PETITIONER:
BHAGWAN DASS JAIN
Vs.
RESPONDENT:
UNION OF INDIA
DATE OF JUDGMENT11/02/1981
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
VENKATARAMIAH, E.S. (J)
SEN, A.P. (J)
CITATION:
1981 AIR 907 1981 SCR (2) 808
1981 SCC (2) 135 1981 SCALE (1)276
CITATOR INFO :
R 1989 SC1949 (8)
R 1990 SC 85 (23)
R 1990 SC1637 (46)
E&D 1990 SC1664 (6)
RF 1991 SC1676 (31)
ACT:
Income-tax Act, 1961, S. 23(2)(1) & Constitution of
India 1950, Seventh Schedule List I, Entry 82 and List II,
Entry 49-Income-Income from house property-Self-occupied
property-Whether amounts to income-Legislative practice-
Interpretation of entries in Lists.
Words and Phrases-'Income'-Meaning of-Constitution of
India, 1950, Seventh Schedule List I, Entry 82.
HEADNOTE:
Section 22 to 27 of the Income-tax Act, 1961 relate to
the levy and computation of tax on income from house
property. Section 23(2)(i) states that where the property
consists of a house in the occupation of the owner for the
purposes of his residence, the annual value of such house
shall first be determined in the same manner as if the
property had been let and further be reduced to one half of
the amount so determined or one thousand eight hundred
rupees whichever is less. Where the property consists of
more than one house in the occupation of the owner for the
purposes of his own residence. Section 23(2)(ii) provides
that the provisions of clause (i) shall apply only in
respect of one of such houses which the assessee may at his
option specify in that behalf.
The petitioner, an assessee under the Act, contended
before the High Court in a petition under Article 226 of the
Constitution, that inclusion of any amount under section
23(2) of the Act in his income was unconstitutional as there
could be no income at all in such a case accruing to him in
a true sense of that term and that the liability that was
sought to be imposed under the Act in respect of his
residential house was in its pith and substance a tax on
building falling under Entry 49 of List II of the Seventh
Schedule to the Constitution and hence Parliament could not
impose the said liability under a law made in exercise of
its legislative power under Entry 82 of List I of the
Seventh Schedule which authorised it only to levy 'taxes on
income other than agricultural income'. The High Court
rejected the plea and dismissed the Writ Petition.
In the Special Leave Petition to this Court it was
contended on behalf of the petitioner that as he was not
deriving any monetary benefit by residing in his own house,
no tax could be levied on him, on the ground that he is
deriving income from that house, and that the word 'income'
only means realisation of monetary benefit and that in the
absence of any such realisation, the inclusion of any amount
by way of notional income under section 23(2) of the Act in
the chargeable income was impermissible as it was outside
the scope of Entry 82 of List I of the Seventh Schedule to
the Constitution.
809
^
HELD : 1. The tax levied under the Income-tax Act is on
the income (though computed in an artificial way) from house
property and not on house property. Entry 49 of List II of
the Seventh Schedule to the Constitution is not, therefore,
attracted. The levy in question squarely falls under Entry
82 of List I of the Seventh Schedule to the Constitution.
[816 C-D]
2. The expression 'income' means 'a thing that comes
in'. Income is also defined as the gain derived from land
capital or labour or any two or more of them. Even in its
ordinary economic sense, the expression 'income' include not
merely what is received or what comes in by exploiting the
use of a property but also what one saves by using it
oneself. That which can be converted into income can be
reasonably regarded as giving rise to income.
