Through this article, we try and understand a very interesting question of whether beneficial interest can be considered a “property”. To get a better insight, we first need to understand the concept of beneficial interest in law and what amounts to property.
In general parlance, interest simply means having an ownership in property or having some kind of right to do something with or on the property. For example: having an easement on property, having a lease on the property, being a part owner, being the only owner, having a life estate etc. It refers to stake of ownership. More particularly it means a right to have the advantage accruing from anything; any right in the nature of property, but less than title; a partial or undivided right; a title to a share. It is to be noted that the terms “interest” and “title” are not synonymous. A mortgagor in possession, and a purchaser holding under a deed defectively executed, have, both of them, absolute as well as insurable interests in the property, though neither of them has the legal title. In legal sense, it is something a law recognizes, as in an advantage, profit, right, or share.
Black’s law dictionary defines a right in property as: “an interest or title; a just and legal claim to hold, use, or enjoy it, or to convey it”. Black’s legal dictionary defines an interest as: “a right to have the advantage accruing from anything; any right in the nature of the property but less than title “.
An equitable interest is an “interest held by virtue of an equitable title (a title that indicates a beneficial interest in property and that gives the holder the right to acquire formal legal title) or claimed on equitable grounds, such as the interest held by a trust beneficiary.” The equitable interest is a right in equity that may be protected by an equitable remedy. This concept exists only in systems influenced by the common law tradition, such as New Zealand, England, Canada, Australia and the United States. Under the English trust law, the trust property becomes the subject of dual ownership. The trustee is the legal owner and the beneficiary is the beneficial owner. The picture though, changes in the Indian Trust Act, which departed from the dual ownership concept to the concept of single ownership. The provisions of the Indian Trust Act, 1882 clearly makes the trustee the legal owner as well as the beneficial owner. Beneficial ownership is not recognized in India. However, some rights that are very similar to ownership can be found in Chapter VI of the Act.
The concept of beneficial interest on the other hand is well recognized. A beneficial interest is “that right which a person has in a contract made with another“. The typical example is “if A makes a contract with B that A will pay C a certain sum of money, B has the legal interest in the contract, and C the beneficial interest.“ It is any “interest of value, worth, or use in property one does not own,” for example, “the interest that a beneficiary of a trust has in the trust.“
Black’s Law Dictionary defines beneficial interest as “profit, benefit or advantage resulting from a contract, or the ownership of an estate as distinct from the legal ownership or control.“ A beneficial interest is also “distinguished from the rights of someone like a trustee or official who has responsibility to perform and/or title to the assets but does not share in the benefits.“
In the Supreme Court case of H. Anraj v. Government of T.N. it was held that a lottery ticket primarily involved two rights:
(1) the right to participate in the draw and
(2) the right to win the prize, depending on chance.
In that case it was held that the former right was a “transfer of a beneficial interest in movable goods”. The Indian Trust, Act 1882 further defines both a beneficiary and beneficial interest under s 3 as follows:
“the person for whose benefit the confidence is accepted is called the “beneficiary”: the subject-matter of the trust is called “trust-property” or “trust-money”: the “beneficial interest” or “interest” of the beneficiary is his right against the trustee as owner of the trust-property”
Thus it can be concluded from the above discussion that as per Indian Laws beneficial interest is nothing but a right, both according to judicial interpretations of the Apex Court in India and definitions given by the Indian Trust Act, 1882.
In Black’s Law Dictionary the expression “property” has been given the following meanings:
Property means “That which is peculiar or proper to any person; that which belongs exclusively to one.”
The Dictionary further says “property is either: real or immovable; or personal or movable”. It then proceeds to give the meaning of the expression “absolute property”, “common property”, “intangible property”, “movable property”, “personal property” “private property” and “public property” among others. The above definition shows the wide meaning attached to the expression. It is said to extend to every species of valuable right and interest. It denotes everything which is the subject of ownership, corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal. It includes “everything that has an extendable value”. It extends to every species of valuable right and interest”.
Under the Law of Property Act, 1925, “property” includes anything in action and any interest in real or personal property. There must be a definite interest; a mere expectancy as distinguished from a conditional interest is not a subject of property.
