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Commissioner Of Income-Tax v. Purshottam Dass
Structured Summary of the Opinion (Arijit Pasayat, C.J.)
Factual and Procedural Background
The Income-Tax Appellate Tribunal, Delhi Bench-C referred the following question to this Court under section 256(1) of the Income-Tax Act, 1961: whether the Tribunal was justified in allowing exemption to the assessee in respect of a property in Green Park Extension, New Delhi, under section 23(1)(b)(ii) of the Act.
For the assessment year 1973–74 the assessee claimed exemption of Rs. 6,000 (Rs. 1,200 per unit) under section 23(1)(b)(ii) in respect of a house property in Green Park Extension, let to the Cabinet Secretariat at a monthly rent of Rs. 4,000. The Assessing Officer rejected the claim on the ground that the property was not being utilised for residential purposes because it was used by the Cabinet Secretariat for office use.
The assessee appealed to the Appellate Assistant Commissioner of Income-Tax, who allowed the exemption on the ground that the property was constructed as residential units and situated in a residential area, and that temporary office use did not alter that character. The Revenue challenged that order before the Tribunal, which affirmed the AAC's decision. The Tribunal recorded that the Delhi Development Authority (DDA) had noted non-conforming (office) use despite residential permission, that the Cabinet Secretariat had cited special circumstances and sought permission for office use, and that the building consisted of five residential units; the Tribunal treated temporary office user as not altering the building's basic residential nature.
The Revenue moved the reference under section 256(1), prompting this Court's opinion. At the hearing, counsel appeared for the Revenue; there was no appearance for the assessee.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the Tribunal was justified in allowing exemption to the assessee in respect of the Green Park Extension property under section 23(1)(b)(ii) of the Income-Tax Act, 1961?
Arguments of the Parties
Revenue's Arguments
- The property was not being used for residential purposes because it was occupied by the Cabinet Secretariat for office work; therefore exemption under section 23(1)(b)(ii) was not allowable.
- Reliance on the Calcutta High Court decision in CIT v. Smt. Shyama Devi Dalmia (1992) 194 ITR 114, where it was held that the expression "residential unit" denotes a dwelling unit for residence.
- Submission that exemption provisions must be construed strictly and that the onus lies on the taxpayer to establish entitlement to the exemption.
Assessee / Tribunal's Position (as recorded by the AAC and the Tribunal)
- The building was constructed as residential units and situated in a residential area; permission for residential construction was obtained from the DDA.
- Temporary use by the Cabinet Secretariat for office purposes arose from special circumstances (non‑availability of accommodation) and did not change the basic residential character of the building.
- The Tribunal concluded the building consisted of five residential units and that temporary office user would not alter the basic nature of the premises; on that basis the exemption was allowable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Smt. Shyama Devi Dalmia, [1992] 194 ITR 114 (Calcutta High Court) | The expression "residential unit" denotes a dwelling unit for residence. | The Court noted this decision relied upon by the Revenue but held it distinguishable on facts because in that case the units were admittedly not constructed as residential units. |
| Dr. J.V. Desai v. CIT, [1985] 154 ITR 828 (Andhra Pradesh High Court) | A different view on the meaning/application of "residential unit" was expressed by that High Court. | The Court recorded the existence of a differing view but did not elaborate beyond noting the divergence in authority. |
| Novopan India Ltd. v. Collector of Central Excise and Customs, [1994] 6 JT 80 (SC) | Where a provision gives relief/exemption, the principle that ambiguity is construed in favour of the taxpayer does not apply; exemption provisions are to be construed strictly and the onus is on the taxpayer. | The Court acknowledged and applied the general principle that the claimant bears the onus to prove entitlement to an exemption. |
| CCE v. Parle Exports (P.) Ltd., AIR 1989 SC 644 (1989) 1 SCC 345 | Exemptions from taxation should be construed against the subject in case of ambiguity. | The Court cited this authority to support the statement of law regarding strict construction of exemption clauses, while observing that interpretation depends on the clarity of statutory language. |
