Holding

Properties for which consideration is received and possession is transferred, even without a registered deed, belong to the assessee for wealth‑tax purposes, and an annuity payment is exempt where its terms expressly preclude commutation.

Summary

The Nizam of Hyderabad (Sir Mir Osman Ali Khan) challenged the inclusion of certain immovable properties and an annual payment of Rs.25 lakhs in his net wealth for wealth‑tax purposes. The Supreme Court held that properties for which full consideration was received and possession handed over, even without a registered sale deed, are deemed to belong to the assessee under s.2(m) of the Wealth‑Tax Act, 1957. It further held that the Rs.25 lakhs annual payment is an annuity whose terms preclude commutation, making it exempt under s.2(e)(iv). Consequently, the properties were included in the assessee’s net wealth, but the annuity payment was excluded. The appeal was allowed in part.

Issues considered

Whether immovable properties sold without a registered deed but for which consideration was received and possession transferred belong to the assessee for inclusion in net wealth under s.2(m) Wealth‑Tax Act, 1957.
Whether the annual payment of Rs.25 lakhs to the Nizam constitutes an annuity and, if so, whether it is exempt from wealth‑tax under s.2(e)(iv) due to a pre‑clusion of commutation.
Interpretation of the expression ‘belonging to’ in s.2(m) versus ‘owner’ in tax statutes.

Legislation cited

Constitution of Indias. 136
Transfer of Property Act, 1882s. 53A
Wealth Tax Act, 1957s. 2(e)(iv), s. 2(m), s. 3

Subjects

wealth taxnet wealthbelonging toannuitycommutationTransfer of Property Actsection 53ANizam of Hyderabadprivy pursestatutory interpretation

Judgment

LATE NAWAB SIR MIR OSMAN ALI KHAN
v.
COMMISSIONER OF WEALTH TAX, HYDERABAD
B
OCTOBER 21, 1986

[R.S. PATHAK AND SABYASACHI MUKHARJI, JJ.J'

Wealth Tax Act, I957-S. 2(m)-Net wealth-''4ssets belonging
to the assessee'-MeaninK of Properties sold out by the assessee with-
c out executing registered sale deed-Full sale consideration received-
' Possession handed over to the purchaser-Whether legal title still vests
in the assessee and properties belong to the assessee for purpose of
inclusion in net wealth.

D Trans/er of Property Act, I882, s. 53 A-Scope of

Constitution of India-Art. 136-Dismissal of special leave peti-
tion in limine-Cannot be construed as affirmation by Supreme Court
of the decision from which special leave was sought.

E Statutory Interpretation-Though statutes should be equitably in-
terpreted, no place for equity in taxation laws. Words and Phrases- ~
'Belonging to'-MeanJng of

· Wealth Tax Act, 1957-S. 2(e) (iv)-Assessee-Ruler of erstwhile
State-Private properties taken over by Government-Granting >-
F paympnt of a fixed annual sum of money in lieu of previous income-
Wheiher such annual payment amounts to 'annuity'-Whether exempt )-
from inclusion in net wealth. Words and Phrases-'Annuity'-Meaning
of:
)
ln the assessment year 1957-58, the Wealth Tax Officer had inc-
G lnded a sum of Rs.4,90,775 representing the market value of certain
immovable properties in respect of which, although the assessee had
received full consideration money, he had not executed any registered
· sale deeds in favour of the ven4ees. The question was whether the
properties belonged to the assessee even after such sale for the purpose
of inclusion of his net wealth within the meaning of s. 2(m) of the ~·
H Wealth Tax Act, 1957. The Wealth Tax Officer held that the assessee

1072
SIRMIROSMAN ALIKHANv. COMM.OFW. TAX 1073

still owned those properties and consequently the value of the same was A
)-
included in his net wealth.

On appeal, the Appellate Assistant Commissioner sustained the
order of the Wealth Tax Qfficer with certain deductions in value. On
further appeal, the Tribunal held that the assessee had ceased to be the B
owner of the properties because the assessee having received the consi-
)..
deration momy from the purchasers and the purchasers having been
put into possession were protected in terms of s. 53A of the Transfer of
Property Act and the term 'owner' not.only included the legal owner-
ship but also the beneficial ownership. The High Court following the
<)~- ratio of Commissioner of Income Tax, A.P. Hyderabad v. Nawab Mir
Barkat Ali Khan, (1974) Tax L.R. 90, reversed the order of Tribunal c
and upheld that of the Wealth Tax qmcer and the Assistant Appellate
Commissioner .
.. The Assess-Nizam of Hyderabad, was a paramount ruler own-
ing certain private properties called Sarf-e-khas. On surrendering his D
paramountcy and acceding to the Union of India, his private properties
were taken over by the Government and it was agreed to pay him a sum
of Rs.1 crore annually distributed as follows: (a) Rs.SO lakhs as a privy
purse; (b) Rs.25 lakbs in lieu of his previous income from the Sarf-e-
khas, and (c) Rs.25 Iakhs for the upkeep of palaces etc.
)r
E
The Government in its letter to the assessee stated that his Sarf-e-
khas estall-! shonld not continue as an entirely separate administration
independent of the Diwani administrative structure and it should,
-< ·therefore, be completely taken over by the Diwani, its revenne and
expenditure being merged with the revenues and expenditure of the
i State. Question was whether the assessee's right to receive the sum of
Rs.25 lakhs O.S. from the State Government was an asset for the pnr-
F
poses of inclusion in his net wealth under the WealthTax Act, 1957.
i_

The Wealth Tax Officer treating the said sum as an annuity and as
an asset or property, capitalised the same to Rs.99,78,572 and included
that amount as an asset of the asseS.ee. The Appellate Assistant Com-
G
missioner agreed with'this view. The Tribunal, however, refused to call
it as an annuity, characterised it as an annual payment for snrr~nder of
life interest and held that the capitalised value of such life interest be
_.J_
added to the net wealth and taxed. 111e High Court agreed with the view
taken by the Tribunal that it was only an annual payment made in
compensation for the property which had been taken over bY the Govern- H
1074 SUPREME COURTREPORTS [1986] 3 S.C.R.

