1. This is an assessee's appeal for the assessment year 1978-79 and concerns the assessee's claim of exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957 ('the Act'), in respect of a house. The assessee's claim for exemption has been negatived by the authorities below on the ground that the assessee is not the owner of the house in respect of which the claim is made.
2. We have heard the learned counsel for the assessee and the learned departmental representative. The assessee purchased a house from the Madhya Pradesh Housing Board under an agreement dated 27-6-1977. The agreement is titled as a hire-purchase agreement. The Housing Board is described as the owner and the assessee as a hirer. Under the said agreement, the assessee made an initial deposit of Rs. 35,385.35 described as tenancy deposit and the balance of the price of the house was to be paid in monthly equated instalments during a period of 10 years commencing from 27-6-1977. For appreciation of the true nature of the transaction, it would be proper to reproduce below a few clauses from the deed : 3. If the hirer shall actually pay to the owner the monthly equated instalments during the full term of 10 years commencing from 27-6-1977 and if this agreement is not determined earlier under any of the provisions contained herein or in the regulations or in the terms and conditions made thereunder, when the last such payment is made and in no case before such payment is made, the dwelling house shall become the absolute property of the hirer, providing further that if any hirer, after paying initially the fixed equated hire-purchase instalment for same period, desired to pay the balance outstanding amount in lump sum or in the lesser number of instalments, he can be permitted to do so.
4. The land on which the said house is constructed is on lease and, therefore, the purchaser will hold the same on lease for a term of 30 years commencing from 27-6-1977 and ending on 27-6-2007. The hirer shall pay the yearly lease rent of Rs. 193.75 on or before the first day of June in each year in the office of the Board. The yearly lease rent of Rs. 193.55 is provisional. After working out the final figure by the Board and the hirer being informed of it, the hirer binds himself to pay the same amount so worked out finally to the Board without any hitch or hindrance with retrospective effect.
8. The owner may, at any time during the term hereby specified, terminate this agreement and reposes the dwelling house upon happening of any of the following events : (a) If the monthly instalment falls at any time in arrears for seven days or more, whether the same is demanded or not ; (b) If the hirer shall commit or suffer to be committed breach of any of the conditions of this agreement or of the regulations and terms and conditions made thereunder ; (c) If the hirer commits an act of bankruptcy or makes any composition or agreement with the creditors ; (d) The hirer shall suffer any execution to be levied against him under any judgment or order of a competent court.
9. The termination of the agreement hereunder shall not, in any manner whatsoever, absolve the hirer of this liability to pay the arrears of instalment and damages for breach of the terms and conditions of this agreement and those contained in the regulations or terms and conditions made thereunder.
10. Until the payment of the last equated instalment, the dwelling house shall remain the absolute property of the owner.11 and 12.
** ** ** 13. Any sum falling due under the agreement may be recovered as arrears of land revenue.
The learned counsel for the assessee contended that although the agreement provides that till the last instalment is paid, the Board would remain the owner of the house, yet, looking to the entire nature of the transaction, the true effect of the agreement is that for all practical purposes, particularly for the assessment to the wealth-tax, the assessee is to be treated to be the owner of the property. The learned departmental representative contended that the agreement is very clear and in its terms ensures that the assessee is not the owner of the house and, therefore, exemption cannot be granted to the assessee under Section 5(1)(iv). He pointed out that what the WTO has assessed to tax is not the house property as such but the amounts that the assessee has paid to the Housing Board towards the purchase.
3. We have considered the rival submissions. No direct authority of any High Court on the point has been cited before us from either side.
Section 5(1)(iv) grants exemption in respect of a house or part of a house 'belonging' to an assessee. This provision does not use the word 'owned'. It, therefore, appears that the Legislature did not require absolute legal ownership for claiming exemption under Section 5(1)(iv).
Section 22 of the Income-tax Act, 1961 ('the 1961 Act'), clearly provides that only income of a building of which the assessee is an owner, shall be chargeable under the head 'Income from house property'.
