LATE NAWAB SIR MIR OSMAN ALI KHAN vs. COMMISSIONER OF WEALTH TAX, HYDERABAD

CIVIL APPEAL No. 1763/1974Supreme Court[1986] 3 S.C.R. 107221 October 1986Bench: 2 JudgesAuthor: R.S. PATHAK, SABYASACHI MUKHERJI23 pages
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What were the facts?

The assessee, the Nizam of Hyderabad, is challenging an order of the Commissioner of Wealth Tax for the assessment year 1957-58. The Wealth Tax Officer included Rs. 4,90,775, representing the market value of certain immovable properties, in the assessee's net wealth. These properties were sold by the assessee, with full sale consideration received and possession handed over, but without registered sale deeds. The High Court reversed the Tribunal's decision, upholding the Wealth Tax Officer's inclusion. Separately, the Nizam's private properties (Sarf-e-khas) were taken over by the Government upon his accession to India. In lieu of previous income from these properties, the Government agreed to pay Rs. 25 lakhs annually, in addition to a privy purse and an amount for palace upkeep. The Wealth Tax Officer treated the Rs. 25 lakhs as an annuity, capitalized it to Rs. 99,78,572, and included it in the net wealth. The Tribunal and High Court agreed that this amount was an asset and could be commuted.

What did the Supreme Court hold?

The Supreme Court held that properties sold by the assessee, even without registered sale deeds, where full consideration was received and possession handed over, did not 'belong to' the assessee for the purpose of inclusion in net wealth under Section 2(m) of the Wealth Tax Act, 1957. The Court distinguished between 'belonging to' and 'ownership', emphasizing that the assessee had parted with possession and was disentitled to recover it from the vendee, thus not having lawful dominion over the assets. Regarding the Rs. 25 lakhs annual payment, the Court found that while it was an annuity, the circumstances surrounding the agreement between the erstwhile ruler and the Government of India, particularly in conjunction with the privy purse and upkeep for palaces, implied an express stipulation precluding commutation. Therefore, this amount was exempt under Section 2(e)(iv) of the Act. The High Court's order was modified accordingly.

What were the issues?

1. Whether properties sold by the assessee, where full consideration was received and possession handed over, but registered sale deeds were not executed, still 'belong to' the assessee for inclusion in net wealth under Section 2(m) of the Wealth Tax Act, 1957, despite the purchasers being protected under Section 53A of the Transfer of Property Act? Assessee's contention: The assessee argued that they had ceased to be the owner as consideration was received and possession transferred, with purchasers protected under Section 53A of the Transfer of Property Act, implying beneficial ownership had passed. Revenue's contention: The revenue contended that legal title still vested with the assessee, making the properties includible in net wealth. 2. Whether the annual payment of Rs. 25 lakhs received by the assessee from the State Government in lieu of previous income from Sarf-e-khas properties constitutes an 'annuity' exempt from inclusion in net wealth under Section 2(e)(iv) of the Wealth Tax Act, 1957, or if it can be commuted into a lump sum? Assessee's contention: The assessee argued that the Rs. 25 lakhs was an annuity and exempt, and that commutation was not permissible given the circumstances. Revenue's contention: The revenue argued that the sum was an annuity and could be commuted, thus forming part of the net wealth.

Which sections of the Income-tax Act were involved?

Section 2(m),Section 2(e)(iv),Section 3,Section 53A

AI-generated summary — verify with the full judgment below

B c D LATE NAWAB SIR MIR OSMAN ALI KHAN v. COMMISSIONER OF WEALTH TAX, HYDERABAD 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- 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.

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 inclus

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