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Civil Reference Case No. 412 of 1961, decided on 26th September 1961.

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S. 53-A-Part per formance, doctrine of--Section 53-A does not create any title in favour of transferee-Transferee's right of possession only protected against transferor or person claiming through him.

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S. 9 read with Transfer of Property Act (IV of 1882), Ss. 53-A & 54 and Registration Act (XVI of 1908), S. 49-Income from property-Incidence of taxation wider S.9, Income-tax Act, 1922-Owner of property alone can be assessed - Whether owner receives true income of such property or nut, has no material bearing for purposes of assessment- Transfer of property under unregistered contract of sale-Does not confer any title on transferee or person found to be in possession of property-Transferor, held, in circumstances of case, liable to be taxed for income of such property.

Under section 9 of the Income-tax Act the incidence of taxation under the said section is the ownership and not the possession or occupation of immovable property.

It is a well established general principle that where the law prescribes a mode of transfer compliance with that mode is necessary in order to confer title against third parties. It seems that when the law requires a registered instrument, title or ownership cannot be, conferred by mere agreement of parties. This is quite clear from the provisions of section 54 of the Transfer of Property Act and section 49 of the Registration Act.

No exception could be taken to the view taken by the Depart ment on tile plea taken under section 53-A of the Transfer of Property Act. Under the above provision of law no title is conferred on the person who is found to be in possession on the basis of an unregistered contract of sale.

A right conferred under the said provision is a right available only to the defendant to protect his possession. It only imposes a statutory bar on the transferor and confers no active title on the transferee.

The true test under section 9 of the Income-tax Act for assessing the income is to find out who is the owner of the property. It is the owner alone who can be assessed to income-tax. It may be that the owner may not be able to recover the rent or may be out of possession, or there is no likelihood to recover the rent from the property owned, but that would not in the least exempt him from his liability to pay income-tax under the said provision of law.

Section 2(15) of the Income-tax Act defines "total income" as the total amount of income, profits and gains computed in the manner laid down in the Act. So far as the income from the property is concerned it is computed in accordance with section 9 of the income-tax Act. According to this provision of law the income from property, which is made liable to tax, is not the actual income but an artificial or statutory income as defined under section 9 which is the bona fide annual value of the property. It is for this reason that the circumstance Whether the true owner receives the true income of the property or not has no material bearing for purposes of assessment. What the Income-tax authorities are concerned with is the annual value of the property and to charge it from the person who is found to be the owner of the property. The question whether the owner is recovering the rent or will be able to recover the rent or there is likelihood to recover rent of such property by him is not taken into considera tion for determining his liability. In these circumstances, the income-tax authorities were perfectly justified in holding that as where the property in dispute had not been properly conveyed by a registered sale-deed the assessees being its owners were liable to be taxed for its income.

Burma Railways v. Secretary of State of India 1921 I T C 140 ; Commissioner of Income-tax, Lahore v. Dewan Bahadur Dewan Krishan Kishore (1939) 7 I T R 427 ; Commissioner of Income-tax v. Dewan Bahadur Dewan Krishna Kishore (1941) 91 I T R 695 ; Probodh Kumar Das and others v. Dantmara Tea Co. Ltd. and others A I R 1940 P C 1 ; Banerji and another v. Kuchwar Lime and Stone Co. Ltd. and another A I R 1941 P C 128; D. M. Vakil and others v. Commissioner of Income-tax A I R 1946 Bom. 350 and Sir Currimbhoy Ibrahim Baronetcy v. Commissioner of Income-tax, Bombay City (1963) 48 I T R 507 ref.

Maneklal Mansukhbhai v. Hormusji Jamshedji Ginwalla & Sons A I R 1950 S C 1 ; Collector of Bombay v. Municipal Corporation of the City of Bombay and others A I R 1951 S C 469 ; Abdullah Bhai and others v. Ahmed Din P L D 1964 S C 106 ; Text-boor of Jurisprudence by G. W. Paton, page 420; Munir on Evidence Act, page 636; Ballygunge Bank Ltd., Calcutta v. Commissioner of Income tax. Bengal A I R 1947 Cal. 159; In the matter of Official Assignee for Bengal-Estate of Jnanendra Nath Pramanik 1937 I T R 233 and Commissioner of Income-tax, Punjab v. Dewan Bahadur Dewan Krishna Kishore 1941 I T R 695 distinguished.

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S. 66-Point neither raised before subordinate Income-tax authorities nor urged before Appellate Tribunal-Point not arising from order of Tribunal- Cannot be adjudicated upon by High Court.