There the Legislature has used the word 'owner'. The use of different words 'belonging to the assessee' in the 1957 Act, therefore, indicates that absolute legal ownership was not required. In Raja Mohammad Amir Ahmad Khan v. Municipal Board of Sitapur AIR 1965 SC 1923, the Hon'ble Supreme Court observed as under : ... Though the word 'belonging' no doubt is capable of denoting an absolute title, is nevertheless not confined to connoting that sense. Even possession of an interest less than that of full ownership could be signified by that word ....
The precise sense which the word was meant to convey, can, therefore, be gathered only by reading the document as a whole and adverting to the context in which it occurs.
4. The above observations clearly indicate that the words 'belonging to' are not always synonymous with 'owned by'. Whether the words 'belonging to' can mean 'owned by' under Section 5(1)(iv), is therefore, to be determined with reference to the legislative intention as gathered by the purpose of the provision and the other provisions governing the similar situations. As already observed in Section 5(1)(iv), the Legislature has used the words 'belonging to' in contradistinction to Section 22 of the 1961 Act. Then Sub-section (7) of Section 4 of the Wealth-tax Act, makes a deeming provision in respect of houses owned by building societies and leased out to their constituents. This provision indicates that such constituents, though not strictly the owners of the property, would be deemed to be the owners and such houses shall be included in the net wealth of the lessees. Thus, by Section 4(7), houses occupied by persons in somewhat similar circumstances like the assessee are to be treated as their wealth and, consequently, exemption under Section 5(1)(iv) will have to be allowed to them.
5. In the case before us, as the terms of the agreement between the parties reproduced above would show, the Housing Board has no power to terminate the agreement except for specific defaults covered by clause 8 of the deed. The conferment of the right of ownership on the assessee is automatic on the payment of the last instalment. This is clear from the terms of clause 3 of the deed. Therefore, the assessee is not a mere occupier of the house at the will of the Housing Board and because of the limited rights left with the Board and the automatic conferment of the right of ownership on the payment of the last instalment, it can be said that the house now really belongs to the assessee. runner, the Housing Board is not an institution letting out houses on rent. It is an institution, which constructs houses for bona fide residents of Madhya Pradesh and the houses are sold under what is known as a 'Hire-Purchase Scheme'. It may also be mentioned that under the 1961 Act, depreciation and development rebate are allowed to persons purchasing machinery under the hire-purchase agreement. Thus, for the purposes of those allowances, such hirers under the hire-purchase agreements are also treated as the owner of the machinery. We are, therefore, of the view that a house purchased by an assessee under the hire-purchase agreement, on the terms like those reproduced above can be said to belong to the assessee and would be exempt under Section 5(1)(iv), subject, of course, to the other limitations that the exemption claimed by the assessee was wrongly refused by the authorities below.
6. There is yet another way of looking at the things. The WTO has included in the assessee's wealth the sum of Rs. 49,897 as the assessee's investment. This was the amount paid by the assessee to the Housing Board till the valuation date. If under the agreement, the position of the assessee was that merely of a tenant till the payment of the last instalment, then the amounts paid by the assessee to the Housing Board would be nothing but rent paid for the house and such amount cannot be treated as the assessee's investment. Clause 12 of the deed indicates that where the agreement is terminated by the Board, the hirer (assessee) may be entitled to some refund or may have to pay extra amount on account of economic rent at the rate of Rs. 1,000 per month. There is no clause in the agreement whatsoever entitling the hirer to any amount, in case the hirer wants to terminate the agreement. Therefore, the assessee has no right of refund of any amount on her own choice and, therefore, the amounts paid by the assessee to the Housing Board cannot be treated as her property. The result, therefore, is that if the house is treated as belonging to the assessee, we have to grant her exemption under Section 5(1)(iv). On the other hand, if the house is not treated so, the amounts paid to the Housing Board cannot be treated as the assessee's wealth, because the assessee has no right to get them back. In either case, therefore, the sum of Rs. 49,897 deserved to be excluded from the assessee's wealth.
7. The appeal is, accordingly, allowed and the sum of Rs. 49,897 is hereby deleted from the assessee's wealth.