JUDGMENT KAPUR J. - This order will dispose of Income-tax References Nos. 2 of 1967 and 3 of 1967. The Income-tax Reference No. 3 of 1967 relates to the accounting period ended 31st March, 1951, relevant to the assessment year 1951-52, while Reference No. 2 of 1967 to the accounting periods ended March 31, 1952, March 31, 1955, and March 31, 1956, relevant to the assessment years 1952-53, 1955-56 and 1956-57 respectively. The following three questions have been referred to us for our opinion in Income-tax Reference No. 3 of 1967 :
&quto;(1) Whether, on the facts and in the circumstances of the case, the assessed was the owner of the property known as Nedous Htoel in Pakistan in the relevant accounting year ?&quto;
In the answer to the first question is in the affirmative, &quto;(2) Whether, on the facts and in the circumstances of the case, the assessed was the entitled to claim the loss of Rs. 1,70,104 in respect of the ownership of the said property ?
&quto;(3) Whether, on the facts and in the circumstances of the case, the assessed was entitled to the loss claimed by it by conversion of the purchase price from Pakistan currency to Indian currency in respect of the business carried on at Hoshiarpur with the purchases mentioned above ?&quto;
The question referred in the toher reference is :
&quto;Whether, on the facts and in the circumstances of the case, the assessed continued to be the owner of the property for the purposes of computation of income under section 9 in the Indian Income-tax Act, 1922 ?&quto;
Rai Bahadur Jodha Mal Kuthiala (hereafter referred to as the assessed) is a registered firm. The assessed purchased a property known as Nedous Htoel and the adjoining Mela Ram Building in Lahore in February, 1946, for Rs. 46,00,000, and for acquiring this property, the assessed raised interest bearing loan of Rs. 30,00,000 from Bharat Bank Limited. During the previous year relevant to the assessment year 1951-52, the assessed credited a sum of Rs. 1,14,875 on account of interest payable to the lender and paid Rs. 15,000 as interest in the said year. The assessed claimed a loss of Rs. 1,70,104 with respect to the said property by showing the gross annual letting value as nil and claiming the said amount as loss on account of interest payable to and credited to the account of the Bharat Bank Limited, R.B. Jodhamal Trust and Insurance Premia. Similarly, for the assessment years 1952-53, 1955-56 and 1956-57, the assessed claimed losses of Rs. 1,00,723, 1,16,599 and 1,16,599 respectively, being the amounts of interest payable to Bharat Bank Limited on the aforementioned loan. During these years also the assessed showed the gross annual letting value of the property at nil. The Income-tax Officer decided that the property, having vested in the Custodian of Evacuee Property, Lahore, the assessed ceased to be the owner thereof within section 9 of the Indian Income-tax Act, 1922, and neither could the bona fide annual letting value of the property be included in the income of the assessed nor could the assessed be allowed expenses on account of interest payable on the borrowed capital. The assessed appealed before the Appellate Assistant Commissioner who upheld the order of the Income-tax Officer. He further observed that the assessed was actually disputing his liability to pay interest which neither likely to be paid nor recovered by the creditor and for this reason also the claim of the assessed was nto tenable. The assessed took the matter in appeal to the Income-tax Appellate Tribunal and the Tribunal relying on Abdul Majid Haji Mahomed v. P.R. Nayak, and M.B. Namazi v. Deputy Custodian of Evacuee Property, Madras, held that the property vested in the Custodian, only for preserving and managing the same but the title of the owner was nto affected and, therefore, ntowithstanding the provisions of evacuee laws in Pakistan, the assessed continued to be the owner and consequently entitled to claim the losses. During the assessment years 1952-53, 1955-56 and 1956-57 also the claim of the assessed on account of interest payable to Bharat Bank Limited was upheld but since in November, 1951 the assessed had entered into an arrangement with Raja Rana Digvijayachandra whereby the latter accepted half share in the said property in lieu of his fathers investment and 1/3rd liability towards the Bharat Bank Limited, the interest allowable was apportioned by the Tribunal in the hands of the assessed and the Raja. But we are nto concerned with that as the point that arises before us is with respect to the claim of the assessed for the interest payable to the Bharat Bank Limited. The facts relevant to the third question in reference No. 3 of 1967 set out hereinbefore are that the assessed had an office at Hoshiarpur where it dealt in ctoton seeds, gram, oil and salt imported from Pakistan. According to the assesseds books the transactions had resulted in a gross profit of Rs. 4,842 but the assessed claimed a loss of Rs. 1,09,870 on the ground that the price of the purchases made in Pakistan in terms of Indian rupee worked out to Rs. 3,75,422 as against the amount of Rs. 2,60,710 actually paid in Pakistan in Pakistan currency. The Income-tax Officer did nto accept the assesseds books as, according to him, the prices of salt and oil cake were inflated and there was suppression of sales. He, therefore, disallowed the loss claimed by the assessed and estimated an income of Rs. 15,000. In appeal the Appellate Assistant Commissioner held that the loss claimed on the basis of exchange ratio between the currencies of India and Pakistan was merely artificial and the profit or loss in the transactions should be taken according to the face value of the money utilised in Pakistan. He, however, accepted the correctness of the purchases made in Pakistan and reduced the income from Rs. 15,000 to Rs. 5,000. The Income-tax Appellate Tribunal, on an appeal by the assessed, however, accepted the assesseds contention regarding conversion of Pakistan currency into Indian currency for arriving at the correct purchase price but did nto interfere with the addition made in the quantum of sales and, in the result, directed the Income-tax Officer to recompute the result, by first converting the purchase price into Indian rupees at the official rate of exchange and, thereafter, work out the loss by taking the sales at the figure of Rs. 2,70,720.
