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Sir Shadi Lal And Sons, Shamli v. Commissioner Of Income-Tax, Kanpur.

Allahabad High Court

Mar 2, 1973

Judgment

Subsequent
References

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Structured Summary of the Opinion (C.S.P. Singh, J.)

Factual and Procedural Background

The reference arises from questions referred by the Income-tax Appellate Tribunal, Delhi Bench “A”, concerning assessments for the assessment years 1954‑55, 1960‑61 and 1961‑62 of a Hindu undivided family that owned immovable property (a house in Delhi) and shares. The house was demised to the Chinese Embassy by a lease dated 30 May 1952. Clause 1(c) of the lease required the lessee to maintain and execute all repairs (including annual whitewashing and repairs of electric and sanitary fittings) at the lessee’s expense, while major repairs (such as repairs against collapse of the house) were to be undertaken by the lessors at their cost.

In the original assessment the annual letting value of the property had been fixed at Rs. 36,000 and the assessee obtained a deduction of Rs. 6,000 for repairs. The Income-tax Officer (ITO) later reopened the assessment under section 147 of the Income-tax Act, 1961, believing that excessive relief for repairs had been allowed. On reassessment the ITO fixed the annual letting value at Rs. 40,000 and allowed a deduction of Rs. 4,000 for repairs under section 24(1)(i)(b). The Appellate Assistant Commissioner confirmed the reassessment order, and the assessee appealed to the Tribunal.

The Tribunal referred three questions to the High Court: (1) whether the assessments for the stated years were validly reopened under section 147(a); (2) whether section 24(1)(i)(b) applied; and (3) whether expenditure not allowed in the original assessments could be considered on reassessment reopened under section 147(a).

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the assessments for the years 1954‑55, 1960‑61 and 1961‑62 were validly reopened under section 147(a) of the Income‑tax Act, 1961?
Whether, on the facts and in the circumstances of the case, the provisions of section 24(1)(i)(b) of the Income‑tax Act, 1961, were applicable?
Whether, on the facts and in the circumstances of the case, the expenditure which was not allowed while completing the original assessments could be considered for allowance in the course of assessments reopened under section 147(a)?

Arguments of the Parties

Assessee's Arguments

The assessment could not be validly reopened under section 147(a) or 147(b) because the assessee had furnished all necessary particulars to the Income‑tax Officer and the tax was determined after considering those particulars.
The expenditure incurred on repairs was relevant only for determining deductions from the annual letting value and could not be used to redetermine the annual letting value itself; therefore the ITO could not enhance the annual letting value on reassessment on the ground that the tenant had undertaken to bear repairs.
The tenant had not undertaken to bear substantial repairs; the lease only required the tenant to bear petty/ordinary repairs while the landlord had undertaken major repairs, so clause (a) (owner bearing repairs) rather than clause (b) (tenant bearing repairs) of section 24(1)(i) applied.
The assessee had spent Rs. 5,648 on repairs for 1954‑55 and sought reconsideration of disallowed expenses during reassessment.

Assessing Officer / Revenue Position (as reflected in the record)