Muhammad Idrees Barry & Co. v. Commissioner of Income-tax, Punjab and N.-W . F. P. P L D 1959 S C (Pak.) 202 ; National Mutual Life Association of Australia, Ltd. and Commissioner of Income-tax, Bombay Presidency and Aden 63 I A 99 and Raja Bahadur Sir Rajendra Narayanbhaj Deo v. Commissioner of Income-tax, Bihar and Orissa A I R 1940 P C 158 ref.

Dingomal for Appellant.

S. A. Nusrat for Respondent.

Dates of hearing : 7th, 8th, 9th, 13th and 14th September 1966.

WAHIDUDDIN AHMED, J.

-This is a reference under section 66(1) of the Income-tax Act in which the following question of law has been referred to this Court for its opinion:

"Whether in the facts and circumstances of the case the Tribunal was right in treating the Executors of the Estate of late F. E. Dinshaw for assessment year 1953-54 and the two beneficiaries of late F. E. Dinshaw for the two subsequent assessment years 1953-54 and 1954-55 as owners of the estate Nearing Survey No. 5-26 within the meaning of section 9 of the Income-tax Act "

In this reference the dispute between the parties is in respect of a plot of land with building thereon bearing Survey No. 26 Survey Sheet SB 5 measuring about 8,435 square yards situate at the junction of Victoria and Invararity Roads in the Saddar Bazar Quarter of the City of Karachi, which was owned by late Mr. F. E. Dinshaw. After his death this property vested in the five executors of his estate, who on 14th December, 1946, entered into an agreement to sell it to Mrs. S. G. M. Eduljee for the sum of Rs. 7, 50,000. At the time of the agreement Rs. 75,000 was paid as earnest money and the balance of the purchase price was agreed to be paid within four months on the sellers giving one or more conveyances at the instance of the purchaser or her nominees. It is admitted that no regular sale-deed was executed. The case of the assessees is that in 1950 on the payment of the balance of the sale money the executors by letter dated 7th February; 1951, allowed the purchaser to take possession of the property and permitted her to collect rent from its various tenants from 1st February, 1951. They also addressed a letter to the Chief Officer, Municipal Corporation, Karachi informing him that the above plot had been sold to the said lady and from let February, 1951, she would be responsible to pay the taxes.

2. It is further alleged that the property was divided into 9 plots and a portion of it was sold at the instance of the purchaser to Messrs Electronics Films Equipment Ltd. for a consideration of Rs. 1,30.000, which was received by the executors under a registered sale-deed dated 16th August, 1960. The case of the assessees is that it was about this time that the entire balance of the sale price was paid to the executors and the posses sion of the property in dispute was handed over to the purchaser. In assessment year 1953-54 the Income-tax Officer rejected the plea of the assessee to exclude the income of Rs. 16,400 on the ground that as the property in dispute was not properly conveyed to the purchaser, the assessee continues to be its real owner. In subsequent two assessment years 1954-55 and 1955-56 the Income -tax Officer treated the income from the said property to be the income of the two beneficiaries of late F. E. Dinshaw.

3. The assessee challenged these assessment orders in seven appeals filed before the Appellate Assistant Commissioner. Their main contention was that the Income-tax Officer was not justified in assessing this income in their hands, for the property in dispute had been sold in February, 1951 and its possession was with the purchasers who are enjoying the rent income. The Appellate Assistant Commissioner by order dated 15th April 1958 dismissed the appeals on the ground that the assessees at the material time were the owners of the property in dispute and were, liable to pay tax under section 9 (I) of the Income-tax Act on income from property. He observed that the tax payable under section 9 is in respect of the ownership and not the occupation or possession of the property.

4. The assessees being dissatisfied with the order of the Appellate Assistant Commissioner challenged it in further appeals before the Income-tax Appellate Tribunal. In support of their case in these appeals they further relied on the doctrine of part performance as envisaged under section 53-A of the Transfer of Property Act and pleaded that under it the transferee was entitled to continue in possession of the property in dispute and the sellers could not dispossess her. On this basis it was further contended that the sellers being not entitled to recover the rent or the income of the said property could not be considered to be its owners and were not liable to pay any tax under section 9 of the Income-tax Act. This contention was repelled by the Tribunal by their order dated 16th September, 1960 and the orders of the Income-tax Officer and Appellate Assistant Commissioner were upheld on the following observations :-

"We pursue the discussion a little further in order to examine the true scope of the doctrine of part performance as envisaged in section 53-A of the Transfer of Property Act. The scope of this section is that it does not give the transferee any right on which he can found a suit but only a right which is available to him as defendant (as against the transferor or persons claiming under him) in order to protect his possession. It does not confer any title on the transferee who takes possession in pursuance of a written but unregistered contract. Accordingly he has no title to the property. We are fortified in this view by a decision of the Privy Council in Probodh Kumar Das and others v. Dantmara Tea Co. Ltd. and others A I R 1640 P C 1 Lord Macmillan delivering the Judgment regarding the true scope of section 53-A at page 2 observed :

