982 is a reference made by the Tribunal to this Court relating to the assessment year 1972‑73. The question in this reference is also the same as the one quoted above under 1. T. C. No. 186 of 1973.
3. The facts of the cases in brief, are that the applicant upto the assessment year 1970‑71, had been showing the notional income of the property owned by it as a part of its taxable income. For the assessment year 1971‑72, however, the said income from the property was claimed as exempt from income‑tax. The plea was rejected by the Income-tax Officer. The applicants then filed an appeal to the Income Tax Appellate Tribunal, which also rejected the, clam for exemption. These references arise out of the order, dated 12th February, 1973, passed by the Tribunal.
4. Mr. Ali Athar, learned counsel for the applicants submitted that the property of the applicants is neither yielding any income nor it is capable of yielding any income, and thus the applicant is not liable to income‑tax. In support of his contention, he relied on the word 'income' as mentioned in Item 42(c) of Schedule III to the Constitution of Pakistan, 1962 which means any thing which conies in. Mr. Ali Athar referred to a case, Navinchandra Mafatial, Bombay v. Commissioner of Income‑tax (1954 I T R 758), and placed his reliance on the following observations of the Supreme Court of India appearing at page 76‑1 of the Report:‑
"What, then, is the ordinary, natural and grammatical meaning of the word 'income'? According to the dictionary it means "a thing that comes in". (See Oxford Dictionary, Volume V, page 162; Stroud, Volume 11, page 14‑16). In the United States of America and in Australia both of which also are English speaking countries the word 'income' is understood in a wide sense so as to include a capital gain. Reference may be made to Eisner v. Macomber, 252 U. S. R. 189; 64 L. Ed. 521, Merchant's Loan & Trust Co. v. Smietanka (255 U. S. R. 509, 65 L. Ed. 751) and United States of America v. Stewart 311 U. S. R. 60; 85 L. Ed. 40 and Resch v. Federal Commissioner of Taxation, 66 C. L. R.
198. In each of these cases very wide meaning was ascribed to the word 'income' as its natural meaning. The relevant observations of learned Judge deciding those cases which have, been quoted in the judgment of Tendolkar, J., quite clearly indicate that such wide meaning was put upon the word 'income' not because of any particular legisla tive practice either in the United States or in the Commonwealth of Australia but because such was the normal concept and conno tation of the ordinary English word 'income'. Its natural meaning embraces any profit or gain, which is actually received. This is consonance with the observations of Lord Wright to which reference has already been made. Mr. Kola concedes that the word 'income' is understood in the United States and Australia in the wide sense contended for by the learned Attorney‑General but he maintains that the law in England is different and, therefore, entry 54 which occurs in a Parliamentary statute should be construed according to the law of England. We are again brought back to the same argument as to the word having acquired a restricted meaning by reason of what has been called the legislative practice in England an argument, which we have already discarded. The argument founded on an assumed legislative practice being thus out of the way, there can be no difficulty in applying its natural and gram matical meaning to the ordinary, English word 'income'. As already, observed, the word should be given its widest connotation in view of the fact that it occurs iii a legislative head concerning legislative power."
He also referred to a decision of this Court reported as Pakistan Industrial Development Corporation v. Pakistan (P L D 1984 Kar. 1), 'in which it was held that "income denotes a thing that comes in, therefore, in its natural meaning, the word 'income' will embrace any profit or gain which is actually received".
5. On the other hand, Mr. Shaikh Haider, learned counsel for the respondent contended that as provided in section 9 of the Income‑tax Act, 1922, the income is notional when property is not let out otherwise it is actual. He placed his reliance on a number of cases reported as Commis sioner of Income‑tax, West Bengal v. Biman Behari Shaw Shebait ((1968) 68 I T R 815), The United Service Club, Simla v. The Crown ((1918) 1 I T C 113), The Commissioner of Income tax, U. P. v. Sheeler Club Ltd. ((1963) 49 I T R 52) and D. AL Vakil v. Commissioner of Income‑tax (119461 14 I T R 298).
6. In the first named case, (1968) 68 I T R 8.15, which is Calcutta High Court, the facts, in brief, were that one Banku Bihari Shah executed a will on 24th November, 1925 and thereby intended to found a debutter estate. He dedicated several properties to two deities installed by him. In the said will, while dedicating the several properties he put a restriction that the same will not be let out. The Income‑tax officer computed the bona fide annual value of the property in question at the amount which they were likely to fetch, if let out in the open market. The assessee appealed before the Appellate Assistant Commissioner of Income tax, who, while allowing the appeal, observed that these premises have trot been let out and no income accrued therefrom. The Income Tax Officer, therefore, was unjustified in adding any income on account of the aforesaid properties. Against the orders of the learned appellate Assistant Commissioner, an appeal was filed before the Appellate Tribunal. The Appellate Tribunal agreed with the orders of the Appellate Assistant Commissioner, against which a reference was made to the High Court. The High Court held that the Tribunal was not correct in holding that, in view of the injunction contained in the will against the residence of any body in the premises (apart from the priest performing the worship of the deity and its servants), the premises have no letting value. That injunction will be relevant consideration in finding out the bona fide value and the weight of the injunction may very much reduce the bona fide letting value of the house. But because of the existence of the injunction, the premises cannot be said to have no letting‑value, notional or otherwise. It is advantageous to note that the Calcutta High Court for that view found support from two decisions of the Bombay High Court namely, D. M. Vakil v. Commissioner of Income‑tax and Sir Currimbhoy Ebrahim Baronetcy Trust v. Commissioner of income‑tax ((1963) 48 I T R 507).