A ment, therefore, it was a part of the wealth and it was possible to -(
commute the annual payment ofRs.25 lakhs. The High Court found that
there was neither any express preclusion nor any circumstances from
which legitimately an inference could be drawn precluding commuta-
tion of the said amount into a lumpsum grant. Consequently, the High
Court upheld the order oftbe Wealth Tax Tribunal.
B
Partly allowing the Appeal, J,

HELD: (1) Under s. 3 of the Wealth Tax Act, 1957 the charge of
wealth-tax is on the 'net wealth' of the assessee on the relevant valuation --r~
date as defined under s. 2(m) of the Act. l 1081E-F]
c
(2) The material expression for the purposes of this appeal is
"belonging to the _assessee on the valuation date" ..The properties in •~
respect of which registered sale deeds had not been executed but consi-
deration for sale of which had been received and possession in respect of
which had been handed over to the purchasers belonged to the assessee .
D for the purpose of inclusion of his net wealth. [1081G-H; 1082A]

(3) It is not necessary for the purpose of s. 2(m) to be tied down
with the controversy whether in India there is any concept of legal
ownership apart from equitable ownership or not or whether under ss. ~
9 and 10 of the Indian Income Tax Act, 1922 and ss. 22 to 24 of the
E Indian Income Tax Act, 1961, where 'owner' is spoken of in respect of
house properties, the legal owner is meant and not the equitable or
beneficial owner. All the rights embedded in the concept of ownership >
of Salmond cannot strictly apply either to the purchasers or the assessee

F
in the instant case. [1082C-D; 1082H; 1083A]

(4) The liability to wealth-tax arises because of the belonging of
r
the asset, and not otherwise. Mere pOssession, or joint possession unac~ )
companied by the right to be in possession, or ownership of property
would, therefore, not bring the property within the definition of "net
wealth" for it would not then be an asset "belonging" to the assessee.
Unlike the provisions of Income-tax Act, s. 2(m) of the Act uses the
G expression 'belonging to' to indicate that the person having lawful
dominion of the assets would be assessable to wealth tax. [1083C-E]
~
(5) Though the expression 'belonging to' no doubt was capable of
denoting an absolute title was nevertheless not confined to connoting
that sense. Full possession of an interest less than that of full ownership
H
could also be signified by that expression. [1086G-H]
SIR MIR OSMAN ALIKHANv. COMM. OFW. TAX 1075

,. Commissioner of Wealth-tax, West Bengal v. Bishwanath Chatterjee
and Others, 103 I.T:R. 536 and Raja Mohammad Amir Ahmed Khan v.
A

Municipal Board dfSitopur and another. A.LR. 1965 S.C. 1923, relied upon.

Webster's Distionary and Aiyar's Law Lexicon of British India,
[1940] edn., p. 128 and Salmond on Jurisprudence, 12th edn., pp. 246
B
to 264, referred to.

>- (6) The property is owned by one to ,>yhom it legally belon~. The
property does not legally belong to the vendee as against the vendor, the
assessee. The precise sense in which the words 'belonging to' were used
11- in s. 2(m) of the Act must be gathered only by reading the instrument or
the document as a whole; [1090C-D] c
(7) Though all statute including the Wealth Tax Act should be
_. equitably interpreted, there is no place of equity as such in taxation
laws; The concept of reality in implementing fiscal provision is relevant
and the Legislature ins. 2(m) has not significantly used the expression
D
'owner' but used the expression 'belonging to' .. The Legislature having
designedly used the expression 'belonging to' and riot t~e expression
'owned by' had perhaps expected Judicial ~tesmanship in interprets-
tion of this expression. [1089G-HI

)- (8) On a distinction being made betWeen 'belonging to' and
I
'ownership' the following facts emerge: (1) the assessee has parted with E
the possession which is r.ne of the essentials of ownership; (2) the asses-
see was disentitled to recover possession from the vendee and assessee
-...c alone until document of title is executed was entitled to sne for posses-
sion against others i.e. others than the vendee in possession in this case.
i The title in rem vested in the assessee; (3) the vendee was in rightful
possession against the vendor; (4) the legal title, however, belonged to F
the vendor; and (5) the assessee had not the totality of the rights that
1.. constitute title but a mere husk of it and a very important element of the
husk. [1088H; 1089A-B]

(9) The property in question legally cannot be said to belong to
the vendee. The vendee is in rightful possession only against the world. G
Since the legal title still vests with the assessee; the property should be
treated as belonging to the assessee. It will work some amount of·in-
~ · justice in snch a situation because the assessees 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 not ripe to transmnte
H
equity on this aspect in the interpretation oflaw. [1089C-F]
1076 SUPREME COURT REPORTS [1986] 3 S.C.R.

A (10) Under s. 53A of the Transfer of Property Act, 1908 where
possession had been handed over to the purchasers and the purchasers
are in rightful possession of the same as against the assessee, secondly
that 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
B exeeuted by him and when the purchasers were in possession had right
to call upon the assessee to execute the conveyance, it cannot be said that
the property legally belonged to the assessee in terms of s. 2(m) of the
Act in the facts and circumstances of the case, even though the statute
most be read justly and equitably and with the ~bject of the section in
view. If a person has the user and is in the enjoyment of the property it
c 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. [ 1090F-H; 1091A]

Commissioner of Wealth-tax, Gujarat-IV v. H.H. Maharaja F.P.
Gaekwad, 144 I. T.R. 304 approved. ·
D
Commissioner of Income-tax, A.P. Hyderabad v. Nwab Mir Barkat
Ali Khan, [1974] Tax L.R. 90 referred to.

Commissioner of Wealth-tax, A'.P. v. Trustees of H.E.H. Nizam's ·
family (Remainder Wealth) Trust, 108 I.T.R. 555, R.B. Jodha Mal' ~
E Kuthialav. Commissioner ofIncome-tax, Punjab, Jammu & Kashmir and
Himachal Pradesh, 82 I.T.R. 570, Commissioner of Income-tax, West
Bengal II v. Ganga Properties Ltd., 77 I. T .R. 637, Commissioner of
Wealth-tax-Gujarat-Iv. Kum Manna G. Sarabhai, 86 I. T .R. 153, Com- >
missioner of Income-tax, Gujarat v. Asha/and Corporation, 133 I. T.R.

F
55, Commissioner of Income-tax, Bombay City III v. Smt. T.P. Sidhwa, f
133 I. T .R. 840, Smt. Kala Rani v. Commissioner of Income-tax, Patiala-
I, 130 I. T.R. 32 I, Mrs. M. P. Gnanambal v. Commissioner of Income-tax,
Madras, 136 I.T.R. 103, S.B. (House & Land) Pvt. Ltd. v. Commissioner )
of Income-tax, West Bengal, 119 I.T.R. 785 and Addi. Commissioner of
Income-tax Bihar v. Sahay Properties and Investment Co. (P) Ltd., .144
I. T .R. 357 distinguished.
G
(I 1) Special leave is a discretionary jurisdiction and the dismissal of
a special leave petition cannot be construed as affirmation by the Supreme
Court of the decision from which special leave was sought for. [J087E]

Daryao & Ors. v. State of U.P. & Ors., AIR 1961 SC 1457 relied
H
upon.
SIR MIR OSMAN ALI KHAN v. COMM. OF W. TAX 1077

. Sahu Govind Prasad v. Commissioner of Income-tax, 144 I.T.R. A
851 at 863 approved.