The ITO reopened the original assessment under section 147 on the ground that excessive relief for repairs had been allowed and because the lease deed had not been produced in the original assessment, potentially causing income to escape assessment.
On reassessment the ITO increased the annual letting value to Rs. 40,000 and allowed a deduction of Rs. 4,000 under section 24(1)(i)(b), treating the tenant as bearing the cost of repairs for the purposes of that clause.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner of Income‑tax v. Parbutty Churn Law [1965] 57 I.T.R. 609 (Cal.)	Interpreted provisions of the Indian Income‑tax Act, 1922 (sections 9(1)(i) and 9(1)(ii)) as in pari materia with section 24(1)(i)(a) and (b) of the 1961 Act; held that section 9(1)(i) applies where landlord undertakes substantial repairs and section 9(1)(ii) where tenant undertakes substantial repairs.	The court noted the decision and the parity of the earlier Act's provisions with section 24(1)(i) but stated that it was not necessary to express an opinion on whether “repairs” means substantial repairs; the case was relied upon by counsel and considered in the interpretive context.
Rhodesia Railways Ltd. v. Income‑tax Collector, Bechuanaland Protectorate [1933] 1 I.T.R. 227 (P.C.)	Quoted with approval Buckley L.J.'s observations on the meaning of “repair” versus “renew” (from Lurcott v. Wakely & Wheeler): “Repair” and “renew” are not words of clear contrast; repair is restoration by renewal or replacement of subsidiary parts; renewal is reconstruction of the entirety or substantially the whole.	The court relied on this analysis to conclude that major works (such as restoring collapse) are more akin to renewal or reconstruction than to repairs, and therefore did not fall within the ordinary meaning of “repairs” for deduction under clause (a).
Lurcott v. Wakely & Wheeler [1911] 1 K.B. 905 (C.A.)	Authoritative discussion (Buckley L.J.) on the meaning of “repair” and “renew”; repair involves restoration by replacement of subsidiary parts, while renewal/reconstruction implies substantially the whole subject‑matter being rebuilt.	The court expressed respectful agreement with Buckley L.J.'s view and used that conceptual distinction to determine that the landlord's obligation for “major repairs” (e.g., collapse) amounted to renewal/reconstruction rather than “repairs” for the purposes of section 24(1)(i).

Court's Reasoning and Analysis

The court addressed the three referred questions in sequence, applying statutory text, the facts reflected in the lease deed, and precedent concerning the meaning of “repairs”:

Reopening under section 147(a):
- The court observed that in computing income from house property the ITO had to determine both the annual letting value and the deductions for repairs; the lease deed was a material document for both determinations.
- The Tribunal had found that the lease deed was not produced at the time of the original assessment. The court agreed that this omission constituted a failure by the assessee to disclose fully and truly all material facts necessary for assessment.
- Given that the lease deed was material and was not before the ITO originally, the case fell within section 147(a) (escape of income due to omission/ failure to disclose material facts), and the reopening was valid.
Re‑opening does not reopen the entire assessment (answering the third question):
- The court stated as settled law that a reassessment does not open the entire original assessment; it is confined to matters relevant to the income that escaped assessment and the specific enquiry on which reassessment is embarked.
- The disallowance of expenses made in the original assessment became final; since it was not contended that those disallowed items were relevant to the escaped income which prompted reassessment, they could not be reconsidered on reassessment.
Applicability of section 24(1)(i)(b):
- The court quoted section 24(1)(i)(a) and (b), explaining that clause (a) applies where the owner undertakes the cost of repairs (entitling owner to one‑sixth of annual value), while clause (b) applies where the tenant undertakes repairs (allowing either the excess of annual value over rent or one‑sixth of annual value, whichever is less).
- Applying the lease terms, the court found that the lessee (tenant) was saddled with the liability of executing all repairs, while the landlord’s obligations related only to “major repairs” such as collapse of the house — a form of restoration that the court treated as renewal or reconstruction rather than ordinary “repairs.”
- Relying on the analysis in Rhodesia Railways and Lurcott (Buckley L.J.'s distinction between repair and renewal), the court concluded that major works akin to reconstruction do not fall within the ordinary conception of “repairs” for clause (a). Consequently, the deduction for repairs in the present case fell to be considered under section 24(1)(i)(b).
- The court observed that, on the numbers, if clause (a) were applicable the assessee would be entitled to deduction equal to one‑sixth of Rs. 40,000; but on the court’s view clause (b) applied and the deduction allowed by the ITO (Rs. 4,000) was consistent with the statutory formula given the annual value and rent.

Holding and Implications

Holding: The court answered the referred questions as follows: the first and second questions are answered in the affirmative and the third question is answered in the negative — all against the assessee.