[812 B, 816 B]
3.(i) The Government of India Act, 1935 was enacted
when the Indian Income-tax Act, 1922 was in force. Section 9
of the Indian Income-tax Act, 1922 provided for levy of
income tax on the basis of the bona fide annual value of the
property even when it was in the occupation of the assessee
for the purposes of his own residence. While enacting Entry
54 of List I of the Seventh Schedule to the Government of
India Act, 1935 the British Parliament must have had in its
view the Indian Income-tax Act, 1922 which was probably the
only law relating to tax on incomes in force in British
India. Similarly the Constituent Assembly while enacting
Entry 82 of List I of the Seventh Schedule to the
Constitution must have understood that the word 'income'
used in that Entry would in any event include within its
scope all items which came within the definition of income
and were subjected to charge in the Indian Income-tax Act,
1922 which was in force at the time the Constitution was
adopted. [815 D-F]
(ii) The Constitution makers had the Indian Income-tax
Act, 1922 in their view is borne out from Article 270(1) of
the Constitution which provides for collection of taxes on
income by the Government of India and distribution thereof
between the Union and the States. Article 366(i) which
defines 'agricultural income' as defined for the purposes of
the enactments relating to Indian Income-tax and Article
366(29) which defines 'tax on income' as including a tax in
the nature of excess profits tax. In the circumstances it
would not be wrong to construe the word income in Entry 82
as including all items which were taxable under the
contemporaneous law relating to tax on incomes which was in
force at the time when the Constitution was enacted. [815 G-
816 A]
4. This Court in Navinchandra Mafatlal v. Commissioner
of Income-tax, Bombay City 1955 SCR 829, held that the word
'income' in Entry 82 is capable of a wider meaning than what
was given to it in the Indian Income-tax Act, 1922 or the
English Act of 1918. [814 H]
5. In Australia the annual value of the tax payers'
residence owned by himself or used rent free is taken for
consideration for purposes of levy of income tax. In England
too in the case of a residence of the assessee, computation
of income is on the basis of presumed income. [815 A]
Resch v. The Federal Commissioner of Taxation, 66
C.L.R. 198 at p. 224 and Governors of the Rotunda Hospital
Dublin v. Coman (7 T.C. 517 at 586 587) Simon's Income tax
(second Edn.) Vol. I p. 502 referred to.
810
6. It is well-settled that the entries in the Lists in
the Seventh Schedule to the Constitution should not be read
in a narrow or restricted sense and each and every subject
mentioned in the entries should be read as including within
its scope all ancillary and subsidiary matters which can
fairly and reasonably be comprehended in it. Words in the
Constitution conferring legislative power should receive a
liberal construction and should be interpreted in their
widest amplitude. [811 H-812 B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Special Leave Petition
No. 8720 of 1979.
From the Judgment and Order dated 27-10-79 of the
Madhya Pradesh High Court in M.P. No. 636/78.
Shiv Dayal, Mrs. Bagga and Mr. S. Bagga for the
Petitioner.
The Order of the Court was delivered by
VENKATARAMIAH, J.-The short question which arises for
consideration in this petition for special leave to appeal
filed under Article 136 of the Constitution is whether it is
open to the Income-tax Officer while computing the liability
of an assessee to tax under the Income-tax Act, 1961
(hereinafter referred to as ‘the Act’) to include in the
income of the assessee any amount calculated in accordance
with section 23(2) of the Act in respect of a house in the
occupation of the assessee for the purposes of his own
residence. The petitioner who is an assessee under the Act
contended before the High Court of Madhya Pradesh in a
petition filed under Article 226 of the Constitution that
inclusion of any amount under section 23(2) of the Act in
his income was unconstitutional as there could be no income
at all in such a case accruing to him in the true sense of
that term, the liability that was sought to be imposed under
the Act in respect of his residential house was, therefore,
in its pith and substance a tax on building falling under
Entry 49 of List II of the Seventh Schedule to the
Constitution and hence Parliament could not impose the said
liability under a law made in exercise of its legislative
power under Entry 82 of List I of the Seventh Schedule to
the Constitution which authorised it only to levy taxes on
income other than agricultural income. The High Court
rejected the plea of the petitioner and dismissed the writ
petition. The petitioner has now applied to this Court for
special leave to appeal against the decision of the High
Court.
