Karnataka High Court
Commissioner Of Income-Tax vs Bharath Gold Mines Ltd. on 21 February, 1991
Equivalent citations: [1991]192ITR639(KAR), [1991]192ITR639(KARN)
JUDGMENT K. Shivashankar Bhat, J.
1. The two questions referred to us under the provisions of the Income-tax Act, 1961, read thus :
"1. On the facts and circumstances of the case, was the Appellate Tribunal right in law in holding that the assessee owned the building from 1-4-1972 within the meaning of section 32 of the Income-tax Act, 1961, and it was entitled to depreciation on the buildings ?
2. On the facts and circumstances of the case, was the Appellate Tribunal right in law in allowing the claim of the assessee for depreciation on buildings under section 32 of the Income-tax Act, 1961, for the assessment year 1973-74 ?"
2. The respondent-assessee is carrying on the Kolar Gold Field mining operations. The undertaking originally belonged to the Government of India. This entire undertaking was agreed to be sold to the present assessee, which is a public sector undertaking. By a communication dated March 18, 1972, the approval of the President for the transfer of the ownership and management with effect from April 1, 1972 was conveyed and it was stated that these approval was subject to the vote of Parliament. The consideration was the allotment of 50% of shares to the Government of India by the assessee-company. Accordingly, with effect from April 1, 1972, the assessee-company took over the undertaking and has been carrying on the operations as absolute owner of the assets. In facts, when the postal department wanted a site in the area, the department was asked to negotiate and purchase the same from the assessee-company. The Central Government was allotted 50 per cent. of the shares and the entire terms of the sale were satisfied. However, the sale deed was executed only on March 28, 1977, in respect of the immovable properties comprised in the assets of the undertaking. There is also no dispute that the immovable properties were used for the purpose of the industrial activities of the assessee-company The assessee-company claimed depreciation in respect of these assets under section 32 of the Income-tax Act, 1961 ("the Act", for short). The Appellate Tribunal has overruled the objection of the Revenue and has allowed this depreciation. The contention of the Revenue has been that there was no registered sale deed and, therefore, the ownership did not vest in the assessee-company. The Revenue contends that no equitable consideration governed the fact-situation and the question is covered by the decision of the Supreme Court under section 22 of the Act wherein the wording is almost similar, i.e., the benefit can be claimed only by an owner of immovable property.
3. Though the questions referred to us look simple, the process of answering the same was not quite easy. There are two sets of views-one view is that when the vendee, under the agreement of sale, takes possession and enjoys the same as absolute owner, the benefit of ownership should be recognised with such a vendee even though the sale deed is not registered; the second view is that, under Indian law, ownership does not vest until a sale deed is registered.
4. Different High Courts have expressed differently and we had considerable difficulty before arriving at the conclusion which ultimately we reached. The Government of India had clearly and categorically sold all the assets in question and transferred full rights to the assessee; but the sale deed was executed after a few years. The Central Government had received full consideration already and the assessee had used the assets for its industrial purposes. Equity and reasonableness, we thought, should be applied to answer the question in favour of the assessee, even though we are interpreting a fiscal legislation.
5. It is said that the concept of reasonableness and non-arbitrariness pervades the entire constitutional scheme and is a golden thread which runs through the whole of the fabric of the Constitution (Ajay Hasia v. Khalid Mujib Sehravardi, ). If so, income-tax law which is a subordinate law enacted by virtue of the power conferred by the Constitution also should have the same characteristics; reasonableness and unarbitrariness should be the principle that should guide its understanding and interpretation. This exactly was meant by the Supreme Court when it said in (Late) Nawab Sir Mir Osman ali Khan v. CWT [1986] 162 ITR 888; 895 :
"It has to be borne in mind that in interpreting the liability for wealth-tax, normally equitable considerations are irrelevant. But it is well to remember that in the scheme of the administration of justice, tax laws like any other laws will have to be interpreted reasonably and whenever possible in consonance with equity and justice. Therefore, the facts that the Legislature has deliberately and significantly not used the expression 'assets owned by the assessee' but belonging to the assessee', in our opinion, is an aspect which has to be borne in mind."