(12) Section 2(e) (iv) of the Wealth Tax Act, 1957 provides that
"assets" includes property of every description, movable or inuno-
vable, but does not include a 'right to any annuity' in any case where B
the terms and conditions relating thereto preclude the commutation of
any portion thereof into a lnmp sum grant. [1091B-D I

(13) The term 'annuity' is not defined in the Act. It must be given
the signification which it has assumed as a legal term owing to judicial
interpretation and not its popnlar and dictionary meaning. · An
'annuity' is a certain sum of money payable yearly either as a personal c
obligation of the grantor or out of property. The hall mark of an
annuity is: (1) it is a money; (2) paid annually; (3) in fixed sum; and ·(4)
usually it is a charge personally on the grantor. I 1091G-HJ

(14) In this case, in view of the background of the terms of pay- o
ment and the circumstances why the payment wa~ made, there cannot
be any doubt that Rs.25 lakhs annually was an 'annuity'. It was a fixed
sum to .be paid out of the property of the Government of India in lieu of
the previous income of the assessee from Sarf-e-khas. Therefore, it was
an 'annuity'. [1093C-DI
~ E
( 15). In the instant case, there is no express provision in the docu-
ment itself which prevented commutation of this annuity into a lump
• sum. For inferring whether such as express provision precluding com-
< mutation exists, the background of the facts and circumstances of the
payment has to be kept in mind. The assessee was given Rs.25 lakhs in
lieu of his previous income from the Sarf-e-khas. Income is normally F
meant for expenditure. The assessee had to incur various exenditures.
Commutation is often made when one is not certain as to whether the
source from which that income comes. In this case, this being an agree-
ment between earstwhile ruler and the Government of India,· there is no
such motivation and this payment of Rs.25 lakhs in lieu of the previous
income of Sarf-e-khas must be read in conjunction with two other sums G
namely Rs.SO· lakhs as privy purse and Rs.25 lakhs for upkeep of
palaces. This bears the same character. [1093E-H; 1094A-B I

(16) As privy purses were not commutable, from the circum-
stances and keeping in background of the payment, there was an
express provision flowing from the circumstances precluding the H
1078 SUPREME COURT REPORTS [1986] 3 S.C.R.

A commutation of this amount of Rs.25 lakhs and, therefore, it was
exempt under s. 2(e) (iv) of the Act. [1094B-C]

( 17) There was no right granted and can be gathered from the
terms of the grant of payment for the assessee to claim commutation of
B the amount of Rs.25 lalWs. That would defeat the purpose of the set up
of the arrangement under which the payment of the amount was made.
From the nature of the sum stipulated in the letter written by the
Government to the assessee, the assessee had no right to claim commu-
tation. Taking that fact in conjunction with the circumstances nuder
which the payment of Rs.25 lakhs was agreed to, it is held that from the
terms of the agreement, there was an express stipulation precluding
,... ...,..
I.
c commutation and, therefore, it comes within cl. (iv) of s. 2(e) of the Act
and the assessee was entitled to exemption. I1094C-F]

Oxford Dictionary: Jarman on Wills (P. 1113), relied on and

Ahmed G.H. Arif! and Others v. Commissioner of Wealth-tax,
D
Calcutta, 76 I.T.R. 471, Commissioner of Wealth-tax Gujarat v.
Arundhati Balkrishna, 77 I. T.R. 505, Commissioner of Wealth-tax,
Rajasthan v. Her Highness Maharani Gayatri Devi of Jaipur, 82 I.T.R.
699, Commissioner of Wealth-tax, Lucknow v. P.K. Banerjee, 125
I. T .R. 641 and H. H. Maharajadhiraja Madhav Rao Jiwaji Rao Scindia
Bahadur& Ors. v. Union of India, [1971] 3SCR 9referred to.
E
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1763
(NT) of 1974
>
From the Judgment and Order dated 2.2.1973 of the Andhra
Pradesh High Court in Case Reference No. 67 of 1971.
F
Y. Ratnakar, Mrs, A.K. Verma and D.N. Misra for the
)
Appellant.

S.C. Manchanda, Ms. A. Subhashini and B.B. ·Ahuja for the
Respondent. '
G
The Judgment of the Court was delivered by

SABYASACHI MUKHARJI, J. This appeal by Special leave
arises from the decision of the High Court of Andhra Pradesh and it
seeks answers to two questions:
H
SIR MIR OSMAN ALIKHANv. COMM. OFW. TAX(MUKHARII,J.I 1079

"(i) Whether, on the facts and in the circumstances of the A
case, the properties in respect of which registered .sale
deeds had not been executed, but consideration had been
received, belonged to the assessee for the purpose of in-
dusion in his net wealth within the meaning of section 2(m)
of the Wealth-tax Act, 1957? B
.(ii) Whether, on the facts and in the circumstances of the
case, the assessee's right to receive the sum of Rs.25 lakhs
O.S. from the State Government was an asset for the pur-
poses of inclusion in his net wealth under the Wealth-tax
Act, 1957?"
c
The year involved in this case is the assessment year 1957_-58
under the Wealth-tax Act, 1957 (hereinafter called the 'Act'). It may
be mentioned that the valuation date is the first valuatfon date after
coming into operation of the. Act which came into force on 1st April,
1957. The assessee was the Nizam of Hyderabad, an individual. There
D
were several questions involved in the assessment with all of which the
present appeal is not concerned. ·

So far as the first question indicated hereinbefore which was
really question No. (ii) in the statement of case before the High Court,
it may be mentioned that the Wealth-tax Officer had included a total
E
sum of Rs.4,90, 775 representing the market value of certain immov-
able properties in respect of which, although the assessee had received
full consideration money, he had not executed any registered sale
deeds iri favour of the vendees. The Wealth-tax Officer held that the
assessee still owned those properties and consequently the value of the
same was included in his net wealth.
F
•
\, On appeal the Appellate Assistant Commissioner sustained the
order with certain deductions in value. On further. appeal the Tribunal
held that the assessee had ceased to be the owner of the properties.
The Tribunal was of the opinion that the assessee having received the
· consideration money from the purchasers and the purchasers having
G
been put into possession were protected in terms of section 53A of the
Transfer of Property Act and the term 'owner' not only included the
legal ownership but also the beneficial ownership. The first question
arises in the context of that situation. The High Court following the
ratio of Commissioner of Income-Tax, A.P., Hyderabad v. Nawab Mir
Barkat Ali Khan, (infra) answered the question in favour of the H
·revenue.
1080 SUPREME COURT ~EPORTS 11986] 3 S.C.R.