'In their Lordships' opinion, the amendment of the law effected by the enactment of section 53-A conferred no right of action on a transferee in possession under an unregistered contract of sale. Their Lordships agree with the view expressed by Mitter. J. In the High Court that 'the right conferred by section 53-A is a right available only to the defendant to protect his possession. They note that this was also the view of their late distinguished colleague Sir Dinshaw Mullah, as stated in Edn. 2 of his treatise on the Transfer of Property Act at page 262. The Section is so framed as to impose a statutory bar on the transferor; it confers no active title on the transferee. Indeed, 'any other reading of it would make a serious inroad on the whole scheme of the Transfer of Property Act.

To put it differently section 53-A does not create any title in favour of the transferee but the title still continues to vest in the transferor and on equitable principle the transferee's right of possession is only protected as against the transferor or person claiming through him.

As observed in the preceding paragraph the title continues to vest in the transferor and in that view of the matter we proceed to examine the provision of section 9 of the Income-tax Act regarding the taxability of the income of the immovable pro perty. It will be manifest from the language of section 9 of the Income-tax Act that the incidence of taxation under the said section is the ownership and not the possession or occupation of immovable property. The relevant section 9 (1) of the Income tax Act reads thus:

'9 (1). The tax shall be payable by an assessee under the head 'Income from Property' in respect of the bona fide annual value or property consisting of any building of lands appurte nant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession or vocation carried on by him the profits of which are assessable to tax subject to the following allowances namely.'

The language of section 9 (1) of the Income-tax Act clearly indicates that the liability to pay tax on income of the property is on the 'owner', of the property and therefore, even an case where doctrine of part performance is applicable it would not relieve the owner' of liability to pay tax or shift the liability of payment to the persons who are an possession or occupation of the property even though the 'owner' may have no remedy to oust such occupier or possessor from the possession on enjoyment of the income of the property. It will follow from the above discussion that the law of payment of tax under the relevant provision of section 9. Subsection (1) is restricted to the owner arid no other person. In that view of the matter we hold that for assessment year 1953-54 the Executors of the Estate of late F. E. Dinshaw in the eye of law still continue to be owners of the property and as such the property .was rightly taxed in their hands and for assessment years 1954-55 and 1955-56 the two beneficiaries were rightly taxed as owners of the property."

Thereupon the assessee applied under section 66(1) of the Income-tax Act to refer the following three questions for the opinion of this Court :

"(1) Whether on the facts and in the circumstances of the case the assessees were liable to be taxed in respect of the in come from property bearing Survey No. S. B. 5/26 under section 9 of the Income-tax Act

(2) Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the assessees con tinued to be 'owners' of the property within the meaning of section .9 of the Income-tax Act

(3) Whether on the facts and in the circumstances of the case the income from the sub-plot bearing survey No. S. B. 5/26-7 is assessable in the hands of the assessees "

The learned Tribunal considered questions. Nos. 1 and 2 to be of the same nature and on the points raised in them have framed a consolidated question of law, which has been reproduced in the earlier part of the Judgment. In regard to question No. 3 the Tribunal came to the conclusion that it did not arise from their order referred to above. In this connection the Tribunal has observed that no such plea was raised before the Income-tax Officer or Appellate Assistant Commissioner or before the Income tax Appellate Tribunal and therefore declined to refer it to this Court for its opinion.

5. In support of the reference Mr. Dingomal, the learned counsel for the assessee has contended that the word 'owner' used in section 9 (I) of the Income-tax Act, 1922 does not mean only a person holding legal title but also a beneficial owner. According to the learned counsel it is used in its ordinary sense. The learned counsel contended that the sellers having parted with the posses sion and having received full value for the property in dispute had ceased to be its owner. The argument of Mr. Dingomal is that the word 'owner' should be understood in its popular sense and not in a restricted sense as understood under the Transfer of Property Act. In our opinion, the contention of the learned counsel has no force. The attempt of learned counsel to canvass for the recognition of some inferior degree of ownership has not been made for the first time before this Court. In Burma Railways v. Secretary of State for India ((1921) I T C 140) it was held that owner must be interpreted in a wide and popular sense but in later decisions this view was not accepted. Dalip Singh, J. in the Commissioner of Income-tax, Lahore v. Dewan Bahadur Dewan Krishan Kishore ((1939) 7 I T R 427) dissented from this view and held that a person in the control and management of certain property cannot be regarded as the owner of the property. At page 440 of the report the learned Judge observed as under :-