7. The second named case, 1918 I T C 113, which was decided by the High Court of Judicature at Lahore, under section 8 of the Income Tax Act (VII of 1918), which was similar in terms to section 9 of the present Income Tax Act, 1922. It was observed as follows:‑
."I do not see much force in this contention, as the tax is payable under section 8 of the Act in respect of the value of any house property of which the assessee is the owner, even though the property is occupied by the owner himself 'and is not bringing him any actual income, the reason for this being, doubtless, that such property is capable of bringing in a profit, whether it is actually doing so or not."
8. In tile third named case, (1963) 49 I T R 52, the Allahabad High Court also `held the same view as is evident from the following observations:‑
"Every person who owns a house or a building is liable to pay income -tax on the annual letting value of it whether he occupies it himself or lets it out to a tenant or lets it remain unoccupied. His liability to pay income‑tax arises from the mere fact of his owning the property having an annual letting value and not from his actually deriving any income from it. Even if he does not derive any income from it, as, for example, when he occupies it himself or lets it remain vacant, he is liable to pay tax."
9. In the fourth named case,.(1946) 14 I T R 298, the Bombay High Court held that the annual letting value of the property should be included in the assessment of trustees under section 9 of the Income Tax Act. The facts of the case were that one Bai Bhicaiji Dhunjibhoy appointed her husband and her son and three daughters as the trustees under her last will and testament dated 28th January, 1937. According to clause (5) of the said will, the husband of the testatrix, her son, Motabhoy, and daughter Motibai, had the right to use and occupy free of rent such portion of the Warden Road property as was at the time of the making will occupied by the testatrix. Besides the husband, the son and the daughter such of the children and grand‑children of the testatrix as might be invited had also the right to reside in the Bungalow. For the assessment year 1942‑43, the trustees who were assessed as an association of persons claimed that in view of aforesaid provision in the will, the trustees could not be said to have realised any income what soever from the property id question, which could be computed under section 9 of the Income‑tax Act. The claim was rejected by the Income Tax Officer and the income from the said house property was computed on the bona fide annual letting value basis under section 9 and included it in the assessment. The Appellate Commissioner, however, in appeal by the trustees, directed exclusion of the aforementioned bona fide annual value from the calculation of the assessees' property income. In appeal by the revenue before, the Tribunal the Tribunal held, on the facts, that the mere circumstance that in pursuance of a certain arrangement no rent was to be charged from the occupant of the property did not render the property or the income thereof exempt from the assessment under section 9. At the instance of the trustees, the following question was referred to the Bombay High Court:‑
Whether upon the facts found by the Tribunal the annual value of the property on Warden Road, Bombay, has been rightly included in the assessment under section 9 of the Income Tax Act?
It was contended by the trustees that there being no income, sections 3 and 4 of Indian Income Tax Act, 1922, could not be relied upon to tax the annual letting value of the Bu\ngalow. The trustees in support of their contention relied on the observations of the Lord Halsbury L. C. in his speech in Tenant v. Smith (1), where the revenue sought to hssess an agent of bank on the annual value of the residence under Schedule or Schedule E of the Income Tax Act, and the agent was required to reside in the building of the bank for purpose of performing his duty, which he owed to his employers, the observation was to the effect that thing sought to be taxed was not income unless it could be turned into money. On behalf of the Commissioner of Income‑tax, it was urged before the Bombay High Court that this line of reasoning was incorrect as the only question to be considered under the Income‑tax Act was that what was the income under the, charging sections,3, 4, 5 and 9 containing the heads of income and how computation of income was to be made in respect of the income from property. Acting Chef Justice, Kania, speaking for the Division Bench of the Court, while rejecting the contention of the trustees held as under:‑
"In my opinion the contention of the trustee's is not correct. The word `income' has not been defined in the Act, but for the purposes of the Indian income Tax Act,. 1922; the expression 'total income' is defined in section 2(15). The legislature has used there the word `computed in the manner laid down in this Act'. Therefore, in order to ascertain the total income of an assesses his income must be computed in the manner laid down in the Act and particularly Chapter 11.1. In this connection the words used in section 9 may be particularly noted. The section provides as follows:
'The tax shall be payable by an assesses under the head 'income from property' in respect of the bona fide annual value of property consisting of any building. .