A The second question set out·before, which was question no. (v)
before the High Court, has to be understood in the context of the facts
of this case. The right of the assessee to get the amount in question i.e.
Rs.25 lakhs a year, arose in the wake of accession of the Hyderabad
State to the Union of India. Several communications followed between
the Military Governor of Hyderabad, Maj. Gen. Chaudhuri and th':!
B
Nizam of Hyderabad as well as other officers. It has to be borne in
mind that the assessee was a paramount ruler owning certain private
properties called Sarf-e-khas. He surrendered his paramountcy and
· acceded to the Union of India. His private properties were taken over
by the Government and it was agreed by the Government that in lieu
of his income from the said properties, he would be paid Rs.25 lakhs in
c Osmania currency annually.

The communication b".tween Major General Chaudhuri, the
Military Governor and the Nizam about this particular sum is con-
tained in the letter dated 1st February, 1949. It stated inter alia as
follows:
D
"After this merger H.E.H. will be paid annually a total
sum of Rs. I crore distributed as follows:

(a) Rs.50 lacs as a privy putse,
E (b) Rs.25 lacs in lieu of his previous income from the Sarf-
e-khas, and

(c) Rs.25 lacs and for the upkeep of Palaces etc."

The letter which appears in the Paper Book of this appeal from
F Military Governor of Hyderabad, Major General Chaudhuri to the
Nizam of Hyderabad, states, inter alia, that Nizam 's Sarf-e-khas
estates should not continue as an entirely separate administration
independent of the Diwani administrative structure. The Sarf-e-khas,
it was stated in that letter, should therefore be completely taken over
by the Diwani, its revenue and expenditure being merged with the
G revenues and expenditure of the State. Thereafter we have extracted
the relevant portion of the letter which stipulated for the payment of
Rs.25 Jakhs. The other parts of the agreement contained in that letter
are not relevant for the present purpose.

The Wealth-tax Officer treating the said sum as an annuity and
H secondly as an asset or property, capitalised the same to Rs.99,78,572
SIR MIR OSMAN ALI KHAN v. COMM. OFW. TAX(MUKHARJI,J.) 1081

)-- and included that amount as an asset of the assessee. The. appellate A
Assistant Commissioner agreed with the view taken by the Wealth-tax
Officer. The Tribunal, however, refused to call it as an annuity and
characterised it' as an annual payment for surrender of life interest.
The Tribunal therefore held that the capitalised value of such life
interest be added to the net wealth and taxed. B
... The High Court in the judgment under appeal agreed with the
view taken by the Tribunal that it was only an annual payment made in
compensation for the property which had been taken over by the
Government. It was, therefore, a part of the wealth, according to the
~-f High Court. The High Court was of the view that it was possible to
commute the annual payment of Rs.25 lakhs. The High Court found c
that there was neither any express preclusion nor any circumstances
from which legitimate_ly an inference c·:mld be drawn precluding com-
...I mutation of the said amount into a lumpsum grant. The High Court,
therefore, was of the view that the .Wealth-tax Tribunal had rightly
r~jected the contention of the assessee. The question was accordingly
D
answered by the High Court in the affirmative and against the assessee
and in favour of the revenue.

The first question involved in this case is whether the properties
in respect of which registered sale deeds had not been executed, but
)
full consideration had been received by the assessee, belonged to the
E
assessee for the purposes of inclusion in his net wealth in terms of
section. 2(m) of the Act. Under section 3 of the Act, the charge of
wealth-tax is on the net wealth of the assessee on the relevant valua-
< tion date. Net wealth is defined under section 2(m) of .the Act. The
relevant portion of section 2(m) is as follows:
-1(
"(m) "net wealth" means the amount by which the aggre- F
gate value computed in accordance with the provisions of
~
this Act of all the assets, wherever located, belonging to
the assessee on the valilation date, ,including assets re-
quired to be included in his net wealth as on that date under
this Act, is in excess of the aggregate value of all the debts
owed by the assessee on the valuation date ....... " G

The material expression with which we are concerned in this
.-4. . appeal is 'belonging to the assessee on the valuation date'. Did the
assets in the circumstances mentioned hereinbefore namely, the pro-
perties in respect of which registered sale deeds had not been
H
'
1082 SUPREME COURT REPORTS (198613 S.C.R.

A executed but consideration for sale of which had been received and
possession in respect of which had been handed-over to the purchm.ers
belonged to the assessee for the purpose of inclusion in his net wealth?
Section 53A of the Transfer of Property Act gives the party in posse-
ssion in those circumstances the right to retain possession. Where a
contract has been executed in terms mentioned hereinbefore and full
B consideration has been paid by the purchasers to the vendor and where
the purchasers have been put in the possession by the vendor; the
vendees have right to retain that possession and resist suit for specific
performance. The purchasers can also enforce suit for specific per-
formance for execution of formal registered deed if the vendor was
unwilling to do so. But in the eye of law, the purchasers cannot and are
c not treated as legal owners of the property in question. It is not neces-
sary in our opinion, for the purpose of this case to be tied down with
the controversy whether in India there is any concept of legal owner-
ship apart from equitable ownership or not or whether under sections 9
and 10 of the Indian Income-tax Act, 1922 and sections 22 to 24 of the
Indian Income-tax Act, 1961, where 'owner' is spoken in r~spect of the
0 house properties, the legal owner is meant and not the equitable or
beneficial owner. Salmond On Jurisprudence, Twelfth Edition, discus-
ses the different ingredients of 'ownership' from pages 246. to 264.
'Ownership', according to Salmond, denotes the relation between a
person and an object forming the subject-matter of his ownership. It
· consists of a complex of rights, all of which are rights in rem, being
E good against all the world and not merely against specific persons.
Firstly, Salmond says, the owner will have a right to possess the thing
which he owns. He may not necessarily have possession. Secondly, the
owner normally has the right to use and enjoy the thing owned: the
right to manage it, i.e., the right to decide how it shall be used; and the
right to the income from it. Thirdly, the owner has the right to con-
F sume, destroy or alienate the thing. Fourthly, ownership has the
characteristic of being indeterminate in duration. The pt>sition of an
)
owner differes from that of a non-owner in possession in that the
latter's interest is subject to be determined at some future time.
Fifthly, ownership has a residuary character. Salmond also notes the
distinction between legal and equitable ownership. Legal ownership is
G that which has its origin in the rules of the common law, while equit-
able ownership is that which proceeds from rules of equity different
from the common law. The courts of common law in England refused
to recognize equitable ownership and denied the equitable owner as an
owner at all.
H All the rights embedded in the concept of ownership of Salmond
SIR MIR OSMAN ALIKHANv. COMM. OFW. TAXIMUKHARJI,J.I 1083

cannot strictly be applied either to the. purchasers or the assessee in the A
instant case.