"On a plain construction of the words of section 9 which runs "The tax shall be payable by an assessee under the head "Property" in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner . . ." it necessarily follows that the assessee must be the owner of the property assessed. In reply to this contention, however, the learned counsel for the Commissioner cited Commissioner of Income-tax, Bombay v. Abubakar Abdul Rehman 7 I T R 139 a Bombay ruling of 1939. In construing this section the learned Judges of the Bombay High Court held that the words owner of the property' must be construed as meaning 'owner of the annual value of the property". The judgment of one of the learned Judges concedes that this interpretation does violence to the plain grammatical meaning of the words of the section, but the learned Judges felt that this was the only construction which was reconcilable with the general scheme of the Act. The Judgment of the Chief Justice in that case was based upon the ruling of their Lordships of the Privy Council reported in Sir Currimbhoy Ebrahim's case I L R 58 Bom 317 at p. 324 with all deference again to the learned Judges of the Bombay High Court, l must admit that I am unable to follow how the Judg ment of their Lordships of the Privy Council in Sir Currimbhoy Ebrahim's case I L R 58 Bom. 317 supports this construction. I do not think I need analyse the matter in any great detail. It is sufficient to say that I am quite unable to see that the Judgment of their Lordships of the Privy Council had anything to do with any such forced construction. All that their Lordships of the Privy Council were there concerned with was the question whether in a particular case the word "owner" should mean the legal owner or the beneficial owner and whether a particular beneficiary could be said to be the owner. Another ruling relied on was Burma Railways Co. v. Secretary of State for India 1 I T C 140 a Burma ruling, but again with ell deference to the learned Judges of the Burma Court, I am unable to follow why a person in the control and management of certain property should for the purposes of the Income-tax Act be regarded as the owner of the property. The very illustration given in the case of a man handing over property to his sons would appear to me not to be a very happy illustration for I do not know if the Income-tax authorities would welcome a man with several sons handing over the control of different parts of his property to different sons, thereby escaping assessment himself for the income with the possible result that the sons might not be assessable to income at all, for their divided shares might be less than the taxable minimum. Be that as it may, however, I am unable to see that any such forced construction is called for in the circumstances of this case. I agree that the word 'owner' is not defined in the Income-tax Act and that the word 'owner' might very well cover the legal owner, the equitable owner or even the owner of a limited estate carved out of a larger estate. But from all this it would not follow that the incumbent of an impartible estate becomes for the purposes of section 9 the owner of the property."

This view was approved by the Privy Council in Commissioner of Income-tax v. Dewan Bahadur Dewan Krishna Kishore ((1941) 91 ITR 695). In this connection the Judicial Committee at page 699 of the report observed as under :-

"The ground of their decision is that "the owner" of the buildings and lands appurtenant thereto is not the assessee but the Hindu undivided family. With this reasoning their Lordships agree. They think that the learned Judges were right in refusing to follow the Bombay case wherein it was held that the words "property of which he is the owner" are to be read as meaning "of which annual value he is the owner"; Commissioner of Income-tax, Bombay v. Abubakar Abdul Rehman. However difficult it may be in some cases to apply the simple and ordinary phrase "owner of property" to the facts it is not permissible to substitute a phrase which is of dubious and noticeably different meaning. Again, the distinc tion between property owned by an individual Hindu and pro perty owned by a Hindu undivided family must be made by applying the Hindu law and if the distinction in certain cases be somewhat fine and difficult to draw it is all the more necessary to keep close to the Hindu law."

In view of the above discussion the question of ownership of the property in dispute shall have to be determined on the law administered in Pakistan and not on any broader or general notions of ownership. It is a well established general principle that where the law prescribes a mode of transfer compliance wit that mode is necessary in order to confer title against third parties. It seems to us that when the law requires a registered instrument, title or ownership cannot be conferred by mere agreement of parties. This is quite clear from the provisions of section 54 of the Transfer of Property Act and section 49 of the Registration Act.

6. In order to meet this difficulty Mr. Dingomal, the learned counsel for the assessees, has contended that under the agreement of sale dated 14th December, 1946, the seller was to execute a sale-deed within four months of the date of the agreement. He further referred us to the term of the agreement that time could be further extended to another four months. The learned counsel admitted this by itself would not have passed ownership or title to the purchasers. He relied on the conduct of parties to establish that the assessees are estopped in law from challenging the title of the purchaser. The learned counsel referred us to the sale-deed registered on 26^th August, 1950, in favour of Electronics and Film Equipment Ltd. For the sub-divided plot bearing No. 26/7 for Rs. 1,30,C00 which recognised the title of the purchasers and shows that in terms of agree ment of sale it was executed at the behest of Mrs. S. J. M. Eduljee. Our attention was further drawn to the circumstances that on 1^st February, 1951, after sub-dividing the plots in dispute the assessee handed over the possession of the property to the purchaser. On 7th February, 1951, by a letter the seller acknowledged that full price had been paid and authorised the purchaser to collect rent of the property in dispute. On 7th February, 1951, letters of attornment were addressed to the tenants to pay rent in future to the purchaser and at the same time the Karachi Municipal Corporation was informed to collect future taxes from the purchaser. It was contended before us that these facts have not been disputed by the Department.