Implications and direct effects:

The reopening of the assessments under section 147(a) was held to be valid because the lease deed, a material document, was not produced in the original assessment and this omission meant income had escaped assessment.
The court held that the deduction for repairs in the facts of this case had to be considered under section 24(1)(i)(b) (tenant bearing repairs), because the landlord's liability related only to major works amounting to renewal/reconstruction rather than ordinary repairs.
The court confirmed that items of expenditure disallowed in the original assessment could not be reopened on reassessment unless they were relevant to the matter for which reassessment was validly undertaken; the disallowances previously made stood final and could not be reconsidered in this reassessment.
The department was awarded costs of Rs. 200 and counsel’s fee was assessed at Rs. 200.
No broader or novel legal principle was announced beyond the application of established statutory interpretation and precedent; the decision applied existing law to the facts and did not purport to lay down a new precedent beyond the immediate answers to the referred questions.

Note: This summary is derived solely from the text of the provided opinion and does not include information beyond that opinion.

Show all summary ...

C.S.P Singh, J.:— The Income-tax Appellate Tribunal, Delhi Bench “A”, has referred the following questions for our opinion:

“(1) Whether, on the facts and in the circumstances of the case, the assessments for the years 1954-55, 1960-61 and 1961-62 were validly reopened under section 147(a) of the Income-tax Act, 1961?

(2) Whether, on the facts and in the circumstances of the case, the provisions of section 24(1)(i)(b) of the Income-tax Act, 1961, were applicable?

(3) Whether, on the facts and in the circumstances of the case, the expenditure which was not allowed while completing the original assessments could be considered for allowance in the course of assessments reopened under section 147(a)?”

2. The reference relates to the assessment years 1954-55, 1960-61 and and 1961-62 in respect of a Hindu undivided family, which owns immovable properties and shares in limited companies.

3. The assessee owned a house in Delhi. This house was demised to the Chinese Embassy by a deed dated 30th May, 1952. Clause 1(c) of the deed read as under:”

1. The lessee hereby covenants with the lessor as follows:

(c) To maintain and keep the demised premises in good and habitable condition, tenantable, repair, execute all repairs including annual whitewashing, repairs of electric and sanitary fittings, etc., at the lessee's expenses. Major repairs such as repairs against collapse of the house, etc. shall be undertaken by the lessors at their cost.”

4. In the original assessment the letting value of the property was determined at Rs. 36,000 and the assessee got a deduction of Rs. 6,000 by way of repairs. Subsequently, being of the view that the assessee had got excessive relief for repairs, the Income-tax Officer reopened the assessment under section 147 of the Income-tax Act, 1961. On reassessment, he determined the annual letting value of the property at Rs. 40,000 and allowed a deduction of Rs. 4,000 by way of repairs under the provisions of section 24(1)(i)(b). The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. The assessee thereafter appealed to the Tribunal. Before the Tribunal, the assessee contended that the assessment could not be reopened either under section 147(a) or section 147(b), in view of the fact that the assessee had given all the necessary particulars to the Income-tax Officer and he had determined the tax after considering the particulars furnished by it. It was further urged that the Income-tax Officer could not redetermine the annual letting value at a higher figure on the ground that the tenant had undertaken to bear the repairs as, according to the assessee, the expenditure incurred on repairs was relevant only for determining the deductions to be allowed from the annual letting value, and had no bearing on the determination of the annual letting value. It was further contended that the tenant had not undertaken to spend anything on substantial repairs and, therefore, the provisions of section 24(1)(i)(b) of the Act were not applicable. In this context, it was also pressed that the assessee had spent an amount of Rs. 5,648 on repairs for the year 1954-55. The Tribunal found that the lease deed was not produced before the Income-tax Officer, who made the original assessment, and as such there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. It consequently held that the assessment could validly be reopened under section 147(a) of the Income-tax Act, 1961, inasmuch as a result of the lease deed not having been produced before the Income-tax Officer, income had escaped assessment. Considering the claim of allowances for repairs, the Tribunal held that under the terms of the lease deed, the tenant had undertaken all repairs, and so far as the assessee was concerned, the liability for repairs were of an extraordinary character like the collapse of the house and, therefore, the assessee was not entitled to any deduction in respect of repairs. As regards the enhancement of the annual letting value on reassessment, it took the view that even if the assessee's contention was accepted that the annual letting value could not be enhanced on reassessment, the assessee would not stand to gain, inasmuch as on the view it took, the assessee was not entitled even to the deduction of Rs. 4,000 granted by the Income-tax Officer. In respect of another contention raised by the assessee that, as the assessment had been reopened, the Income-tax Officer should have reconsidered the disallowance of expenses, which it had claimed in the original assessment, the Tribunal took the view that the allowance or disallowance of the expenses was concluded by the original assessment and the same could not be reopened on reassessment.