| Union of India v. Wood Papers Ltd., AIR 1991 SC 2049 (1990) 4 SCC 256 | Elaboration of principles concerning interpretation of exemption/relief provisions in fiscal statutes. | The Court referred to this decision as part of the settled principles on interpreting exemption clauses. |
| IRC v. James Forrest, [1890] 15 AC 334 (HL) (Lord Halsbury, L.C.) | Observation that exemptions from taxation increase the burden on other members of the community; a policy reason for strict approach to exemptions. | Quoted to illustrate the general policy background supporting cautious construction of exemption provisions. |
| Littman v. Barron (Inspector of Taxes), [1951] 2 All ER 393 (Court of Appeal) | In cases of ambiguity, the rule favouring taxpayer construction in taxing statutes does not apply to provisions giving relief. | Referred to reinforce the point that exemption clauses are not to be construed liberally where language is ambiguous. |
Court's Reasoning and Analysis
The Court commenced by examining the language of section 23(1)(b)(ii) and observed that, broadly, the provision grants exemption in respect of a building comprising one or more residential units erected during a specified period. The key issue is whether a particular unit qualifies as a "residential unit."
The Court set out the relevant legal approach: the characterisation of a unit as residential must be determined by an assessment of several factual factors, including the intention of the constructor at the time of construction, the intended user, the actual user, the potentiality for different uses, and other related factual aspects. The Court emphasised that user (actual occupation) is one among several relevant factors but is not conclusive or determinative by itself; intention at the time of construction is a significant factor.
The Revenue's submission that exemption provisions must be strictly construed and that the onus is on the claimant was accepted as a correct principle of law. The Court cited authorities to that effect (including Novopan India Ltd., Parle Exports, and related decisions) but observed that this principle becomes operative only when there is ambiguity in the statutory language; if the statutory language is plain and unambiguous, interpretation may not be necessary.
Applying these principles to the present facts, the Court reviewed the material relied on by the Tribunal: (a) a DDA letter dated June 24, 1972 indicating that construction was permitted as residential and noting non-conforming use for office purposes; (b) a letter dated July 13, 1972 from the Cabinet Secretariat stating that the building was hired for office use due to non-availability of accommodation; (c) the fact that permission for residential construction had been obtained from the DDA; and (d) that the building was located in a residential area. The Court observed that these factual findings recorded by the Tribunal had not been challenged by the Revenue as contrary to evidence, and therefore stood as concluded factual determinations.
The Court distinguished the Calcutta High Court decision relied upon by the Revenue (CIT v. Smt. Shyama Devi Dalmia) on the basis that, in that case, the units were admittedly not constructed as residential units. By contrast, in the instant case, the material before the Tribunal indicated construction for residential purposes and residential location, with only temporary non-residential use. On this basis the Court concluded that temporary office user did not alter the basic residential nature of the building for the purpose of the exemption provision.
Holding and Implications
HOLDING: The Court answered the referred question in the affirmative, holding in favour of the assessee and against the Revenue: the Tribunal was justified in allowing the exemption under section 23(1)(b)(ii).
Implications and immediate effect:
- The exemption claimed by the assessee for the assessment year 1973–74 in respect of the Green Park Extension property is upheld on the facts found by the Tribunal.
- The factual findings recorded by the Tribunal (construction as residential units, residential location, DDA permission, and temporary office user) were decisive and remained unchallenged as contrary to evidence; accordingly the Tribunal's allowance of exemption stands.
- The reference under section 256(1) is disposed of in the terms stated above.
The opinion does not purport to lay down a new legal precedent beyond applying established principles of statutory interpretation to the facts; rather, it applies settled rules about the construction of exemption clauses and the factual determination of whether a unit qualifies as "residential."