In the instant appeal, however, we are concerned with the expre-
ssion 'belonging to' and not with the expression 'owner'. This question
had come up before this Court before a bench of five learned judges in B
Commissioner of Wealth-tax, West Bengal, v. Bishwanath Chatterjee
and Others, 103 I.T.R. 536. At page 539 of the report, this Court
referred to the definition of the ·expression 'belong' in the Oxford
English Dictionary "To be the property or rightful possession of'. So
it is the property of a person, or that which is in his possession as of
right, which is liable to wealth-tax. In other words, the liability to
wealth-tax arises because of the belonging of the asset, and not c
otherwise. Mere possession, or joint possession unaccompanied by the
right to be in possession, or ownership of property would therefore not
bring the property within the definition ·of "net wealth" for it would
not then be an asset "belonging" to the assessee. The first limb of the
definition indicated in the Oxford Dictionary may not be applicable to
D
these properties in the instant appeal because these lands were not
legally the properties of the vendees and the assessee was the lawful
owner of these properties. The vendees were, however, in rightful
possession of the properties as against the vendor in view of the provi-
sions of section 53A of the Transfer of Property Act, 1908. The scheme
of the Act has to be borne in mind. It has also to be borne in mind that
E
unlike the provisions of Income-Tax Act, section 2(m) of the Act uses
·the expression 'belonging to' and as such indicates something over
which a person has dominion and lawful dominion should be the
person assessable to wealth tax for ~his purpose.

In Commissioner of Wealth-tax, A.P. v. Trustees of H.E.H.
F
Nizam's family (Remainder Wealth) Trust, 108 LT.It 555, the ques-
tion as to what is the meaning of the expression 'belonging to' was
raised (page 594 of the report) but this Court did not decide whether
the trust property belonged to the trustee and whether the trustee was
liable under section 3 of the Act apart from or without reference to
section 21 of the Act. The case was disposed of in terms of sections 21
of the Act. · · G

In Commissioner of Income-tax, A.P.. Hyderabad v. Nwab Mir
Barkat Ali Khan, [1974] Tax L.R. 90, it was held by the Andhra
' Pradesh High Court that when a vendor had agreed to sell his property
as in the instant case and had received consideration thereof but had
H
1084 SUPREME COURT REPORTS [1986) 3 S.C.R.

A not executed a registered sale deed, his liability to pay tax on income
from that property did not cease. His position as 'owner' of the pro-
perty within the meaning of section 9 of the Indian Income-tax Act,
1922 and section 22 of the Income-tax Act, 1961 did not thereby
change. According to the said decision, the agreement to sell and the
receipt of consideration by the assessee, the Nizam of Hyderabad did
B not create any beneficial ownership according to Indian law in the
purchaser neither did it create any equitable ownership in him. The
ownership did not chJUlge until registered sale-deed was executed by
the vendor. The term 'owner' in section 9 of the 1922 Act or section 22
of the 1961 Act did not mean beneficial or equitable owner which
concept was not recognised in India.
c
In the instant case as we have noticed the positi~n is different.
We are not concerned with the expression 'owner'. We are concerned
whether the assets in the facts and circumstances of the case belonged .)._
to the assessee any more.

Q This Court had occasion to discuss section 9 of the Income-tax
Act, 1922 and the meaning of the expression 'owner' in the case of
R.B. Jodha Mal Kuthia/a v. Commissioner of Income-tax, Punjab,
Jammu & Kashmir and Himachal Pradesh, 82 I. T.R. 570. There it was
held that for the purpose of section 9 of the Indian Income-tax Act,
. 1922, the owner must be the person who can exercise the rights of the
E owner, not on behalf of the owner but in his own right. As assessee
whose property remained vested in the Custodian of Evacuee Property
was not the owner of the property. This again as observed dealt with
the expression of section 9 of the Indian ln~ome-tax Act, 1922. At
page 575 of the report certain observations were relied upon in order
to stress the point that these observations were in consonance with the
F observations of the Gujarat High Court which we shall presently note.
We are, however, not concerned in this controversy at the present )
moment. It has to be borne in mind that in interpreting the liability for
. wealth-tax normally the equitable considerations are irrelevant. But it
is.well to remember that in the scheme of the administration of justice,
tax law like any other laws will have to be interpreted reasonably and
G whenever possible in consonance with equity and justice. Therefore,
specially in view of the fact that the expression used by the legislature
has deliberately and significantly not used the expression 'assets
owned by the assessee' but assets 'belonging to the assessee ', in our
opinion, is an aspect which has to be borne in mind.
H The bench deCision of the Calcutta High Court in Commissioner
SIR MIR OSMAN ALIKHANv. COMM. OFW. TAX(MUKHARJl,J.J 1085

)" of Income-tax, West Bengal II v. Ganga Properties Ltd., 771.T.R. 637. A
rested on the terms of section 9 of the Income-tax Act, 1922 and the
Conrt reiterated again that in Indian law beneficial ownership was
unknown; there was but one owner, namely, the legal owner, both in
respect of vendor and purchaser, and trustee and cestui que trust. The
income from house property refers to the legal owner and further that B
in case of a sale of immovable property a registered document was
~ necessary. But these propositions as noted hereinbefore rested on the
use of the expression in section 9 of the Income-tax Act, 1922. It used
the expression 'owner' unlike 'belonging to'.
~·l\
The Gnjarat High Court in Commissioner of Wealth-tax-
Gujarat-Iv. Kum Manna G. ,Sarabhai 86 I.T.R. 153, held that a spes c
~uccessionis is a bare and naked possibility such as the chance of a
relation obtaining a legacy and that could not form.the basis of assess-
.:l ment under section 26 of the Act. At page 174 of the report, the
Gujarat High Court referred to the expresssion 'belonging to' and
referred to the fact that the expression h.as been the subject matter in a D
number of judicial decisions. The Court observed that the words
'property' and 'belonging to' were not technical words.