6. The considerations of equity and the factual realities are such that we were almost persuaded to accept the assessee's claim. The Central Government having transferred the entire assets and liabilities and having accepted 50 per cent. of the share capital in the assessee-company, the transaction of sale was almost complete, except for the registration of the sale deed. Even prior to the execution of the sale deed, earlier, when the postal department (a wing of the Central Government) required some site out of the assets held by the assessee, the postal department was asked to deal with the assessee directly, in view of the holding being with the assessee as the owner. For several years, the assessee and the Central Government acted as if the title vested in the assessee-company. The assessee used the buildings etc., for its industrial activities as an owner of these assets. In these circumstances, we had no doubt that the Central Government was estopped from denying the ownership of the assessee.
7. But, estoppel is an equitable doctrine. The authorities under the Income-tax Act are statutory functionaries who are to act strictly according to the said law. In these circumstances, one has to pause and hesitate before injecting the equitable consideration to rejuvenate the statutory provisions.
8. In the Supreme Court felt it unwise to induct equity and opined that the time was not yet ripe to apply the equity to a similarly fact situation, can the High Court take a different view ? In Nawab Sir Mir Osman Ali Khan's case [1986] 162 ITR 888, the Supreme Court itself has expressed the need for Parliament to step in to amend the law, since the court felt it not possible to remedy the inequitable result flowing from applying the technical meaning of "ownership" (or "belonging to"). The following observations of the Supreme Court are very relevant (pp.899, 900).
"The position is that though all statutes including the statute in question should be equitably interpreted, there is no place for equity as such in taxation laws. The concept of reality in implementing a 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 may learned brother and since in view of the position that legal title still vests with the assessee and 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 because the assessee 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 year 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'. The 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 the 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, times are not year ripe and in spite of some hesitation, I have persuaded myself to come of the conclusion that for all legal purposes, the property must be treated as belonging to the assessee and perhaps the Legislature would remedy the hardship of the assessee in such cases if it wants. Even though the assessee had a mere husk of title and as against the vendee no reality of title, as against the world he was still the legal owner and the real owner."
9. Again, further, the matter was left beyond any doubt by saying at p. 901 :
"Under section 53A of the Transfer of Property Act, 1882, where possession has been handed over to the purchasers and the purchasers are in rightful possession of the same as against the assessee and in occupation of the property in question and, secondly, 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 in possession had a right to call upon the assessee to execute the conveyance, it cannot (sic) be said that the property legally belonged to the assessee in terms of section 2(m) of the Act on 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 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."
10. Though, earlier, the Supreme Court had said that the concept of "belonging to" was different from the concept of "ownership", the discussion and the conclusion indicate that, ultimately, the Supreme Court applied the same consideration to find out the meanings of both these sets of words.
11. In R. B.Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570, the Supreme Court had to consider the effect of an Ordinance. Under the Ordinance, the property of an evacuee was to vest in the custodian for "administration." from the property (though the assessee being an evacuee had not received the income), was sought to be included under the old section 9 (corresponding to the present sections 22 and 23); the Revenue contended that ownership still continued with the evacuee and, therefore, he was liable to be taxed; while the assessee contended that he cannot be considered as an "owner" though technically the title continued with him. The Supreme Court accepted the assessee's contention. It held that the expression "administration" in relation to an estate, in law, means management and settling of the estate; it is a power to deal with the estate; the evacuee cannot take possession of his property not lease it; he cannot sell it without the consent of the custodian. It was further held that (at p.575) :
"a property cannot be owned by two persons, each one having independent and exclusive right over it. Hence, for the purpose of section 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."