‘Property’ also signifies a beneficial right in or to a thing. Sometimes the term is used as equivalent to ownership; as where we speak of the right of property as opposed to the right of possession (q.v.), or where we speak of the property in the goods of a deceased person being vested in his executor. The term was chiefly used in this sense with reference to chattels.
Thus in the words of the Apex Court which relied on the following:
“This definition also shows that the expression signifies “things and rights considered as having a money value”. Even incorporeal rights like trademarks, copyrights, patents and rights in personam capable of transfer or transmission, such as debts, are also included in its ambit.”
In the strict legal sense, an aggregate of rights which are guaranteed and protected by the government. The term is said to extend to every species of valuable right and interest. More specifically, ownership; the unrestricted and exclusive right to a thing; the right to dispose of a thing in every legal way, to possess it, to use it, and to exclude everyone else from interfering with it. That dominion or indefinite right of use or disposition which one may lawfully exercise over particular things or subjects. The exclusive right of possessing, enjoying, and disposing of a thing. The highest right of man can have to anything; being used to refer to that right which one has to lands or tenements, goods or chattels, which no way depends on another man’s courtesy.
The word is also commonly used to denote everything which is the subject of ownership, corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal; everything that has an exchangeable value or which goes to make up wealth or estate. It extends to every species of valuable right and interest, and includes real and personal property, easements, franchises, and incorporeal hereditaments, and includes every invasion of one’s property rights by actionable wrong.
Property embraces everything which is or may be the subject of ownership, whether a legal ownership, or whether beneficial, or a private ownership. The term includes not only ownership and possession but also the right of use and enjoyment of lawful purposes.Goodwill is property; as is an insurance policy and rights incident thereto, including a right to the proceeds.
After reviewing these definitions, the Supreme Court observed thus:
“21. The above material uniformly emphasises the expansive manner in which the expression “property” is understood. Learned counsel for the petitioners brought to our notice the meanings of the term “property” set out in Chapter-13, “The Law of Property”, in Salmond’s Jurisprudence (12th Edition, 1966). In this chapter, several meanings attributed to “property” are discussed in extenso, to all of which it may not be necessary to refer. Suffice to say that property is defined to include material things and immaterial things (Jura in re propria) and leases, servitudes and securities etc. (jura in re aliena).Online GST Certification Course by TaxGuru & MSME- Click here to Join
The material things are said to comprise land and chattels while immaterial things include patents, copyrights and trademarks, which along with leases, servitudes and securities are described as incorporeal property. The expression “movable property” is stated to include (Page 421) corporeal as well as incorporeal property. Debts, contracts and other choses-in-action are said to be chattels, no less than furniture or stock-in-trade. Similarly, patents, copyrights and other rights in rem which are not rights over land are also included within the meaning of movable property.
We are unable to see anything in the said Chapter-13, which militates against the meanings ascribed to the said expression in the judicial dictionaries referred to above. Indeed, they are consistent with each other.”
In India, property is defined under different Acts differently as per usage and convenience. But surprisingly, in the most important act which exclusively talks about the property and rights related to property, Transfer of Property Act, 1882 has no definite definition of the term property. The definitions under the other Acts, to explain the meaning of property, are as follows:
“Property” means property of any kind, whether movable or immovable, tangible or intangible, and includes any right or interest in such property.
“Property” means the general property in goods, and not merely a special property.
In the case of Vikas Sales Corporation and Anr v. Commissioner of Commercial Taxes, the Supreme Court has interpreted “property” in very broad terms.
In the Vikas Sales case, the question the Court came in front of was if transfer of an Import Licence/Exam Scrip by its holder to another person constituted sale of a good for the purpose of levying sales tax on the transaction.
The case could be proved by a set of two-fold arguments:
A. Either prove that an import licence is not an actionable claim, and is therefore “movable property”, and hence a “good”; or
B. Positively prove that an import license is movable property.
The Apex Court went on to prove both these arguments. The Court, after analyzing the definition of “actionable claim” by relying on a plethora of judicial decisions, made the observation that import license had the character of goods in the sense that they were free marketable.
The Karnataka High Court in a similar issue, Bharat Fritz Werner Ltd. v. Commissioner of Commercial Taxes, the High Court took the view that an import licence not only enabled a person to import goods, but also excluded competition. In other words, was a valuable right in itself which was freely transferable. Consequently, according to the High Court, an import licence attracts the definition of “goods” within the meaning of the Karnataka Sales Tax Act, 1957.