When the petition came up for hearing on February 5,
1981 before us, we did not find that there was any ground to
grant special leave to appeal but since the case was argued
with some persistence, we decided to give reasons for
rejecting the prayer of the petitioner which we proceed to
give hereunder :
811
Section 4 of the Act lays down that where any Central
Act enacts that income-tax shall be charged for any
assessment year at any rate or rates, income-tax at that
rate or those rates shall be charged for that year in
accordance with, and subject to the provisions of the Act in
respect of the total income of the previous year or previous
years, as the case may be, of every person. Section 14 of
the Act mentions ‘income from house property’ as one of the
heads of income liable to charge. Sections 22 to 27 of the
Act relate specifically to the levy and computation of tax
on income from house property. Section 22 provides that the
annual value of property consisting of any buildings or
lands appurtenant thereto of which the assessee is the
owner, other than such portions of such property as he may
occupy for the purposes of any business or profession
carried on by him the profits of which are chargeable to
income-tax, shall be chargeable to income-tax under the head
“income from house property”. Section 23(2)(i) of the Act
states that where the property consists of a house in the
occupation of the owner for the purposes of his own
residence, the annual value of such house shall first be
determined in the same manner as if the property had been
let and further be reduced by one-half of the amount so
determined or one thousand and eight hundred rupees,
whichever is less. Section 23(2) (ii) of the Act provides
that where the property consists of more than one house in
the occupation of the owner for the purposes of his own
residence, the provisions of clause (i) of section 23(2)
shall apply only in respect of one of such houses, which the
assessee may, at his option, specify in that behalf. There
are some other ancillary and incidental provisions in the
Act dealing with the computation of the annual value of such
property with which we are not concerned in the present
petition.
The argument urged on behalf of the petitioner is that
as the petitioner is not deriving any monetary benefit by
residing in his own house, no tax can be levied on him on
the ground that he is deriving income from that house. It is
contended that the word ‘income’ only means realisation of
monetary benefit and that in the absence of any such
realisation by the assessee, the inclusion of any amount by
way of notional income under section 23(2) of the Act in the
chargeable income was impermissible, as it was outside the
scope of Entry 82 of List I of the Seventh Schedule to the
Constitution.
Entry 82 of List I of the Seventh Schedule to the
Constitution empowers Parliament to levy ‘taxes on income
other than agricultural income’. Now it is well-settled that
the entries in the list in the
812
Seventh Schedule to the Constitution should not be read in a
narrow or restricted sense and each and every subject
mentioned in the entries should be read as including within
its scope all ancillary and subsidiary matters which can
fairly and reasonably be comprehended in it. Words in the
Constitution conferring legislative power should receive a
liberal construction and should be interpreted in their
widest amplitude.
The expression ‘income’ according to Oxford Dictionary
means ‘a thing that comes in’. Income may also be defined as
the gain derived from land, capital or labour or any two or
more of them.
In Resch v. The Federal Commissioner of Taxation Dixon,
J. of the High Court of Australia observed :
“The subject of the income tax has not been
regarded as income in the restricted sense which
contrasts gains of the nature of income with capital
gains, or actual receipts with increases of assets or
wealth. The subject has rather been regarded as the
substantial gains of persons or enterprises considered
over intervals of time and ascertained or estimated by
standards appearing sufficiently just, but nevertheless
practical and sometimes concerned with avoidance or
evasion more than with accuracy or precision of
estimation. To include the annual value of the
taxpayer’s residence owned by himself or used rent free
and to fix it at five. percent of the capital value has
not been considered to introduce a new subject
[Hardinge’s Case (1917) 23 C.L.R. 119]. To treat part
of the undistributed profits earned during the current
year as part of the assessable income of the
shareholder imports no new subject [Cornell’s case
(1920) 29 C.L.R. 39 cf. Kellow-Falkiner Pty. Ltd. v.