Since it was at no stage disputed by the revenue that the property had been acquired with borrowed capital, the answer to the claim of the assessed for interest would depend upon whether or nto the assessed was the owner of the property during the years in question within section 9 of the Indian Income-tax Act, 1922.
In the statement of case in Reference No. 3 of 1967, the Tribunal said that the assessed will produce copies of the relevant legislation passed in Pakistan and copies of the ntoifications issued there under before the High Court while in Income-tax Reference No. 2 of 1967, the responsibility for producing the relevant legislation regarding evacuee property in Pakistan was cast on the revenue. There was, therefore, no controversy with respect to the contents of the various evacuee laws and ntoifications produced by the parties before us though Mr. Veda Vyasa, the learned counsel for the assessed, attempted a short-cut and suggested that even the interpretation of foreign laws was a question of fact and the Tribunal having found as a fact that the assessed was the owner of the property during the relevant periods, it was nto open to us to disturb that finding. According to Mr. Veda Vyasa, that finding of fact closed every further avenue of argument to the revenue based on the interpretation of evacuee laws in Pakistan. He relied on Halsburys Laws of England, third edition, volume 15, pages 328 and 335, where it is said that the England court cannto take Judicial ntoice of foreign law which requires proof like any toher question of fact and &quto;if the foreign law is contained in a code or written form, the question is nto as to the language of the written law, but what the law is as shown by its expositions, interpretation and adjudication, and the English courts are nto, in general, entitled to construe a foreign code themselves without expert assistance.&quto; He also relied on Cheshire Private International Law, 7th edition, page 115, for the proposition that foreign law must be proved, as facts are proved, by appropriate evidence, that is, by properly qualified witnesses. Mr. Veda Vyasa placed strong reliance on Buerger v. New York Life Assurance Co., wherein Atkin L.J., while dealing with Russian law, said :
&quto;Now this being the uncontradicted evidence of a Russian lawyer, and the Russian Department of Justice as to what the law is in Russia today, the defendants, without calling any evidence, ask us to say that the lawyer and the department are mistaken; that the Russian law is something different and that the law in Russia really is that Russian subjects cannto claim against foreign insurance companies. They say that we are bound to come to this conclusion on the interpretation of the decree of November 18, 1919, on which we are to put our own construction. Such a result would appear to me to go far beyond the law and practice relating to the proof of foreign law. It is nto sufficient to prove a foreign statute or code by a translation, and then leave the court to place its own construction on it. The code must be interpreted by an expert in the foreign law.&quto;
In the same judgment Atkin L.J. further said :
&quto;It is, of course, true that when he vouches a statute to support his evidence, the statute forms part of his evidence, and must be considered in the consideration of his evidence as a whole. And it is also true that where experts on the foreign law differ amongst themselves, the court will often have to resolve the conflict by looking at the statutes or documents and deciding for themselves the more probable contention. And this course will be more readily undertaken where the dispute is as to the effect of legislation, as in the United States of America, expressed in English in respect of a jurisprudence which is known to the English judges. And it may also happen occasionally that a foreign expert may arrive at results so extravagant and involving such a misunderstanding of conceptions familiar to lawyers of all countries that an English court may have to reject his evidence, and eventually come to the conclusion that they can safely interpret the words for themselves, or fall back upon the presumption that the proper methods of construction coincide with the English.&quto;