The Gujarat High Court had occasion to deal with part perfor-
") mance in the case of an agreement of sale in Commissioner of Income-
tax, Gujarat v. Asha/and Corporation, 133 I.T.R. 55. The Gujarat E
High Court noted that in case of a person who was a dealer in land, the
business transaction would be completed only when the purchase or
< sale transaction was complete. In order to decide whether the business
transaction was complete, the question of vital importance was
whether title in the property had passed. It was only on the pasSing of
J "( the title that .the transaction became complete and unless the transac- F
tion was qimplete, any advance receipt of money towards the transac-
~ tion would not form part of income or profit. It was observed by the
Gujarat High Court that the doctrine of part performance embodied in
section 53A of the Transfer of Property Act, 1882, had only a limited
. application and it afforded only a good defence to the person put in
possession under an agreement in writing to protect his possession to G
the extent provided in section 53A, but an agreement in writing to sell,
coupled with the ·parting of possession would not confer any legal title
on the purchaser and take the land out of the stock-in-trade of the
.... seller if the seller was a dealer in land. The context in which the
Gujarat High Court had to deal this question was entirely different.
The Gujarat High Court had to proceed on the basis that the assessee H
1086 SUPREME COURT REPORTS [1986] 3 S.C.R.

A under the lnoome-tax Act was the owner and he was dealing in land
and therefore whether the land was stock-in-trade was the question. In
the instant appeal we are concerned with the expression 'belonging to'.
Therefore the observations of the Gujarat High Court would not be
quite apposite to the problem of the instant appeal.
B
This question was again viewed by the Bombay High Court in a
slightly different context in Commissioner of Income-tax, Bombay
City-Ill v. Smt. T.P. Sidhwa, 133 l.T.R. 840. The Bombay High Court
was not concerned with the expression 'belonging to'.

Our attention was drawn to another decision of the Gujarat High
c Court in Commissioner of Wealth-tax, Gujarat-IV v. H.H. Maharaja
F.P. Gaekwad, 144 I.T.R. 304. There the facts were more or less
identical with the instant appeal on this aspect of the matter. The
assessee owned two properties and had agreed to sell one property to a
company. The vendees had paid Rs.30 lakhs in January, 1964 and were
put in possession of the property. Thereafter, four instalments of
D Rs.17-1/2 lakhs each were paid and the property was conveyed by four
deeds executed in 1970-71 and 1972. It was contended that at the
relevant time, the property did not belong to the assessee. It was held
by the Gujarat High Court that receipt of part of the sale price and
parting of possession would not divest the vendor of immovable pro-
perty of his title to the property. The doctrine of part performance
E embodied in section 53A of the Transfer of Property Act had limited
application and afforded a good defence to the person put in posses-
sion. The legal position and the relevant clauses of the agreement of
sale showed that the assessee was the owner of the property at the
relevant valuation dates. Therefore, according to the Gujarat High
Court, the property agreed to be sold which had been parted with was
F includible as an asset of the assessee.

Even in some cases the phrase 'belonging to' is capable of con-
noting interest less than absolute perfect legal title. See in this connec-
tion the observations of this Court in Raja Mohammad Amir Ahmed
Khan v. Municipal Board of Sitapur and another, A.LR. 1965 S.C.
G 1923. This Court observed in that case that though the expression
'belonging to' no doubt was capable of denoting an absolute title was
nevertheless not confined to connoting that sense. Full possession of
an interest less than that of full ownership could also. be signified by
that expression.
H Before concluding this aspect of the matter, there is certain as-
SIR MIR OSMAN ALI KHAN v. COMM. OFW. TAX[MUKHARJI,J.J 1087

peel which has to be borne in mind. Reliance was placed as we have A
mentioned herembefore on the decision of the Gujarat High Court in
the case of Commissioner of Wealih-tax, Gujarat-IV v. H. H. Maharaja
F.P. Gaekwad (supra) It was contended that if the Gujarat High
Court's view was correct, then the assessee's contention on this aspect
in the instant appeal cannot be accepted. On behalf of the assessee it B
was submitted that the decision of the Gujarat High Court in Commis-
sioner of Wealth-tax, Gujarat-I v. Kum. Manna G. Sarabh~i (supra)
not having been taken into consideration by the Gujarat High Court in
the later decision, the Gujarat' High Court the judgment on which
revenue relied was not correct. It is not necessary in the view we have
taken on the other aspect of the matter, namely, the use of the expres-
sion 'belonging to' to discuss this point any further. It was further c
submitted before us that from the said decision of the Gujarat High
Court in Commissioner of Wealth-Tax, Gujarat-IV v. Jf.H. Maharaja
F.P. Gaekwad (supra), a special leave petition was filed by the asses-
see, w!iich was dismissed by this Court on 17th January, 1983. (See in
this connection 144 I.T.R. Statute page 23}. It is, however, well- D
settled that dismissal of speci~l leave petition in limine does not clothe
the decision under appeal in special leave petition with the authority of
the decision of this Court. See in this .connection the observations in
Daryao & Ors. v. State of U.P. & Ors., AIR 1961SC1457. It may be
mentioned as was rightly observed by a full bench of the Allahabad
High Court in Sahu Govind Prasad v. Commissioner of Income-tax,
E
144 I.T.R ..851at863, special leave is a discretionary jurisdiction and
the dismissal of a special leave petition cannot be construed as affirma-
tion by this Court of the decision from wlfich special leave was 's~ught
~. .
On this aspect, it may also be mentioned that our attention was F
drawn to some decisions which we shall presently note.

The Punjab and Haryana High Court in the case of Smt. Kala
Rani v. Commissioner of Income-tax, Patiala-1, 130 I.T.R. 321 had
occasion to discuss this aspect of the matter. But the Pun jab and
Haryana High Court was construing the meaning of the expression G
'owner' under section 22 of the Income-tax Act, 1961. There, the
division bench of the Punjab & Haryana High CoUrt held that the
assessee occupied the property after the execution of the agreement of
sale deed in his favour and after completion of the building, he was in a
position to earn income from the· property sold to him, though the
registered sale deed was executed subsequently in April, 1969. It was H
1088 SUPREME COURT REPORTS [1986] 3 S.C.R.

A held that the assessee was 'owner' in terms of section 22 of the Income-
tax Act, 1961.

The Madras High Court had occasion to discuss this aspect in
Mrs. M.P. Gnanambal v. Commissioner of Income-tax, Madras, 136
B l.T.R. 103. There the facts were entirely different and the Madras
High Court held that the rights with reference to the properties in
question in that case could only be described as a delusion and a snare
so long as the sons continued to occupy the property which they were
entitled to under the will and to describe the assessee's right as owner
of the property would be a complete misnomer. There, the court was
construing the will and section 22 of Income-tax Act, 1961 as to who
c were the owners in terms of the will.