Federal Commissioner of Taxation (1928) 34 A.L.R. 276],
nor does it to substitute, in the case of a foreign-
controlled business, for taxable income ordinarily
calculated a percentage of gross receipts fixed by the
discretionary judgment of the Commissioner [British
Imperial Oil Cases (1925) 35 C.L.R. 422; (1926) 38
C.L.R. 153]. (emphasis supplied)
In Simon’s Income Tax (Second Edition) Volume I, page
502 dealing with the question of computation of income under
Schedule ‘A’ to the English Income-tax Act, which related to
tax on the income attributable to property, it is stated as
follows:-
813
“It is now clear however, that
(1) income tax is but one tax imposed by the
Income Tax Acts;
(2) income tax is a tax upon income; and
(3) Sched. A is but one of five Schedules which
provide varying methods of estimating the
measure of that income from different sources
for the purposes of charge to tax.
The theory behind Sched. A is that the possession
of an interest in property gives rise to income, a
theory which is not always borne out in fact. That
there may be no income in fact is disregarded when the
assessment is made. The actual or hypothetical income
has to be measured by some standard for the purposes of
taxation and the standard prescribed is the annual
value. This principle has been subject to adverse
comment, but once the theory is appreciated, the method
may be understood and any confusion of thought, created
by the words of the charging section, dispelled. The
use to which land is put does not (apart from the
excepted concerns mentioned in the proviso to para. 1
of Sched. A above) prevent it from being assessed under
Sched. A; but if a trade which is not one of those
excepted concerns is carried on property which is owned
by the trader and is assessed under Sched. A, an
allowance for the annual value is made in computing the
profits of the trade”. (emphasis supplied)
In the Governors of the Rotunda Hospital, Dublin v.
Coman which was a case arising from Ireland, Lord Atkinson
observed thus :
“It would, I think, be well to bear in mind that,
to use Lord Macnaghten’s words in his celebrated
judgment in the London County Council v. The Attorney
General (4 T.C. 265) (1901 A.C. 35), “Income Tax….
“is a tax on income”. When the amount of the income to
be taxed under the Act of 1842 and the Acts amending it
comes to be measured, different standards are selected,
and the words “profits or gains” are used in reference
to all the Schedules in the Act of 1842 to describe the
income, the subject of charge. The standard selected as
a measure of the amount of the income to be taxed under
Schedule A in respect of lands, tenements,
hereditaments and heritages capable of occupation is
the annual value. If the owner of such pro-
814
perties as these should be himself in occupation of
them, it by no means follows that he will, in fact,
derive from them an income equal to this annual value;
but, as he has the use and enjoyment of the properties,
it is, for the purposes of the Statute, presumed that
he does derive from them an income equal in amount to
this annual value, and the tax is accordingly, under
Schedule A, assessed upon this presumed income”.
(emphasis supplied).
tax, Bombay City(1) while justifying the levy of income tax
on capital gains under section 12-B of the Indian Income-tax
Act, 1922 enacted by the Central Legislature in exercise of
the power conferred under Entry No. 54 of List I of the
Seventh Schedule to the Government of India Act, 1935
corresponding to Entry 82 of List I of the Seventh Schedule
to the Constitution, Das, J. (as he then was) having
observed at page 837 thus :
“What, then, is the ordinary, natural and
grammatical meaning of the word “income”? According to
the dictionary it means “a thing that comes in”. (See
Oxford Dictionary, Vol. V, page 162; Stroud, Vol. II,
pages 14-16). In the United States of America and in
Australia both of which also are English speaking
countries the word “income” is understood in a wide
sense so as to include a capital gain. Reference may be
made to Eisner v. Macomber (1920) 252 U.S. 189; 64
L.Ed. 521, Merchants’ Loan & Trust Co. v. Smietanka
(1925) 255 U.S. 509; 65 L.Ed. 751, and United States v.
Stewart (1940) 311 U.S. 60; 85 L. Ed. 40, and Resch. v.
Federal Commissioner of Taxation (1942) 66 C.L.R. 198.