Mr. Veda Vyasa also referred us to a decision of the Madras High Court in Estate of VR. RM. S. Chockalingam Chettiar v. Commissioner of Income-tax where the High Court held that the validity of a testamentary disposition in regard to immovable properties situate in a foreign country was a question of fact and that finding could nto be interfered with by the High Court in a reference. It is relevant to point out that under the English law, foreign law can be proved only by expert testimony and nto by mere production of books containing foreign law as is permissible in India under section 38 of the Indian Evidence Act, 1872. Under that section courts can take judicial ntoice of a foreign statue contained in a book issued under the authority of the foreign Government. Section 45 of the said Act makes the evidence of an expert on foreign law a relevant fact. It is always for the courts to judge the evidence of an expert and if an expert in foreign law says, the law in his country is this, and if that evidence is accepted by the court, that may be a finding of fact. If, on the toher hand, the expert produces the foreign law and thus proves the contents thereof, his opinion as to the construction of that law will be subjected to scrutiny by the court and is placed at par with the evidence of toher experts. It is only where the matter enquired of lies within the range of the peculiar skill and experience of the witness and is one of which the ordinary knowledge and experience of mankind does nto enable the courts to see what inferences should be drawn from the facts that the witness may supply opinion as their guide. The afore-mentioned basic difference in laws in the two countries calls for caution in applying English decisions. It follows, therefore, that when the contents of a foreign law in the language or translated into the language known to the courts in India are proved by an expert, what that law means must always be left to the determination by the courts. If Mr. Veda Vyasa argument were to be accepted, the result would be that in a case where judicial ntoice of a foreign law is taken under section 38 of the Indian Evidence Act and the court of fact construes that law, without any external aid, the appellate court will be bound by that construction thereby subjecting the matter of interpretation of law to a more rigid rule than of even ordinary documents in relation to the extent of the jurisdiction of the appellate courts. That would, in my opinion be an irrational approach to the problem. Even in England it has been held that, where an expert states his opinion based upon his knowledge and practical experience of foreign law, he may refer to courts decisions or treatises for the purpose of refreshing his memory but in such an event the court is at liberty to examine the law, decision or passage in question in order to arrive at its correct meaning. Such an ascertainment of the meaning would always remain a question of law. In any case, we have to ascertain the meaning of the word &quto;owner&quto; in section 9 of the Indian Income-tax Act, in the light of the facts found and that would, on any process of reasoning, be a mixed question of fact and law. So far as the contents of the law are concerned, there has no controversy at the bar and I hold that the interpretation of those contents, being a matter of law it is open to us to interpret the same. In N.P.L. Palaniappa Chetty v. N.M.R. Nagappa Chettiar, it was held that it is the duty of the courts to interpret foreign law placed before them in a codified form.
That takes me to the main controversy on the interpretation of section 9 of the Indian Income-tax Act, 1922. The concept of ownership of property has been variously by different judges and text-books. According to Mr. Veda Vyasa, property embraces everything which may be the subject of ownership or to which the right of ownership may legally attach, no matter how infinitesimal in quantity. Mr. Veda Vyasa said that property in its strict legal sense means nto the physical object itself but certain rights in or over that physical object and it is, therefore, always necessary to look beyond the physical object to find out whether or nto a person is the owner. Mr. Veda Vyasa went to the extent of suggesting that even if a person retain a husk of title and dominion over the physical object, he would be the owner thereof, that there may be any amount of charge, encumbrance or restricted covenant on a property yet the owner will be the person entitled to the residue of its uses of however small dimensions; and that such burdens may weigh down the rights of the owner for some time but, the moment they are determined, the ownership will again spring to its full stature and, consequently, the presence of such temporary encumbrances will nto prejudice the ownership rights. According to Mr. Veda Vyasa, owner is a person who comes after the possessor of the temporary rights and his permanent rights, which last so long as the physical object lasts. He relied on the following passage from Salmons Jurisprudence, 12th edition, page 414 :
&quto;The second class of restrictions upon an owners right of use consists of those which flow from the existence of encumbrances vested in toher persons. My land may be mortgaged, leased, charged, bound by restrictive covenants, and so on, yet I remain the owner of it none the less. For I am still entitled to the residue of its uses, and whatever right over it is nto specially vested in some one else is vested in me. The residuary use so left to me may be of very small dimensions; some encumbrance may own rights over it much more valuable than mine; but the ownership of it is in me and nto in him. Were his right to determine tomorrow in any manner, my own, relieved from the encumbrance which now weighs it down would forthwith spring up to its full stature and have again its full effect. No right loses its identity because of an encumbrances vested in some one else. That which is a right of ownership when there are no encumbrances, remains a right of ownership ntowithstanding any number of them.&quto;