7. Learned counsel for the assessee therefore contended that for all intent and purposes the assessees had ceased to be the owner and thereafter the title in the property vested in the purchaser. It was contended that in law under the doctrine of part performance as envisaged under section 53-A of the Transfer of Property Act the seller was not entitled to dis possess the purchaser or to recover the rents of the property in dispute or to take any further steps to assert title. Mr. Dingomal on this ground urged that the. Income-tax Authorities should have held that the purchaser Mrs. S. G. M. Eduljee having become the owner of the property was liable to be assessed for its income.

8. After hearing the learned counsel for the parties, we are satisfied that no exception can be taken to the view taken by the Department on the plea taken under section 53-A of the Transfer of Property Act. There is little doubt that under the above pro vision of law no title is conferred on the person who is found to be in possession on the basis of an unregistered contract of sale. This position has been explained in large number of important judicial decisions. The leading case on this subject is Probodh Kumar Das and others v. Dantmara Tea-Co. Ltd. and others (A I R 1940 PC 1). In that case the Judicial Committee considered the legal effect of the enactment of section 53-A of the Transfer of Property Act. It was held by their Lordships that a right conferred under the said provision is a right available only to the defendant to pro tect his possession. It only imposes a statutory bar on the transferor and confers no active title on the transferee. In this connection the Judicial Committee at page, 2 of the report observed :

"In their Lordships' opinion, the amendment of the law effected by the enactment of section 53-A conferred no right of action on a transferee in possession under an unregistered contract of sale. Their Lordships agree with the view expressed by Mitter, J. In the High Court that "the right conferred by section 53-A is a right available only to the defendant to protect his possession." The note that this was also the view of their late distinguished colleague. Sir Dinshaw Mulla, as stated in Edn. 2 of his treatise on the Transfer of Property Act at p. 262. The section is so framed as to impose a statutory bar on the transferee. Indeed, any other reading of it would make a serious inroad on the whole scheme of the Transfer of Property Act. It was suggested that by obtaining the export quota rights from the Licensing Committee the Dantmara Tea Co. Ltd., as persons claiming under the trans ferors, were enforcing a right in respect of the property against the appellants and could be enjoined at the appellants' instance from so doing, but in their Lordships' view there has been no enforcement within the meaning of the section of any right against the appellants."

This question was further considered by the Judicial Committee in S. No. Banerji and another v. Kuchwar Lime & Stone Co. Ltd. and another (A IR1941 PC 128). In that case it was held

"Section 53-A does not operate to create a form of Transfer of property which is exempt from registration. It creates no real right : it merely creates rights of estoppel between the proposed transferee and transferor, which have no operation against third persons not claiming under those persons."

Mr. Dingomal has however referred us to two decisions of the Indian Courts in Maneklal Mansukhbhai v. Hormusji Jamshedji Ginwalla & Sons (AIR 1950 S C 1), Collector of Bombay v. Municipal Corpora tion of the City of Bombay and others (A I R 1951 S C 469) and a decision of our Supreme Court of Pakistan in Abdullah Bhai and others v. Ahmed Din (P L D 1964 S C 106) to show that under section 53-A of the Transfer of Property Act the purchaser is entitled to retain possession in spite of absence of the registered deed. But in none of these cases it was held that under sec tion 53-A of the Transfer of Property Act any title is conferred on the purchaser or the party in possession of the pro perty agreed to be sold. In Collector of Bombay v. Municipal Corporation of the City of Bombay and others (A I R 1951 S C 469) it was clearly held that non-compliance with the statutory formalities the Government resolution was not an effectual grant passing title in the land to the respondent corporation. In P L D 1964 S C 106 Kaikaus, J. at page 111 observed :-

"The only effect of this section is that when the person in whose favour the 'unregistered deed has been executed is a defendant in the suit the plaintiff cannot enforce against him a right which is inconsistent with the right conferred upon the defendant by the deed."

His Lordship further observed :-.

"It is not the effect of section 53-A that any right or interest stands transferred in violation of section 107 of the Transfer of Property Act and section 17 of the Registration Act. No title is transferred to the person who holds the deed although he can base a defence on it. Section 107 of the Trans fer of Property Act remains unaffected by section 53-A."

Therefore, the view of the department that the above provision of law does not give any right to the transferee but only a right to protect his possession is in keeping with the view taken in the above decisions. We are therefore of the view that on the above provision of law it is not possible to hold that Mrs. Eduljee became the owner of the property or the assessees ceased to be its owner.