Arijit Pasayat, C.J:— At the instance of the Revenue, the following question has been referred for the opinion of this court under section 256(1) of the Income-Tax Act, 1961 (in short “the Act”), by the Income-Tax Appellate Tribunal Delhi Bench-C (in short, “the Tribunal”):
“Whether, on the facts and, circumstances of the case, the Tribunal was justified in allowing exemption to the assessee in respect of the property in Green Park Extension, New Delhi, under section 23(1)(b)(ii) of the Income-Tax Act, 1961?”
2. The factual position in a nutshell is as follows:
For the assessment year 1973–74, the assessee claimed exemption of Rs. 6,000 (Rs. 1,200 per unit) under section 23(1)(b)(ii) of the Act. The claim was in respect of a house property in Green Park Extension, New Delhi, let out to the Cabinet Secretariat, Government of India, on a monthly rent of Rs. 4,000.
3. The claim was rejected by the Assessing Officer on the ground that the property was not being utilised for residential purposes as it was used by the Cabinet Secretariat. The assessee preferred an appeal before the Appellate Assistant Commissioner of Income-Tax (in short “the AAC”). The said authority allowed the exemption on the ground that the property was constructed as a residential unit and was situated in a residential area. Temporary use by the Cabinet Secretariat for office work did not change the position. The said order of the Appellate Assistant Commissioner was challenged by the Revenue before the Tribunal. According to the Revenue, the house having not been used for residential purposes, the exemption under section 23(1)(b)(ii) of the Act was not allowable. The Tribunal up-held the conclusions of the Appellate Assistant Commissioner. It was noted that a notice had been sent by the Delhi Development Authority (in short “DDA”) to the assessee wherein it was indicated that the building is residential, but was being used for office purposes. It was the view of the Delhi Development Authority that there was contravention. The Cabinet Secretariat indicated that due to special circumstances, this had to be done and it sought permission to do so. The Tribunal concluded that the building consists of five residential units and temporary user for office purposes will not alter its basic nature. On being moved by the Revenue, as aforesaid, the reference has been made.
4. Heard counsel for the Revenue. There is no appearance for the assessee when the matter is called. Strong reliance was placed by learned counsel for the Revenue on a decision of the Calcutta High Court in CIT v. Smt. Shyama Devi Dalmia, [1992] 194 ITR 114, where it was held that the expression “residential unit”, in the context used in the relevant provision necessarily denotes a dwelling unit for residence. We may note here that a different view has been expressed by the Andhra Pradesh High Court in Dr. J.V Desai v. CIT, [1985] 154 ITR 828. section 23(1)(b)(ii), so far as is relevant, reads as follows:
“Provided further that the annual value as determined under this sub-section shall,—…
(b) in the case of a building comprising one or more residential units, the erection of which is begun after the 1st day of April, 1961, and completed after the 31st day of March, 1970, for a period of five years from the date of completion of the building, be reduced by a sum equal to the aggregate of—…
(ii) in respect of any residential unit whose annual value as so determined exceeds one thousand two hundred rupees, an amount of one thousand two hundred rupees.”
5. A bare perusal of the provision indicates that exemption is granted in the case of a residential building comprising one or more residential units where erection was made during a particular period. The question whether a particular unit is residential or not is to be determined by taking into account various factors, like, the intention of the constructor at the time of construction, intended user, actual user, potentiality for a different user and several other related factual aspects. The provision only stresses on erection of a building comprising of residence(s) during a particular period.
6. In a given case the constructor may have constructed a particular unit of the residential unit, but to avoid deterioration on account of non-user, may have temporarily let it out for office purposes. There may be a case where for some period of a particular assessment year, the building has been used for residential purposes and for the residual period for office purposes. There may be another case when during the period of five years referred to in the provision, for three years the building is used for residential purposes and for the balance period for office purposes. Can it be said in the above three contingencies, that the unit ceases to be a residential unit for some periods? These factual aspects have great relevance while adjudicating the question whether the exemption is to be allowed. We may state that user is one of several relevant factors and not the conclusive or determinative one. The intention of the constructor at the time of erection is one of the relevant factors, as stated above. If the intention at the time of erection was user for residential purposes, it is of great relevance and significance.