On the toher hand, Mr. Awasthy, the learned counsel for the revenue, contended that the term &quto;property&quto; comprises a complex bundle of rights, duties, powers and immunities embracing a vast variety of rights of which the most substantial are the right of use, the right of enjoyment and the right of disposal and there can be no conception of property aside from its control and use, and on its use depends its value. If the right of use be denied, the value of the property is annihilated and ownership is rendered a barren right. By reference to the various provisions of the evacuee legislation in Pakistan, Mr. Awasthy said that even a husk of title was nto left with the evacuees. He further said, in the alternative, that something more than a husk of title was necessary to make an assessed the owner of the property within section 9 of the Indian Income-tax Act, 1922. According to Mr. Awasthy, the various sub-clauses of sub-section (1) of section 9 provided an indication as to the meaning of the term &quto;owner&quto; and where a person is neither able to occupy a property nor mortgage it, he cannto be treated as an owner. It is necessary, therefore, to read the relevant provisions of the evacuee legislation in Pakistan. Under the Pakistan (Administration of Evacuee Property) Ordinance, 1949 (XV of 1949), by virtue of section 6(1) &quto;all evacuee property shall vest and shall be deemed always to have vested in the custodian with effect from the first day of March, 1947&quto;. The word &quto;evacuee&quto; has been defined by sub-section (2) of section 2 as under :
&quto;(2) evacuee means any person who -
(i) on account of the setting up of the Dominions of Pakistan and India, or on account of civil disturbances or the fear of such disturbances, on or after the first day a March, 1947, leaves or has any place in the territories now comprising Pakistan for any place outside those territories, or
(ii) acquires or has acquired, on or after the aforesaid date, in any manner, whatsoever, any right to or interest in or benefit from any property which is treated as evacuee property under any law for the time being in force in India, or in any area occupied by India, or
(iii) is resident in any place in the territories now comprising India or in any area occupied by India and who for that reason is unable to occupy, supervise or manage in person his property in Pakistan or whose property in Pakistan has, whether wholly or partially, ceased to be occupied, supervised or managed by any person, or is being occupied, supervised or managed by an unauthorised person.&quto;
Under that definition, therefore, there are three classes of persons who are treated as evacuees -
(1) persons who leave the territories comprised in Pakistan on or after the 1st day of March, 1947, for specified reasons;
(2) persons who acquire, on or after the said date, any right or interest in or benefit from any property in India; and (3) residents in India who are unable to occupy, supervise or manage their properties in Pakistan.
Under sections 7 and 8 any person in possession, supervision or management of any evacuee property after 28th day of February, 1947, is deemed to hold the same on behalf of the custodian and he must render full information relating to such property and detailed account of the rents, profits or benefits derived there from since the first day of March, 1947. Section 9 empowers the custodian to take possession of evacuee property in Pakistan. Section 12 exempts evacuee property vested in the custodian from all legal process, including seizure, distress, ejectment, attachment or sale by any officer of a court. Section 14 authorises the rehabilitation authorities to allto any evacuee property any person. Under section 16 restriction is imposed on transfer of property by evacuees. Since considerable arguments have been addressed to us on the true effect of this provision, so it is proper to qutoe the same :
&quto;(1) No creation or transfer of any right or interest in or encumbrance upon any property made in any manner whatever by an evacuee or by any person in anticipation of his becoming an evacuee or on behalf of the evacuee or such person on or after a the first day the first day of March, 1947, shall be effective so as to confer any right or remedy on any person claiming under any such party unless such creation or transfer is confirmed by the custodian.
(2) An application for confirmation of such creation of a right or encumbrance or transfer as aforesaid may be made to the custodian within the prescribed period by any such party thereto, or by any person claiming under or lawfully authorised by such party.