The legislature has, therefore, expressly provided that the tax shall be the bona fide annual value irrespective of the question whether he receives that value or not: Section 9(2) provides that for the purposes of this section the expression 'annual value' shall be deemed to mean the sum for which the property might reasonably be expected to let from year to year. It is again significant to note that the word used is 'might' and not 'can or is Reading these two paragraphs of section 9 together it is clear that the income from the property is thus an artificially defined income and the liability arises from the fact that the assesses is the owner of the property. It is further provided in the section that if the owner occupies the property he had to pay tax calculated in the manner provided therein. Therefore, by reason of the fact that the property is not let out, the assesses does not escape taxation.
On behalf of the trustees it was urged that in the present case the trustees are prevented from letting out the property .to any one by virtue of clause (5) of the will itself. That, however, in my opinion, makes no difference. The liability to tax does not depend on the power of the owner to receive the bona fide annual value of the
(1) 1992 A C 150 (H L) property. The law has laid down in artificial rule by which the amount is to be considered the income of the assessee from immovable property and provides that he should be taxed on that footing. In my opinion the argument of the Commissioner on this point is correct."
Mr. Justice Chagla, in his concurring judgment said.
It is true that under the Indian Income Tax Act, 1922, the only thing that can be taxed is income and nothing else. The charging section is section 3; it charges the total income of an assessee; and `total income' is defined in section. 1(15) as the total amount of income, profits and gains computed in the manner laid down in this Act.
Before income can be computed in the manner laid down in the .Act there must be income to which the mode of computation can be applied. Now it cannot be disputed that income from property is taxable income. The only question is; what is income from property or how is it to be computed? And for that purpose one must turn to section 9 of the Indian Income Tax Act, 1922. The scheme of the Income Tax Act is that liable to tax is not the actual income but an artificial or statutory income as defined in section 9 and that artificial or statutory income is the bona tide annual value of the property. Therefore, the fact that the owner of the property receives no income in fact or even that there is no possibility of his receiving ail income is irrelevant for the consider ation of the property. The test and the only test laid down in the Act is the bona fide annual value of the property, and in the case of every property that test can be complied with rind the annual value of the property can be determined. Therefore; what the Act does is to make the annual rental value of the property the income of the owner of that property and its income that has got to be taxed under the Act."
10. The above decisions fully support the contention of Mr. Shaikh Haider.
11. Adverting to the contention of Mr. Ali Athar, we must, at the outset, state that we are not impressed by his argument. In fact he appears to have argued the point half‑heartedly. He failed to develop the point any further except citing the entry in Schedule III, the two decisions: one of the Supreme Court of India and the other of our own Court. However, in the case of the Supreme Court of India the question was, whether the imposition of tax oil capital gain was ultra vires to the powers of Central Legislature. In that context, it was held that the word 'income' in Entry 54 in list 1 of the VIIth Schedule to the Government of India Act, 1935, should he given its widest connotation in view of the fact, that it occurs in a legislative head conferring legislative powers and it includes a capital gain. The case is, therefore, distinguishable. The Karachi case P L D 1984 Kar. 1, relied oil by Mr. Ali Athar is also distinguishable as the facts of that ease are entirely different. The said decision pertains to the amounts of free reserves.
12. In our view, however, the word 'income' mentioned under Item 42(c) of Schedule III to tile Constitution of Pakistan, 1962, should be construed in the broadest sense of the term. In fact, none of the items in the Schedule is to be given a narrow or restricted meaning anal that each general word should be taken to extend to all ancilliary or subsidiary matters which can fairly and reasonably be said to be comprehended in it unless the context warrants otherwise. Giving the widest possible construction to the word 'income' occurring in an entry in the legislative head, conferring legislative powers, means and includes, so as to have elect in its widest amplitude, notional income, or, a stated in some of the judgments, cited by Mr. Shaikh Haider, artificial income, statutory income or, as we put it, 'implied income' as against the 'actual income'. We are mindful of the words occurring in section of the Act that the tax is payable by an assessee under the head 'income from property' in respect of the bona fide annual value of the property consisting of building or lands appertinent thereto of which he is the owner. The word bona fide', as used in section 9, denotes something which may not be 'actual'. The word 'income', therefore, under section 9 may mean what would generally be not treated as income. The assessee is taxed under section 9 of the Income Tax Act on the basis of the Dana tide letting value of the property consisting of buildings or lands appertinent thereto of which the assesses is the owner, other than what is occupied for his business or profession, the profits of which are chargeable to income‑tax under section 10 of the Act. Section 2(6‑c) of the Income Tax Act does not contain an exhaustive definition of the word 'income' but is inclusive. Notional letting value can, therefore, be an income as in the case of self‑occupied house.
13. For the foregoing reasons, we do not find any thing wrong with the order of the learned Tribunal. The answer to the question is, therefore, in the affirmative.
M.B.A. Question answered in affirmative.