12. After considering a few decisions, the Supreme Court said at p. 578 :
"As mentioned earlier that section seeks to bring to tax income of the property in the hands of the owner. Hence; the focus of that section is on the receipt of the income. The word 'owner' has different meanings in different contexts. Under certain circumstances a lessee may be considered as the owner of the property leased to him. In Stroud's Judicial Dictionary, 3rd edition, various meanings of the word 'owner' are given. It is not necessary for out present purpose to examine what the word 'owner' means in different contexts. The meaning that we give to the word 'owner' in section 9 must not be such as to make that provision capable of being made an instrument of oppression. It must be in consonance with the principles underlying the Act."
13. The statutory consequences of vesting the power of administration in the custodian, in the above case, is in no way different from the consequences of transferring the property to the assessee-company by the Central Government. The ratio of this decision was the subject-matter of elucidation by a Bench of this court which is binding on us; it is reported in [1989] 180 ITR 464 (Ramkumar Mills Pvt. Ltd., v. CIT). The assessee therein had entered into an agreement of sale, agreeing to sell the property for a particular consideration and delivered possession of the house property to the vendee with all rights, title and interest therein; therefore, the assessee contended that income from the house property cannot be assumed in the hands of the assessee and that the assessee did not receive any income from the property. After referring to Nawab Sir Mir Osman Ali Khans's case , this court held (p. 467 of 180 ITR) :
"But, in our opinion, the reasoning and the basis on which the Supreme Court held that in such circumstances the property continues to belong to the vendor equally holds good for the purpose of interpretation of section 22 of the Income-tax Act."
14. Thereafter, this court referred to R. B. Jodha Mal Kuthiala v. CIT . While so doing, several decisions of various High Courts were considered and the Bench concluded that a registered sale deed is necessary to confer ownership for purposes of section 22 of the Act. Kuthiala's case , was distinguished by Rama Jois J., at p. 474, thus :
"That was a case in which the property of an evacuee statutorily vested in the custodian under the provisions of the Pakistan (Administration of Evacuee Property) Ordinance, 1949, and the decision was rendered entirely on the interpretation of the provisions of the Ordinance. I am in respectful agreement with the view taken by the Bombay High Court that the ratio of the decision in Kuthiala's case is no basis to hold that a person who had parted with possession of property in favour of the intending purchaser but had not executed the sale deed is not the owner, as also with the view taken by the Delhi High Court that whoever is the owner of a property in the eye of law is also the owner for purposes of section 22 of the Income-tax Act and that the decision in Kuthiala's case constitutes no basis to take a contrary view."
15. At p. 477, Rajendra Babu j., held regarding Kuthiala's case :
"Therefore, the principles that could be applicable to a case where, by operation of law, a person is deprived of the control in regard to a property stand entirely on a different footing from a situation where a person voluntarily places himself in a situation where he does not wish to collect the income in regard to a property. Therefore, the principles stated in Kuthiala's case cannot be applied to the facts of the present case."
16. Thus, a Bench of this court has clearly confined the applicability of the decision in Kuthiala's case to the particular facts involved therein and held it inapplicable to other cases under section 22. The consequences of Kuthiala's case were statutory and not contractual.
17. The facts of the present case before us have made us ponder deeply over the question involved. Probably, if this court had not distinguished Kuthiala's case in the manner it had been done in Ramkumar Mills case [1988] 180 ITR 464 (Kar), we would have ventured to extend its principles to the instant case, subject to what we may have thought about the ratio of the decision of the Supreme Court in Nawab Sir Mir Osman Ali Khan's case [1986] 162 ITR 888.
18. The assessee in the instant case is a public sector undertaking capable of agitating the question further in the Supreme Court. The question involved is of considerable importance and is not entirely free from doubt. Having regard to this circumstance read with the need for us to maintain judicial discipline and propriety by accepting the ratio of Ramkumar Mill's case , we answer the questions referred to us in the negative and against the assessee.
19. Answered accordingly.