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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

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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

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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

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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

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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 :

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         "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).      In Navinchandra Mafatlal v. The Commissioner of Income- 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

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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

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refused and the petition is dismissed. N.V.K.                                   Petition dismissed. 817