However, the ruling of this decision was challenged in a later Supreme Court verdict of Sunrise Associates v. Government of NCT of Delhi. It was held that sale of a lottery ticket amount to a sale of an actionable claim. But admitting this position of law as decided by the Court, actionable claim too falls under the definition of property.
Further, in the case of The Union of India (UOI) Represented by the Secretary, Ministry of Communications and Anr v. S. Narayana Iyer, the Madras High Court, while holding the rights of a subscriber coming within the ambit of “property” went on to observe on property as follows:
“I shall show that it is practically indisputable that this bundle of rights held by a subscriber will constitute ‘ property’ within the meaning of Article 19 (1)(j) of the Constitution. Definitions of ‘ property ‘ are very difficult and, perhaps, should be avoided. Both Bentham (Theory of Legislation) and Cooley (Constitutional Law) appear to favour the description that ” whatever a man produces by the labour of his hand or his brain, whatever he obtains in exchange for something of his own, and whatever is given to him, the law will protect him in the use enjoyment, and disposition of “, as having the attributes of ‘ property ‘. In a volume of Studies entitled ” Property relations in Independent India (Constitutional and Legal Implications), The Indian Law Institute,” we find more than one Jurist accepting the expression to be comprehensive enough to take in all categories of property, movable or immovable, corporeal and incorporeal. In the Study by Professor Tewari, it is pointed out that when property is incorporeal, if any right, in the bundle of rights constituting such property, satisfies the test of acquisition, holding, and disposal, separately from the corpus, it would be ‘property’.
In Kulanthaivelan Chettiar v. Muthu Chellappa Chettiar I.L.R. (1967) 3 Mad. 615, I was concerned with the unsatisfactory state of the Indian Law, in that Section 3 of the General Clauses Act (X of 1897) defined ‘ immovable property’ alone, and ‘ movable property ‘ as ‘ property of every description except immovable property ‘. This left out of reckoning, altogether, that very valuable species of right, known as forms of incorporeal property, and a passage from Williams on Real Property (23rd Edition) was cited to show that’ property ‘ could either denote an abstract right of ownership, or the object of a right of ownership, or valuable entities or rights which may be exchanged for the ownership of money. In Salmond on Jurisprudence (12th Edition), the broad division is “corporeal” and ”incorporeal”, corporeal property comprising land, chattels, and incorporeal property having two broad division, namely, Jura In Re Propria (Patents, Copyrights, Trade marks) and Jura In Re Aliena (or encumbrances), namely, leases, mortgages and servitudes. The development of the case-law in the Supreme Court, on this aspect, is highly significant, and the following brief Summary of the leading precedents will suffice.”
The above analysis will clearly indicate the following:
Thus, we can successfully conclude that beneficial interest does fall within the ambit of the term “property”, as defined and contemplated by Indian laws, judicial interpretations and connotations of eminent jurists on the subject.
 Hough v. City F. Ins. Co., 29 Conn. 20, 76 Am. Dec. 581.
 Black’s Law Dictionary
 Lectric Law Library’s Lexicon
 Ballentine’s Law Dictionary
 Black’s Law Dictionary
 (1986) 1 SCC 414.
 6th Edition, 1990
 s 205
 (Finch, Law 176).
 Fulton Light, Heat & Power Co. v. State 65 Misc. Rep. 263, 121 N.Y.S. 536.
 Labberton v. General Cas. Co. of America, 53 Wash. 2d 180, 332 p. 2d. 250, 252, 254.
 Davis v. Davis. Tax Civ. App., 495 S.W. 2d 607,611.
 Hoffmann v. Kinealy, Mo., 389 S.W. 2d. 745, 752.
 Howell v. Bowden, Tex Civ App., 368 S.W. 2d 842, 848
 Harris v. Harris 83 N.M. 441,493 P. 2d 407, 408.
 AIR 1996 SC 2082
 (1992) 86 S.T.C. 170
 (2006) 5 SCC 603
 Baroda Cement and Chemicals Ltd. v. Commissioner of Income Tax, (1986)53CTR(Guj)260
(Author is associated with Vinod Kothari and Co.)