9. As a last resort Mr. Dingomal contended that possession' being a substantive right is transferable in law and confers good title on the person in possession of the property. In support of his contention the learned counsel relied on the text-book of jurisprudence by G. W. Paton in which the learned author has discussed the attributes of ownership. At page 420 the learned author states.

"The full rights of an owner are:

(a) the power of enjoyment (e. g. the determination of the use to which the res is to be put, the power to deal with produce as he pleases, the power to destroy);

(b) possession which includes the right to exclude others;

(c) power to alienate inter vivos, or to charge as security-

(d) power to leave the res by will. One of the most important of these powers is the right to exclude others. 'The property-right is essentially a guarantee of the exclusion of other persons from the use of handling of the thing. Use is not enough, for one may use property which one does not own, and use is not necessary, for many an owner does not use all the property he possesses. But every owner does not possess all the rights set out above a particular owner's powers may be restricted by law or by an agreement he has made with another."

The learned counsel supported his argument on the discussion of this subject at page 638 in the commentary of Munir on Evidence Act. The learned author under the heading "Possession is substantive right, which is transferable, and heritable, and by itself constitutes good title against everyone except the true owner" states:-

"A person in possession of land without title has an interest in it, which is heritable and good against all the world except the true owner an interest which, unless and until the true owner interferes, is capable of being disposed of by deed or will, err by execution sale, just in the same way as it could be dealt with if the title were unimpeachable. Possession in law is a substantive right or interest which exists and has legal incidents and advantages apart from true owner's title. It has two fold value, being evidence of ownership and being itself the foundation of a right to possession; It is, therefore, an established principle of the law that possession is a good title against all but the true owner, and entitles the possessor to maintain an action for ejectment against any person, other than such owner, who dispossesses him."

But this discussion is not of any help to the assessees. The question before us is not about the right of Mrs. S. G. M. Eduljee in the property in dispute. The real question is whether in law, in the absence of a registered sale-deed, the assessees are the owners of the property or Mrs. S. G. M. Eduljee. It may be that the purchaser under the agreement may be entitled to retain possession of the property in dispute and may further be entitled to recover its rent. However, this alone would not clothe her with title even according to the above discussion in the two commentaries cited at the bar.

10. The contention of Mr. Dingomal that under section 9 of the Income-tax Act the income is to be assessed in the hand of a party who actually recovers it has not impressed us and is without substance. In support of his contention the learned counsel relied on the case of Ballygunge Bank Ltd, Calcutta v. Commissioner of Income-tax, Bengal (A I R 1947 Cal. 159) in which it was held that income derived from ownership of buildings by the lessees was chargeable for income tax in their hand. This case is clearly distinguishable because in that case' the lessors were found to have no right of ownership in the structures during the continuance of the tenancy. Reliance was further placed on:

(1) In the matter of 'Official Assignee for Bengal-Estate of Jnanendra.Nath Pramanik 1937 I T R 233 at p. 242.

(2) Commissioner of Income-tax, Punjab v. Dewan Bahadur Dewan Krishna Kishore 1941 I T R 695.

We have earlier discussed the effect of the second case cited by the assesses in which contrary view has been taken. In the first case it was held that the Official Assignee was the owner of the property and could be assessed in respect of the property which vested in him by virtue of section 17 of the Presidency Town Insolvency Act. Cases of this nature - stand on a different footing. In both the cases it was found that the real owner of the income from property was the lessee and the estate of the bankrupt and assessable under section 9 of the Income-tax Act.

11. In our opinion, the true test under section 9 of the Income tax Act for assessing the income is to find out who is the owner of the property. It is the owner alone who can be assessed to income-tax. It may be that the owner may not be able to recover the rent or may be out of possession, or there is no likelihood to recover the rent from the property owned, but that would not in the least exempt him from his liability to pay income-tax under the said provision of law. Somewhat similar point was also involved in two Bombay cases D. M. Vakil and others v. Commissioner of Income-tax (A I R 1946 Bom. 350) and. Sir Currimbhoy Ibrahim Baronetcy v. Commissioner of Income-tax, Bombay City ((1963) 48 I T R 507). In the first case the property was owned by one late Bai Bhicaiji Bhunjibhoy who appointed her husband and her-son and three daughters as tie trustees under last will and testament dated 28th January, 1937. In pursuance of the terms of the will the parties named therein were entitled to occupy one of the properties which was the subject-matter for the assessment year 1942-43. It was contended on behalf of the trustees that they cannot be said to have realised income from the property is question sad, therefore, they were not liable to pay any income to respect of such property. This plea was rejected by the Income-tax Officer, but was accepted before the Assistant Income-tax Commissioner. The matter was taken before the Income-tax Appellate Tribunal who restored the order of Income-tax Officer. In the High Court it was argued on behalf of the trustees that the Income-tax Act was enacted with the object of taxing income, and since, under the terms of will, the premises in question was in occupation of the persons named in clause 5 of the will the taxing authorities could not assess iii income in the hands of the trustees. This contention was repelled by the Bombay High Court on the following observa tions