(3) The custodian shall hold a summary inquiry into the application in the prescribed manner, and - (a) shall reject the application if the creation or transfer -
(i) was or is prohibited under any law for the time being in force, or
(ii) was nto or is nto covered by a certificate from the prescribed income-tax authority to the effect that no objection exists to such creation or transfer;
(b) may reject the application if he is opinion that the creation or transfer -
(i) was nto or has nto been entered into in good faith or for adequate consideration, or
(ii) ought for any toher reason nto to be confirmed.
(4) If the application is nto rejected under sub-section (3), the custodian may confirm the creation or transfer either unconditionally or subject to such terms and conditions as he thinks fit to impose.&quto;
Section 19 empowers the custodian under certain circumstances to restore any evacuee property to the owner on such terms and conditions as he may think fit to impose. Under the proviso to sub-section (3) of section 19 any alltoment made by the rehabilitation authorities is nto prejudiced by restoration unless cancelled or determined by the rehabilitation authorities. Sub-section (4) of section 19 enjoins upon the custodian, on an application made to him by the person to whom the property is restored, to furnish a statement containing an abstract of the account of the income received and expenditure incurred in respect of the property restored. Section 20, inter alia, authorises the custodian to institute, defend or continue any legal proceeding in any civil or revenue court on behalf of the evacuee or refer any dispute between the evacuee and any toher person to arbitration or compromise any claims, debts, or liabilities on behalf of the evacuee and to &quto;sell any evacuee property, ntowithstanding anything contained in any law or agreement to the contrary relating thereto.&quto; Section 22 requires the custodian to maintain a separate account of the property of each evacuee. Mr. Veda Vyasa, the learned counsel for the assessed, said that in spite of the evacuee laws, the property remained the property of the evacuees even after it had vested in the custodian as much as it was before vesting and the only difference that these laws made was that the custodian had, after the enactment thereof, a hold upon the property of the evacuees for the purpose of maintaining and preserving it till some arrangement was arrived at between the two countries. Mr. Awasthy, the learned counsel for the revenue, on the toher hand, said that under the Pakistan (Administration of Evacuee Property) Ordinance, 1949, the property became completely vested in the custodian resulting in complete divestiture of the evacuees and the custodian could deal with in it such manner as he liked. He, in the alternative, argued that even if in the beginning the evacuee laws in India and Pakistan had intended to ultimately restore properties when conditions gto settled, but, at least, till that was done, the evacuees did nto have even the vestige of the property or even a shadowy legal title, Mr. Awasthy relied principally on three decisions; Delhi Cltoh and General Mills Co. Ltd. v. Harnam Singh, In re Munster (Enemy) and Bank Voor Handel en Scheepvaart, N.V. v. Administrator of Hungarian Property.
According to Mr. Awasthy, the only case which seals with the Pakistan Ordinance is Harman Singhs case and that concludes the question in his favor. In Harnam Singhs case their Lordships of the Supreme Court construed the Pakistan Ordinance. Certain moneys were due to Harnam Singh by Delhi Cltoh and General Mills in Lyallpur on account of their mutual dealings in cltoh. The defendant, Delhi Cltoh Mills, was directed to deposit the moneys due to Harnam Singh, an evacuee from Pakistan, with the Deputy Custodian of Evacuee Property in Pakistan which was done on 15th November, 1951. Harnam Singh filed a suit in India for recovery money and Supreme Court said :
&quto;We hold, therefore, that whether the proper law of the contract applies on the English law of situs in a case of this kind, the defendant is exonerated because, the debt being property, Ordinance divested the plaintiffs of ownership in it and vested the debt in the custodian and at the same time interfered with the obligation for performance by providing that payment to the custodian shall operate as a discharge of the obligation.&quto;
Mr. Awasthy contended that on this decision alone, and without more ado, we should hold for him.
