1969 (9) TMI 1 - SC - Income Tax

Rent derived from shops - transactions were not lease but usufructuary mortgages - Therefore, the rent was not a revenue receipt - Revenue s appeal dismissed

Summary

Issues:
1. Whether the income derived from rental of shops on lands belonging to other parties is assessable as income-tax?
2. Whether the property alleged to have been gifted by the assessee to his wife was still considered his property for income tax assessment purposes?

Analysis:
The judgment by the Supreme Court involved appeals arising from the assessment of tax for the years 1952-53, 1953-54, and 1954-55, based on income derived from property, business, and other sources. The primary issue was the inclusion of Rs. 2,550 as income from rental of shops in the assessment. The shops were possessed by the assessee through an agreement with Junglee Koiri, which was deemed a self-liquidating mortgage by the High Court. The High Court also considered agreements between the assessee's sons and the mutawallis of a mosque as self-liquidating mortgages. The second issue arose regarding Rs. 750 included as income from a house, which the assessee claimed was transferred to his wife in 1937. The Tribunal referred questions of law to the High Court, which later directed the Tribunal to submit a further statement for an additional question.

The High Court determined that the transactions were self-liquidating mortgages, ruling in favor of the assessee for the first issue but against for the second issue. The appellant challenged this decision, arguing that the agreements constituted leases, not mortgages, as they lacked provisions for interest payment and redemption. The absence of key elements for usufructuary mortgages was highlighted. The appellant relied on the Privy Council's decision in Nidha Sah v. Murlidhar, emphasizing the need for redemption provisions in mortgages. Conversely, the respondent cited Ishan Chandra v. Sujan Bibi and Tukaram Bin Mairal v. Ramchand Malukchand to support the classification of the transactions as usufructuary mortgages.

The Supreme Court analyzed the definitions of usufructuary mortgages and leases under the Transfer of Property Act. It differentiated between mortgages and leases based on the nature of the transactions, emphasizing the need for possession transfer and accounting in mortgages. The Court distinguished the present case from the Privy Council decision, affirming the High Court's ruling on the nature of the transactions as mortgages. The judgment upheld the High Court's decision, dismissing the appeals with costs and affirming the income tax assessment based on the classification of transactions as mortgages.