In all these cases as was reiterated by the Calcutta High Court in
S.B. (House & Land) Pvt. Ltd. v. Commissioner of Income-tax, WeYt
Bengal, 119 I. T .R. 785 the question of ownership had to be considered
only in the light of the particular facts of a case. The Patna High Court
D
in Addi. Commissioner of Income-tax Bihar v. Sahay Properties and
Investment Co. (P) Ltd., 144 I.T.R. 357 was concerned with the
construction of the expression 'owner' in section 22 of the Income-tax
Act, 1961. There, the assessee had paid the consideration in full and
had been in exclu~ive and absolute possession of the property, and had
been empowered to dispose of or even alienate the property. The
E
assessee had the right to get the conveyance duly registered and ex-
ecuted in its favour, but had not exercised that option. The assessee
was not entitled to say that because of its own default in having a deed
registered in its name, the assessee was not the owner of the property.
In the circumstances, it was held that the assessee must be deemed to
be the owner of the property within the meaning of section 22 of
F
Income-tax Act, 1961 and was assessable as such on the income from
the property. This is only an illustrative point where in certain circum-
stances without any registered conveyance in favour of a purchaser, a
person can be considered to be 'owner'. It may incidentally be men-
tim:ied that this Court has granted special leave 'to appeal against this
judgment. See in this connection [1983] 143 I.T.R. 60.
G
Salmond's conception of 'ownership' has been noted. The mean-
ing of the expression 'belonging to' has also been noted. We have
discussed the cases where the distinction between 'belonging to' and
'ownership' has been considered. The following facts emerge here: (1)
the assessee has parted with the possession which is one of the essen-
H
SIRMIROSMAN ALIKHANv. COMM. OFW. TAX(MUKHARJl,J.) 1089

tials of ownership, (2) the assessee was disentitled to recover posses· A
sion from the vendee and assessee alone untiMhe document of title is
executed was entitled to sue for possession against others i.e. others
than the vendee in possession in this case. The title in rem vested in the
assessee, (3) The vendee was in rightful possession against the vendor,
(4) the legal title, however, belonged to the vendor. (5) The assessee
B
had not the totality of the rights that constitute title but a mere husk of
it and a very important element of the husk.

The position is that though all statutes including the statute in
question should be equitably "interpreted, there is no place of equity as
such in taxation laws. The concept of reality in implementing fiscal
provision is relevant and the Legislature in this case has not signi- c
ficantly used the expression 'owner' but used the expression 'belonging
to'. The property in question legally, however, cannot be said to be-
long to the vendee. The vendee is in rightful possession only against
the vendor. Speaking for myself, I have deliberated long on the ques-
tion whether in interpreting the expression 'belonging to' in the Act,
D
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 treatec! as belonging to the
vendee and not to the assessee. I had occasion to discuss thoroughly
) this aspect of the matter with my learned Brother and in view of the
E
position that legal title still vests with the assessee, 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 assessees would be made liable to bear the tax burden in such F
situations without having the enjoyment of the property in question.
But times perhaps are yet not ripe to transmute equity on this aspect in
the interpretation of law-much as I wpuld have personally liked to do
that. As Benjamin Cardozo has said, "The judge, even when he be
free, is not wholly free''. A Judge cannot innovate at pleasure.
G
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 interpretation of this ex-
pression as leading to an interpretation that in a situation like this it
should not be treated as belonging (o the assessee but as said before
H
1090 SUPREME COURT REPORTS [1986] 3 S.C.R.

A times are not yet ripe and in spite of some hesitation I have persuaded 1
myself to come to the conclusion that for all legal purposes the pro~
perty must be treated as belonging to the assessee and perhaps legisla-
ture would remedy the hardship of assessee in such cases if it wants.
The assessee had a mere husk of title and as against the vendee the
B assessee had no reality of title but as against the world, he was still the
legal owner and real owner.
1
As has been observed by this Court in Commissioner of wealth-
tax, West Bengal v. Bishwanath Chatt~rjee and Others (supra) the
property is owned by one to whom it legally belongs. The property
does not legally belong to the vendee as against the vendor, the
c assessee.

In Webstor's Dictionary 'belonging to' is explained as meaning,
inter alia, to be owned by, be in possession of. The precise sense in
which the words were used, therefore, must be gathered only by read-
D ing the instrument or the document as a whole. Section 53A of the
Transfer of Property Act, 1908 is only a shield and not a sword.

In Aiyar's Law Laxicon of British India, [1940] Edition page 128,
it has been said that the property belonging to a person has two
meanings---(1) ownership; (2) the absolute right of the user. The same -(
E view is reiterated in Stroud's Judicial Dictionary 4th Edn. page 260.
The expression: 'property belonging to' might convey absolute right of
the user as well as of the ownership. A road might be said, with perfect
propriety, to belong to a man who has the right to use it as of right,
although the soil does not belong to him.

F Under section 53A 'of the Transfer of Property Act, 1908 where r
possession has been handed over to the purchasers and the purchasers
are in rightfuly possession of the same as against the assessee and the ~
occupation of the property in question, and secondly that 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
G
legal title vested because conveyance has not yet been executed by him
and when the purchasers were in possession had right to call upon the
assessee to execute the conveyance, it cannot be said that the property
legally belonged to the assessee in terms of section 2(m) of the Act in ,Jo
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
H are conscious that if a person has the user and is in the enjoyment of
SIR MIR OSMAN ALI KHAN v. COMM. OFW. T AX(MUKHARJI, J .] 1091

the property it is he who should be made liable for the property in A
question under. the Act yet the legal title is important and the legisla-
ture might consider the suitability of an amendment if it is so inclined.

This question therefore must be answered in favour of the re-
venue and in the affirmative. The appeal in this aspect must therefore
B
fail.

For the second question it is necessary to refer to section 2(e)
which provides for the definition of assets by stating that "assets"
includes property of every description, movable or immovable, but
does not include,- · ·
c
I " ........... \

~- (iv) a right to any annuity in any case where the terms and
conditions relating thereto preclude the commutati9n of
any portion thereof into_a lump sum grant;"
D
Therefore, in order to be excluded from the assets of the asscs-
see, the right being the sum which was annually to be paid under the
agreement or letter mentioned hereinbefore must be by the terms and
conditions precluded commutation of any portion thereof into a lump-
sum grant. The question therefore is-could this lumpsum grant of
Rs.25 lakhs be commuted by the Nizam and the capital value of the E
commutation be received? Furthermore, the next question that arises
was whether th11t commutation was precluded by the terms and condi-
tions relating to that right. It may be that preclusion might be either by
express terms and conditions of the right or as an inference from the
terms and conditions of the payment.
F
We need not go into the rights of the erstwhile princes before the
abolition of the privy purses whether the privy purses could be commu-
ted or not.

The term 'annuity' is not defined in the Act. According to the
G
Oxford Dictionary, 'annuity' means sums payable in respect of a
particular year; yearly grant. An annuity is a certain sum of money.
payable yearly either as a personal obligation of the grantor or out of
property. The hall-mark of an annuity, according to Jarman On Wills
(page t113) is: (1) it is a money; (2) paid annually; (3) in fixed.sum;
and ~ 4) usually it is a charge personally on the grantor. H
1092 SUPREME COURT REPORTS [1986) 3 S.C.R.