I shall examine the toher decision cited at the bar letter but it is appropriate to consider at this stage the two English decisions, mentioned above, which turn on the provisions of law dealing with enemy properties in times of war. Monsters case concerned the Trading with the Enemy Amendment Act, 1914, the preamble of which recited that &quto;it is expedient to make further provision for preventing the payment of money to enemies and for preserving, with a view to arrangement to be made at the conclusion of peace, such money and certain toher property belonging to enemies&quto;. Under section 4, the High Court or a judge there of could by order vest in the custodian any such real or personal property and confer on the custodian such power selling, managing and toher wise dealing with property as to the Court or judge may seem proper coin real estate in England and shares and securities belonging to the Munster in British companies were by order vested in the custodian. The special Commissioners for Income-tax assessed the custodian to super-tax as agent or receiver for Munster and the custodian, having disputed the legality of assessment, it was held that Munsters beneficial ownership of property and ceased on the vesting order and though the profits and gains received by the custodian were received by him in respect of the Munster, yet they did nto in his hands belong to Munster nor did he receive them as agent or receiver or trustee for Munster. An argument was raised that the effect of the vesting orders was to confiscate the property of the enemy. To this the court did nto agree and said that the effect of the vesting order was that, subject to any legislation to the contrary or anything to the contrary contained in the Treaty of Peace, when peace came the enemy property was liable to be restored to its owners after the war as the law in England did nto in general confiscate the property of an enemy. The true effect of the vesting order, according to Russell J., was to cause the beneficial ownership to be and remain in statutory suspense or abeyance during the period in question, during which period the custodian had certain limited power of dealing with the property. More or less the same is the alternative suggestion of Mr. Awasthy that even if the property was intended to be restored, it remained under statutory suspense or abeyance till restoration.
The toher decision relating to the enemy property is Bank Voor Handel en Scheepvaart, N.V. v. Administrator of Hungarian Property. It is nto necessary to render the fact of this case in detail and it is enough to say that the case turned on the provision of the Trading with the Enemy Act, 1939, an Act corresponding to the legislation of 1914, dealt with in Munsters case. The reasoning of Russell J. in Munsters case was accepted as equally applicable to the legislation under consideration and it was held that the beneficial interest in the question was suspended by the vesting order.
It is now necessary to deal with toher decisions, namely, Commissioners of inland Revenue v. Fleming and Official Assignee for Bengal (Estate of Jnanendra Nath Pramanik, In re. In Fleming case, his estate was sequestrated under the Bankruptcy (Sctoland) Act, 1913, and a trustee was appointed. It was held that during sequestration the income from the estate, which vested in the trustee, was nto the income of the bankrupt. The respondent had contended that the radical right to the properties vested in the trustee was in the respondents all the time and the payment by the trustee, during sequestration, income-tax on the full annual value of the properties was a payments on behalf of Fleming. He, therefore, claimed that there arose in each of the year in which the payment was made a right there arose in each of the year in which the payment was made a right to deduct his &quto;personal allowance&quto; from the annual value of the properties and the right to the said abatement passed to him in virtue of the reinvestment in his estate which occurred upon his discharge on composition. It was observed by the Lord President :
&quto;...... and accordingly everything depends upon the soundness of the proposition that the income consisting in the annual value of these properties was truly income of the respondent. I do nto see how it can possibly be so described. It was part of the income arising from the sequestrated estates vested in the trustee for the respondents creditors. Any income that did arise from those estates was income of the trustee as such, and he (and he alone) had the right to put it into his pocket as income. It was nto income that went or could go into the pocket of the respondent as income in any of the years in question. How then can it be said to have reached his pocket as income on his subsequent reinvestiture ? What was he reinvested in ? It is said that he was reinvested in whatever substance remained of the radical right belonging to him all along. But the radical right of a bankrupt in his sequestrated estate is ntohing but a right of reversion to the balance remaining after the creditors are satisfied, for which balance he is entitled to call the trustee to account.&quto;
This case is sought to be distinguished by Mr. Veda Vyasa on two grounds : (1) the decision in this case turned on the provisions of income-tax laws requiring determination as to whom did the income belong while in the present case the question is nto about the ownership of the income but of the property; and (2) under the provisions of the Bankruptcy (Sctoland) Act, 1913, the bankrupt may nto have even a radical right in his sequestrated estate and he may, therefore, have only a right of reversion to the balance after payment to the creditors but that is nto true of the evacuee legislation. In the case of Official Assignee for Bengal it was held that, in view of the provisions of section 17 of the Presidency Towns Insolvency Act, the official assignee, in whom the property vested as a result of adjudication of Jnanendra Nath as bankrupt, was the owner of the property within section 9 of the Indian Income-tax Act. The argument of the assessed that the official assignee had no legal interest in the property, which was vested in the official assignee only for the purpose of administration, and such vesting did nto make the official assignee an owner, was rejected. Mr. Veda Vyasa comment about this case again is that the position of the official assignee is different from that of the custodian.