5. Coming to the first question, we are of the view that there is no substance in the assessee's contention that the assessment could not be reopened under section 147(a) of the Income-tax Act. In computing the income from house property, the Income-tax Officer had to determine the annual letting value of the house, and also to fix the deductions in respect of repairs which could be allowed under the Act. For a correct determination of both these questions, the lease deed was a material document. This being so, it was incumbent on the assessee to have filed the lease deed before the Income-tax Officer at the time of the original assessment. The Tribunal has repelled the assessee's contention that the lease deed had been produced by it at the time of the original assessment. This being so, there was an omission on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. The case as such clearly fell under section 147(a) of the Act.

6. The answer to the third question is obvious. It is settled law that on reassessment, the entire assessment is not opened. Thus, claims which had been disallowed during the original assessment cannot be reagitated on the assessment being reopened for bringing to tax certain income which has escaped assessment. The controversy on reassessment is confined to matters which are relevant in respect of the income which had not been brought to tax during the course of the original assessment. It has not been contended that the disallowance of expenditure made during the course of the original assessment, which the assessee wanted to be reconsidered during reassessment, were relevant for the enquiry on which the Income-tax Officer had re-embarked on reassessment. The disallowance of these expenses in the original assessment had become final, and this being so, it was not open for the assessee to make a claim for these items of expenditure.

7. The second question may now be considered. Section 24(1)(i)(a) and (b) may, for the sake of convenience, be quoted:

“24. Deductions from income from house property.—(1) Income charge-able under the head ‘Income from house property’ shall, subject to the provisions of sub-section (2), be computed after making the following deductions namely:—

(i) in respect of repairs,—

(a) where the property is in the occupation of the owner, or where the property is let to a tenant and the owner has undertaken to bear the cost of repairs, a sum equal to one-sixth of the annual value;

(b) where the property is in the occupation of a tenant who has undertaken to bear the cost of repairs,—

(i) the excess of the annual value over the amount of rent payable for a year by the tenant; or

(ii) a sum equal to one-sixth of the annual value, whichever is less;

(ii) the amount of any premium paid to insure the property against risk of damage or destruction;

(iii) where the property is subject to a mortgage or other capital charge, the amount of any interest on such, mortgage or charge;

(iv) where the property is subject to an annual charge, not being a capital charge, the amount of such charge;

(v) where the property is subject to a ground rent, the amount of such ground rent;

(vi) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital;

(vii) any sums paid on account of land revenue in respect of the property;

(viii) any sums spent to collect the rent from the property, not exceeding six per cent, of the annual value of the property;

(ix) where the property is let and was vacant during a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out in parts, that portion of the annual value appropriate to any vacant part, which is proportionate to the period during which such such part is wholly unoccupied; and

(x) subject to such rules as may be made in this behalf the amount in respect of rent from property let to a tenant which the assessee cannot realise.”