"Subsections (1) and (2) of section 9 when read together make it clear that "income from property" is an artificially defined income and the liability arises from the fact that the assessee is the owner of the property. This liability to tax does not depend on the power of the owner to let the property nor on the capacity of the owner to receive the bona fide annual value of the property. The law has laid down an artificial rule by which the amount is to be considered the income of the assessee from immovable property and has provided that he should be taxed on that footing. By reason of the fact that the property is not let out the assessee cannot escape taxation."

In the second case the assessee was a Corporation known as Sir Currimbhoy Ibrahim Baronetcy Trust created under Sir Currim bhoy Baronetcy Trust Act, 1913 and was all along assessed to tax as trustees of the said trust in the status of association of persons. The income of the assessee was from immovable pro perty and Government securities. In two flats Nos. 7 and 8 known as Currimbhoy Manor, the incumbent -of the Office of the Baronetcy for the time being entitled to occupy them rent free. In the year 1949 the rhea incumbent of the office of Baronetcy was declared an evacuee under the Custodian of Evacuee Property Act; and the Custodian of Evacuee Property declared the right of residence given to the incumbent as evacuee property. In the assessment of the assessee the Income-tax Officer held that the trustees continued to be the owners of the flats in question and assessed the income from the said two proper ties as income of the assessees under section 9 of the Income-tax Act. The assessee challenged this order before the- Appellate Assistant Commissioner who allowed the- appeal and the Income -tax Officer was permitted to delete the income of the said pro perties from the income of the assessee. The Department appeal was however accepted by the Tribunal on the ground that although the interest of the evacuee vested in the Custodian the ownership of the property still continued to vest in the trustees and the income under section 9 of the Income-tax Act was liable to be assessed in the hands of the trustees, on a reference to the High Court at the instance of the assessee, it was held that as the trustees were the owners of the flats and the bungalow their annual value was liable to be assessed in the hands of the, trustees under section 9 of the Income-tax Act. It was further held that neither the vesting of the interest of the Baronet in the Custodian nor the inability of the trustees to realise rent from the flats and the bungalow affected their liability.

12. Thus it will be noticed that in the above two cases cited by Mr. Nusrat, learned counsel for the Department, in spite of the fact that the owners were not in possession of the properties in dispute and there was no likelihood to recover any income of these properties by them, they were assessed under section 9 of the Income-tax Act for the income of such properties. It will not be out of place to mention that the relevant provision under which income-tax is levied is sections 3, 4, 2 (15), 6 and 9 of the Income-tax Act, 1922. The charging section is section 3 which provides that the total income of the assessee is liable to be taxed. Section 2 (15) of the Income-tax Act defines "total income" as the total amount of income, profits and gains computed in the manner laid down in this Act. So far as the income from the property is concerned it is computed in accordance with section 9 of the Income-tax Act. According to this provision of law the income from property, which is made liable to tax, is not the actual income but an artificial or statutory income as defined under section 9 which is the bona fide annual value of the property. It is for this reason that the circumstance whether the true owner receives the true income of the property or not has no material bearing for purposes of assessment. What the Income-tax authorities are concerned with is the annual value of the property and to charge it from the person who is found to be the owner of the property. The question whether the owner is recovering the rent or will be able to recover the rent or there is likelihood to recover rent of such property by him is not taken into consideration for determining his liability. In these circumstances, we are satisfied that the Income-tax Authorities were perfectly justified in holding that as the property in dispute had not been properly conveyed by a registered sale-deed to Mrs. S. G. M. Edu1jee the assessees being its owners were liable to be taxed for its income.

13. It was next urged by Mr. Dingomal that question No. 3 which relates to the income from sub-plot bearing Survey No. S. B. 5/26-7 admittedly was transferred on 16th August, 1950 under a registered deed of sale by the assessees to Electronics and Film Equipments Ltd. for the sum of Rs. 1,30,000; and therefore the Income-tax Authorities should have excluded the income of this portion of the plot from the assessment of the assessees. In this connection it will be noticed that the learned Tribunal has refused to refer this question to this Court under section 66 (1) of the Income-tax Act on the, ground that at no time it was agitated before the Income-tax Officer or the Appellate Assistant Commissioner or the Income-tax Appellate Tribunal, and as it did not arise from the order passed by them in the appeals filed by the assessees, it could not be referred to this Court for its opinion. It was strongly contended by the learned counsel for the assessees that this question was very much before the Income-tax Autho rities as it was raised at all stages before them. The learned counsel was however unable to refer us to any grounds of appeal filed by the assessee before the Appellate Assistant Commissioner or Income-tax Appellate Tribunal in support of his contention. We put a direct question to Mr. Dingomal to state at the bar that he argued this specific question before the Income-tax Appellate Tribunal, but he was not in a position to matte any categorical statement in this behalf. In such circumstances, we shall have to accept the observations made by the learned Income-tax Appellate Tribunal that this point was not raised by the assessees before them either in the grounds of appeal or during the course of the hearing of the appeal.