7. Learned counsel for the Revenue submitted that in case of an exemption, the provision has to be construed strictly and the onus is on the person who claims exemption to establish that he is entitled to an exemption. There can be no quarrel with the proposition. In fact, in Novopan India Ltd. v. Collector of Central Excise and Customs, [1994] 6 JT 80 (SC), it was observed that the principle that where there is ambiguity a taxing statute should be construed in favour of the taxpayer does not apply to a provision giving a taxpayer relief in certain cases from a section clearly imposing liability. Exemption provisions or exception provisions have to be construed strictly and the onus is on the taxpayer to prove that he is covered by the said provision. In CCE v. Parle Exports (P.) Ltd., AIR 1989 SC 644, (1989) 1 SCC 345, it was, held that exemptions from taxation have a tendency to increase the burden on the other class of taxpayers and should be construed against the subject in case of ambiguity. It is equally a well known principle that a person who claims an exemption has to establish his case. While interpreting an exemption clause, liberal interpretation should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, be borne in mind that absurd results of construction should be avoided. The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the Legislature manifest on the statutory language. Indeed, the need for resorting to interpretative process arises only where the meaning is not manifest on the plain words of the statute. If the words are plain and clearly and directly convey the meaning, there is no need for any interpretation. The position was also elaborately dealt with in Union of India v. Wood Papers Ltd., AIR 1991 SC 2049, (1990) 4 SCC 256. Lord Halsbury, L.C, observed in IRC v. James Forrest, [1890] 15 AC 334 (HL) (page 340): “All exemptions from taxation to some extent increase the burden on other members of the community …”. In Littman v. Barron (Inspector of Taxes), [1951] 2 All ER 393, a decision of the Court of Appeal, it was observed that in case of ambiguity a taxing statute should be construed in favour of a taxpayer does not apply to a provision giving a taxpayer relief in certain cases from a section clearly imposing liability.
8. The language with which the case at hand is concerned is clear and is unambiguous, and, therefore, there is no need for seeking the intention and going into the question whether a strict or liberal interpretation is called for. It has to be noted that several relevant aspects have been taken note of by the Appellate Assistant Commissioner and the Tribunal. A letter dated June 24, 1972, issued by the Delhi Development Authority, Vigilance Cell, wherein it was stated that construction of the building was permitted as residential and there was user contrary to its permission was referred to. It was clearly indicated in the said letter that there was non-conforming use of the premises from residential to non-residential purposes. The Government of India, Cabinet Secretariat, Research and Analysis Wing, in its letter dated July 13, 1972, indicated that due to non-availability of accommodation, this building had to be hired by the Cabinet Secretariat for office use, the Tribunal noted that the building was constructed as a residential unit and for that purpose permission was obtained from the Delhi Development Authority. The said position is not in dispute. The Revenue in fact does not dispute the factual position that the building is located in a residential area. The above being the factual conclusions recorded by the Tribunal, which have not been challenged by the Revenue to be contrary to evidence, they stand concluded as conclusions on factual aspects. The Calcutta decision referred to above is distinguishable factually because of some factual aspects noted therein. At page 120 of the Reports in CIT v. Smt. Shyama Devi Dal-mia, [1992] 194 ITR 114 (Cal), it has been recorded as follows:
“Admittedly, in this case, the units which were let out to the bank were not constructed as residential units.”
9. The factual position is different in the case in hand where clinching materials go to show that construction was made for residential purpose and in a residential area. There was temporary non-user as residence and consequently temporary user for office purposes.
10. On the factual position as highlighted above, the Tribunal was justified in holding that exemption as claimed under section 23(1)(b)(ii) was allowable. Our answer to the question, therefore, is in the affirmative, in favour of the assessee and against the Revenue.
11. The reference stands disposed of in the above terms.
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