A Whether a particular sum is an annuity or not has been con-
sidered in various cases. It is not necessary in the facts and circum-
stances of the case and in view of the terms of the payment indicated to
examine all these cases.

In Ahmed G. H. Arif! and Others v. Commissioner of Wealth-tax,
B
Calcutta, 76 I.T.R. 471, this Court held that the word 'annuity' in
clause (iv) of section 2(e) of the Act must be given the signification
which it has assumed as a legal term owing to judicial interpretation
and not its popular and dictionary meaning.

In Commissioner of Wealth-taX Gujarat v. Arundhati Balkrishna,
c 77 l.T.R. 505, there were two deeds of trust. The assessee's father had
settled certain shares in trust for the benefit of the assessee and her
two brothers. The trustees were to pay the residue of the income from
the trusts in equal shares to the beneficiaries after deducting all costs
and expenses. The assessee had a right after she had attained majority
and after the birth of her first child to require the trustees to pay her
D
shares out of the corpus of the trust fund absolutely up to one-half
thereof. Under another trust created by her mother-in-law of certain
sums of money and certain shares the trustees were required to pay the
income of the trust funds after deducting expenses to the assessee
during her lifetinr. It was held that the payments to the assessee
under the trust deeds were not 'annuities' within the meaning of sec-
E.
tion 2(e) (iv) of the Act.

In Commissioner of Wealth-tax, Rajasthan v. Her Highness
Maharani Gayatri Devi of Jaipur, 82 I. T.R. 699, this question arose
again. The Maharaja of Jaipur had executed a deed of irrevocable trust
whereunder the properties mentioned in the schedule thereto stood
F
transferred to the trustee . The trust fund was to include the assets
mentioned in the schedule and also such additions thereto and other
capital moneys which might be received by the trustee. The assessee
was one of the beneficiaries tinder the trust to whom the trustee was to
pay during her lifetime 50 per cent of the income of the trust fund. The
question was whether the assessee had a life interest in the corpus of
G
the trust fund and her interest was therefore an 'asset' liable to wealth-
tax or whether the assessee had only a right to an annuity and as such
her right was exempt from wealth-tax in view of section 2(e) (iv) of the
Act. It was held by this Court that since neither the trust fund nor the
amount payable to the assessee was fixed and the only thing certain
H was that she was entitled to 50 per cent of the income of the trust fund,
SIR MIR OSMAN ALI KHAN v. COMM. OFW. TAX[MUKHARJI, J.] 1093

what the assessee was entitled to was not an annuity but an aliquot A
share in the income of the trust fund. The assessee had a life interest in
the trust fund and the right of the assessee under the trust deed was not
exempt from wealth-tax by virtue of the provisions of section 2(e) (iv).

In Commissioner of Wealth-tax, Lucknow v. P.K. Banerjee, 125
I.T.R. 641, it was held that the right of the assessee in the trust fuf!d in B
that case was not an 'annuity' and was not exempt from the wealth-tax
under section 2( e) (iv) of the Act. It was further observed that in order
to constitute an 'annuity' the payment to be made periodically should
be a fixed or predetermined one and it should not be Hable to variation
depending upon or on any ground relating to the general income of the
fund or estate which was charged for such payment .. c'
In this case, in view of the background of the terms of payment
and the circumstances why the payment was made, there cannot be
any doubt that Rs.25 lakhs annually was an 'annuity'..!! was a fixed
sum to be paid out of the property of the Government of India in lieu
of the previous income of the assessee from Sarf-e-khas. Therefore, it D
was an annuity.

· The 'only question that arises, was there any express provision
which prevented commutation of this annuity into a lumps um?
Counsel for the revenue contended that there must be an express
provision which must '.'reclude commutation. In this case indeed there E
is no express provision from the document itself. The question is: can,
from the circumstances of the case, such an express provision preclud-
ing commutation be inferred in the facts and circumstances of this
case?

The background of the facts and circumstances of the payment F
\. has to be kept in mind. The Nizam had certain income. He was being
given three sums-one was the privy purse which was n.ot commutable;
the other was payment of Rs.25 lakhs for the upkeep of palaces etc.
and the third of Rs.25 lakhs in lieu of his previous income from the
Sarf-e-khas. Income is normally meant for expenditure. The Nizam
had to incur various expenditures. Commutation is often made when G
one is not certain as to whether the source from which that income
comes for example, when a man retires from service, he normally
commutes in order to ensure for himself and after his death. for his
family a certain income which he can ensure by getting the corninuted
amount invested in hi.s private bank or otherwise which he may not be
H
sure because upon his death the pension will cease.
1094 SUPREME COURT REPORTS l1986] 3S.C.R.

A In this case this being an aggrement between erstwhile ruler and
the Government of India, there is no such motivation and this payment
of Rs.25 lakhs in lieu of the previous income of Sarf-e-khas.must be
read in conjunction with two other sums namely Rs.50 lakhs as privy
purse and Rs.25 lakhs for upkeep of palaces. This bears the same
character.
B
As privy purses were not commutable, we are of the opini.on that
from the circumstances and keeping in background of the payment,
there was an express provision flowing from the circumstances pre-
cluding the commutation of this amount of Rs.25 lakhs. If that is the
position, then, in our opinion, it was exempt under section 2(e) (iv) of
c the Act.

There was no right granted and can be gathered from the terms
of the grant of payment for the assessee to claim commutation of the
amount of Rs.25 lakhs. That would defeat the purpose and the set up
of the arrangement under which the payment of the amount was made.
D The nature of privy purses have been .discussed in H.H. Maharaja-
dhiraja Madhav Rao Jiwaji Rao Scindia Bahadur & Ors. v. Union of
India, 11971] 3 SCR 9. We are, however, not concerned with the
controversy of the privy purse. But it is quite evident from the nature
of the sum stipulated in the letter, the assessee had no tight to claim
commutation. Taking that fact in conjunctio11 with the circumstances
E under which the payment of Rs.25 lakhs was ·agreed to, we are of the
opinion that it must be held that from the terms of the agreement,
there was an express stipulation precluding commutation. If that is so
then it comes within clause (iv) of section 2(e) of the Act and the
assessee was entitled to exemption. The question therefore must also
be answered in the negative and in favour of the assessee.
F
The appeal is disposed of in the aforesaid terms. The judgment
and order of the High Court are modified accordingly. In view of the
divided success, there will be no order as to costs.

G A.P.J. Appeal allowed in part.