14. Mr. Dingomal however contended that since the question referred to this Court also covers this point it is open to it to consider and express its, opinion on it. It may be mentioned that the assessees during the hearing of the appeal have also raised this question in their application dated 10th September, 1961, in which it is reiterated that the point in question is covered by the question referred to this Court. In the alternative they have prayed that even if it is not covered the same may be reframed and answered accordingly.

15. In reply Mr. Nusrat, the learned counsel for the Depart ment, has contended that as this point does not arise from the order of the Tribunal, it was perfectly justified In refusing to refer this question. Learned counsel further contended that as this point was not taken before the Income-tax Authorities, in law the assesses is not entitled to agitate it before this Court. In support of his contention Mr. Nusrat has placed reliance on the decisions in :

(1) Messrs Muhammad Idrees Barry 8c Co. v. Commissioner of Income-tax, Punjab and N.-W. F. P. P L D 1959 S C 202;

(2) National Mutual Life Association of Australia, Ltd. Commissioner of Income-tax, Bombay Presidency and Aden 63 I A 99 ;

(3) Raja Bahadur Sir Rajendra Narayan Bhanj Deo v. Commis sioner of Income-tax, Bihar and Orissa A I R 1940 P C 158.

In P L D 1959 S C 202 the Tribunal referred to the High Court a question whether there was any material in support of the Tribunal's finding that Habib-ur-Rehman was the assessee's agent empowered to accept service of notice within the meaning of Order V, rule 12, C. P. C. read with section 63 (t) of the Income -tax Act. The learned Judges of the High Court came to the conclusion that the circumstances on which the Tribunal based its conclusion that service of notice on Habib-ur-Rehman was valid and proper were "quite capable of explanation on a basis other than the grant of authority to Habib-ur-Rehman to accept service." They therefore altered the form of the question and answered it accordingly. The matter was taken by the assesses before the Supreme Court and their Lordships disapproved of the action of the High Court in altering the form of the question referred to it on the ground that the question which the learned Judges had formed answered is not one deriving out of the order of the Tribunal. In National Mutual Life Association of Australasia Ltd. v. Commissioner of Income-tax, Bombay Presidency and Aden (63 I A 99), the High Court had decided the case adversely to appellants ova as argument raised before them for the first time by the Advocate-General. The Judicial Committee reversed this decision on the ground that any claim as to liability to tax based on that argument was a matter outside the letter of reference and irrelevant to the question submitted. In Raja Bahadur Sir Rajendra Narayan Bhanj Deo v. Commis sioner of Income-tax, Bihar and Orissa (AIR 1940 P C 158) at p. 160 their Lord ships observed:

"The function of the High Court in cases referred to it under section 66 of the Act is advisory only, and is confined to con sidering and answering the actual question referred to it."

In that case it was urged that the appellant's liability to income- tax could be maintained on other grounds. Their Lordships repelled this contention on the ground that since the point did not emerge from the order of the Income-tax Appellate Tribunal it was not open to the High Court or to the Privy Council to formulate any question even if they had before them the materials for so doing.

16. It is in this light that it is to be decided whether the assesses is entitled to claim any allowance in respect of the income of the above-mentioned sub-plot sold to Electronics Film Equip ment Co. We are satisfied that the assesses did not claim an exemption on this ground before the subordinate Income-tax authorities and this point was not even specifically taken of urged before the Appellate Income-tax Tribunal. It is quite clear that it does not arise from the order of the Tribunal. In such circumstances it is not open to this Court to adjudicate upon it even if there is material before it for so doing.

17. The application filed on behalf of the assessees too is not maintainable because if they were aggrieved from the order of the Tribunal an application should have been made under section 66(2) of Income-tax Act. It is not disputed that in cases where the Tribunal refuses to refer some question the assessee is entitled to move an application for referring it to the High Court but no such application was made. In law such an application should have been made within six months of the order of the refusal of the Income-tax Tribunal to refer any question of law. The application being clearly barred by time is dismissed.

18. In the result, on the view that we have taken of the question referred to us we would answer it in the affirmative.

The assessees are directed to bear the costs of these proceedings.

S. Q.

Reference answered to the affirmative.

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