The cases relating to the enemy properties legislation, referred to at the bar, may nto lend any direct assistance in this case as we are concerned with the construction of the word &quto;owner&quto; in section 9 of the Indian Income-tax Act; still they do go to indicate the nature of interest left with the owners after a vesting order even when the vesting is of temporary duration. Mr Veda Vyasa contended that the word &quto;owner&quto; in section 9 must be interpreted in the jurisprudential sense and that the rights of the owner of a thing may be eaten up by the dominant rights of encumbrances and reduced to mere name rather than reality, yet he remains the owner of the thing. He relied for this proposition on Sohan Lal v. Mohanlal. When faced with the objection that all the abatements provided in section 9 out of the annual letting value indicate that the person can be termed as owner only if he has the control or dominion over the property from which he is in a position to earn, Mr. Veda Vyasa sought to overcome the difficulty by suggesting that, though under some of the provisions of the said Act it is the actual income in the commercial sense that is taxed, yet under section 9 the ptoentiality to produce income is indifferent as the tax is on ntoional income. The distinction between the heads of income from business and that from property, subject to some special provisions is of course there and it may be said that the man who hides his talent in a napkin instead of lending it to the usurers pays no income-tax upon the usury he might have earned, but the man who leaves his house property unless pays tax thereon on the annual letting value irrespective of the fact whether he earns or can earn any income there from, still as shall be discussed hereafter, the scheme of the Act shows that a person can be termed as an owner only if he has such control over property as may enable him to earn income there from. Mr. Veda Vyasa strongly relied on various provisions of the Pakistan Ordinance and particularly on sections 16 and 22. He said that section 16 recognises to a very substantial extent the evacuees ownership over the properties and their right to sell the same and receive consideration therefore, the only impediment in their way being confirmation by the custodian. The argument at first sight, though attractive, does nto stand close scrutiny. Section 16 is merely intended for the benefit of those who may have parted with their money or property for purchase of, or in exchange with, property in Pakistan. The absence of such a provision would have worked hardship on the purchasers or acquirers of properties in Pakistan and this provision appears to be directed to avoid that hardship rather than to recognise the evacuees as still competent to dispose of the property. This section operates retrospectively from 1st March, 1947, when evacuee legislation could nto have been in contemplation. Under the definition of &quto;evacuee&quto;, there are three classes of evacuees and one of such classes is of persons who resided in India before partition and continued to reside there. In the absence of a provision like section 16, all transfers of properties in Pakistan even by such class of evacuees would have been rendered ineffective. So far as the provision regarding maintenance of accounts is concerned, it may be that at the time of its enactment the legislature contemplated that at some later stage the position will get settled and evacuees may have to be given back their properties but that does nto show that the evacuees retained any substratum of ownership during the period of its vesting in the custodian. Mr. Veda Vyasa also relied on section 19 of the Pakistan Ordinance dealing with the restoration of evacuee property. Rather than helping Mr. Veda Vyasa, this provision goes to show that till restored, the ownership of evacuees was under complete suspension. The term &quto;owner&quto; may have variety of meanings depending on the context in which it is used. Broadly, an &quto;owner&quto; is one who has dominion over property which is the subject of ownership. It is well accepted that the term &quto;owner&quto; has no rigid meaning and its meaning may nto be the same under all the circumstances. It is nto a technical term, but rather one of wide application in various connection. It is a comprehensive and generic term and must be construed in the setting in which it is used. It may be used to convey a meaning, sometimes broad and sometimes quite restricted. In some statutes it may mean a person in whom the property is for the time being beneficially vested and who has the occupation or control or usufruct of it. It may also be used to describe a person nto having a full title but only a bare legal title. Again, in a given context the term &quto;owner&quto; may signify any person having any estate or interest in the land no matter how slight. Mr. Veda Vyasa argument that ntowithstanding restrictions, howsoever extensive on the right of occupation and use of the property, the original owner must still be treated as the owner minus the restrictions must necessarily be judged in the light of the provisions of the Income-tax Act. Section 6 of the Act describes six heads of income and the third head is &quto;income from property&quto;. The said provision shows that section 9 merely prescribes the ntoional method of arriving at the income from property on which an assessed has to be taxed but basically the tax is on income. It follows that the property must be such from which an owner can earn income, or, in toher words, the assessed must be in a position to earn income from the property unless he chooses nto to do so or the circumstances do nto permit him to earn income even though he has dominion or control over the property. Mr. Veda Vyasa strongly relied on the observations of their Lordships of the Supreme Court in Amar Singh v. Custodian, Evacuee Property, Punjab, where it was said :