8. It will be noticed that, so far as clause (a) is concerned, the owner is entitled to a deduction equal to one-sixth of the annual value, only in case the owner has undertaken to bear the cost of repairs. This clause does not come into play in case the tenant has to bear the cost of repairs. Clause (b) deals with the case where the tenant has undertaken to bear the cost of repairs. The deduction allowable under this sub-clause is, however, equivalent to an amount equal to the excess of the annual value over the amount of rent payable by the tenant, or a sum equal to one-sixth of the annual value, whichever is less. So far as the present case is concerned, if it is held that it is the landlord who has undertaken the cost of repairs, then inasmuch as the annual value of the house has been fixed at Rs. 40,000 while the amount of rent for which the accommodation has been let out is Rs. 36,000, the assessee is entitled to deduction for repairs to the tune of Rs. 4,000 as allowed by the Income-tax Officer, inasmuch as this sum is less than one-sixth of Rs. 40,000. Counsel for the assessee, however, contends that inasmuch as under the lease deed the assessee had undertaken to bear the cost of some repairs, which could be termed as major repairs, it is clause (a) that applies and not clause (b). In support of this contention, he has drawn our attention to a decision of the Calcutta High Court in the case of Commissioner of Income-tax v. Parbutty Churn Law [1965] 57 I.T.R 609 Cal... In this case, their Lordships of the Calcutta High Court were dealing with a case under section 9(1)(i) and 9(1)(ii) of the Indian Income-tax Act, 1922. These provisions are in pari materia with section 24(1)(i)(a) and (b) of the Income-tax Act, 1961. It was held that section 9(1)(i) of the Indian Income-tax Act, 1922, applied where the landlord had undertaken to bear the cost of substantial repairs, and section 9(1)(ii) apply where the tenant had undertaken to bear the cost of substantial repairs. On the facts of that case, it was held that the tenant had undertaken to bear the cost of petty repairs only, and, so far as substantial repairs were concerned, they had to be undertaken by the landlord. In the view that we take, which we shall state shortly hereafter, it is not necessary to express any opinion on the question as to whether the word “repairs” as used in section 9(1)(i) or 9(1)(ii) of the 1922 Act, or by section 24(1)(i)(a) or (b) of the Income-tax Act, 1961, means substantial repairs and the quantum of deduction which the landlord gets depends on the question as to whether he has undertaken to carry out substantial repairs in the demised building. In the case of Rhodesia Railways Ltd. v. Income-tax Collector, Bechuanaland Protectorate [1933] 1 I.T.R 227 P.C., their Lordships of the Privy Council quoted with approval the observation of Buckley L.J in Lurcott v. Wakely & Wheeler [1911] 1 K.B 905, 923-24 C.A. regarding the meaning to be ascribed to the word “repairs”. Their Lordships, on page 232, observed as under:

“As was pointed out by Buckley L.J (as he then was) in Lurcott v. Wakely & Wheeler: ‘“Repair” and “renew” are not words expressive of a clear contrast’, and ‘Repair is restoration by renewal, or replacement of subsidiary parts of a whole. Renewal as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject-matter under discussion’.”

9. Now, under the terms of the present lease deed, the lessee is saddled with the liability of executing all repairs. So far as the landlord is concerned, the lease deed enjoins on him to carry out major repairs, such as repairs against the collapse of the house, etc. The major repairs contemplated under the lease deed are akin to collapse of the house, i.e, the whole structure. Can it be said that the work undertaken by the landlord to restore the collapse of the premises or work of a like nature could be called “repairs”? We are of the view that it would not be “repairs” but renewal or reconstruction. We are in respectful agreement with the view expressed by Buckley L.J in Lurcott v. Wakely & Wheeler which, as has been seen, has met the approval of their Lordships of the Privy Council. This being so, the deduction for repairs could be considered only under section 24(1)(i)(b) of the Income-tax Act, 1961.

10. We, therefore, answer the first and second questions in the affirmative and the third question in the negative, all against the assessee. The department is entitled to its costs which we assess at Rs. 200. Counsel's fee is assessed at the same figure.