In each of these cases very wide meaning was ascribed
to the word “income” as its natural meaning”
proceeded to hold at page 838 :
“As already observed, the word should be given its
widest connotation in view of the fact that it occurs
in a legislative head conferring legislative power”.
In the above case this Court held that the word
“income” in Entry No. 54 of List I of the Seventh Schedule
to the Government of India Act, 1935 should be given a
meaning wider than the connotation given to it in the
English Income-tax Act, 1918 under which income attributable
to property was chargeable under Schedule ‘A’ thereof.
815
Now coming to the specific question of the charge
arising under section 23(2) of the Act it is already seen
that in Australia the annual value of the tax payer’s
residence owned by himself or used rent free is taken for
consideration for purposes of levy of income tax. In England
too in the case of a residence of the assessee, computation
of income is made on the basis of presumed income. In D. M.
Vakil v. Commissioner of Income-tax which was a case arising
under the Indian Income-tax Act, 1922, the High Court of
Bombay held that under section 9 of that Act the tax was
payable by an assessee in respect of the bona fide annual
value of the property irrespective of the question whether
he received that value or not. The High Court of Gujarat has
also taken the same view in Sakarlal Balabhai v. Income Tax
Officer, Special Investigation Circle IV, Ahmedabad & Anr.
There is one other circumstance which persuades us to
take the view that computation of income for purposes of
levy of income tax in accordance with section 23(2) of the
Act is justifiable under Entry 82 of List I of the Seventh
Schedule to the Constitution. It is to be borne in mind that
the Government of India Act, 1935 was enacted when the
Indian Income-tax Act, 1922 was in force. Section 9 of the
Indian Income-tax Act, 1922 provided for levy of income tax
on the basis of the bona fide annual value of the property
even when it was in the occupation of the assessee for the
purposes of his own residence. While enacting entry 54 of
list I of the Seventh Schedule to the Government of India
Act, 1935, the British Parliament must have had in its view
the Indian Income-tax Act, 1922 which was probably the only
law relating to tax on incomes in force in British India
then. Similarly the Constituent Assembly while enacting
Entry 82 of List I of the Seventh Schedule to the
Constitution must have understood that the word ‘income’
used in that Entry would in any event include within its
scope all items which came within the definition of income
and were subjected to charge in the Indian Income-tax Act,
1922 which was in force at the time the Constitution was
adopted. That the Constitution makers had the Indian Income-
tax Act, 1922 in their view is borne out from Article 270(1)
of the Constitution which provides for collection of taxes
on income by the Government of India and distribution
thereof between the Union and the States, Article 366(1)
which defines ‘agricultural income’ as agricultural income
as defined for the purposes of the enactments relating to
Indian Income-tax and Article 366(29) which defines ‘tax on
income’ as including a tax in the nature of an excess
profits tax. In the circumstances it
816
would not be wrong to construe the word ‘income’ in Entry 82
as including all items which were taxable under the
contemporaneous law relating to tax on incomes which was in
force at the time when the Constitution was enacted when as
observed by this Court in the case of Navinchandra Mafatlal
(supra) the word ‘income’ in Entry 82 is capable of a wider
meaning than what was given to it in the Indian Income-tax
Act, 1922 or the English Act of 1918.
Even in its ordinary economic sense, the expression
‘income’ includes not merely what is received or what comes
in by exploiting the use of a property but also what one
saves by using it oneself. That which can be converted into
income can be reasonably regarded as giving rise to income.
The tax levied under the Act is on the income (though
computed in an artificial way) from house property in the
above sense and not on house property. Entry 49 of List II
of the Seventh Schedule to the Constitution is not,
therefore, attracted. The levy in question squarely falls
under Entry 82 of List I of the Seventh Schedule to the
Constitution.
Hence we do not find any merit in the contentions urged
on behalf of the petitioner.
For the foregoing reasons, the leave prayed for is
refused and the petition is dismissed.
N.V.K. Petition dismissed.
817