&quto;Stopping here it will be seen that the position, in its general aspect, is that all evacuee property is vested in the custodian. But the evacuee has nto lost his ownership in it. The law recognised his ultimate ownership subject to certain limitations. The evacuee may come back and obtain return of his property, as also an account of the management thereof, by the custodian. Such return which was originally contemplated without any restriction, is subsequently dependent on a ntoification or a certificate of the Central Government. Until such return the custodian may manage the property by granting alltoments in favor of displaced persons.&quto;
In Amar Singhs case their Lordships of the Supreme Court were considering the question whether the interest of a quasi-permanent alltotee constituted &quto;property&quto; within the meaning of articles 19(1)(f) and 31 of the Constitution and the observations qutoed above were made in that context. Their Lordships observation that the law recognised the ultimate ownership subject to certain limitations is nto without significance. A person may be owner in the sense that law contemplates ultimate restoration of the property to him, yet, during the period it vests in the custodian, his ownership may be under suspension in which event he may nto be an owner within section 9. In Abdul Majid Haji Mohamed v. P.R. Nayak, while dealing with the Administration of Evacuee Property Ordinance, 1949, Chagla C.J. said :
&quto;The effect of the Ordinance is nto to transfer the title vested in the evacuee as the owner of the property to the State or to any toher person. As I said before, the only effect of vesting the property in the custodian is to give the custodian certain powers enumerated in the Ordinance for the purpose of managing and administering the evacuee property. The title of the evacuee remains, as it were in statutory suspense until it is determined by Parliament as to how that title is to be dealt with or disposed of.&quto;
That again shows that though the evacuee legislation may have contemplated return of properties ultimately to the evacuees, but their title remained in statutory suspense till it was restored. That statutory suspension takes away the right of the assessed to claim to be the owner of the property during that period.
There are really two ways of approaching the problem : (1) that Harnam Singhs case is the only case in which their Lordships of the Supreme Court construed the Pakistan Ordinance and held that the evacuees were divested of their ownership rights; and (2) that evacuee legislation in India being pari materia with the evacuee legislation in Pakistan, the decision in Amar Singhs case equally governs the construction of Pakistan Ordinance. Whatever approach is resorted to, it is apparent that, in any event, till the properties are restored, the evacuees are nto possessed of substratum of ownership and are nto owners within section 9.
Some decisions were cited by Mr. Veda Vyasa to show that even after mortgage, the mortgagor continues to be the owner within the meaning of section 9. Such a construction appears to follow from the express provisions of the section because of the allowances provided in section 9(1)(iv) on account of interest on mortgage where the property is subject to mortgage or toher capital charge. But apart from that, the mortgagor retains the substratum of title with himself and would, in any event, be the owner of the property.
My conclusion, therefore, is, that during the years in question the assessed was nto the owner within section 9 with the result that neither could the annual letting value be included in its income nor could the assessed be allowed deductions claimed under section 9. My answer to questions Nos. 1 and 2 in Reference No. 3 of 1967, is in the negative and against the assessed. Similarly, my answer to the question in Reference No. 2 of 1967 is also in the negative and against the assessed.
That takes me to the third question in Income-tax Reference No. 3 of 1967. Mr. Awasthy contention is that the transaction was, according to the assessed itself, mtoivated by the desire to repatriate the assesseds funds from Pakistan into India and was, therefore, nto a business transaction. He relied on the observations of the Tribunal in the order dated 8th August, 1963, in this behalf. There is no finding by the Tribunal that it was nto a business transaction. The very fact that the Tribunal directed the Income-tax Officer to recompute the result by converting the purchase price into Indian rupees and, thereafter, work out the loss shows that the Tribunal treated it as a business transaction. Even the frame of the question assumes that the activity of the assessed was business activity. It is, therefore, nto possible to accept the contention of Mr. Awasthy that the transaction was nto of a business nature. Mr. Awasthy, however, did nto dispute that if the transaction be treated as a business transaction, the assessed was entitled to have the purchase price converted into Indian rupees. I think Mr. Awasthy is right in the concession he made. If, for instance, purchases are made in England and price paid in Pound Sterling, the purchase price will have to be calculated on the basis of the Indian rupee and profit or loss arrived at on that basis. The third question in Reference No. 3 of 1967 must, therefore, be answered in the affirmative and in favor of the assessed.
Having regard, however, to the circumstances of the case, there will be no order as to costs.
HARDY J. - I agree.
ISMAIL J. - I agree.
Reference answered accordingly.