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Commissioner Of Income-Tax v. Bharatchandra Banjdeo
Structured Summary of the Opinion: Reference under the Income-tax Act concerning the Palace of the Ex-Ruler of Bastar
Factual and Procedural Background
The Income-tax Appellate Tribunal made a reference at the instance of the Revenue asking whether the Tribunal was justified in law in holding that the entire income from the palace of the assessee, a former Ruler of Bastar, is exempt from income-tax. The palace at Jagdalpur had earlier been declared the official residence of the Ruler under the Merged States (Taxation Concessions) Order, 1949 (Notification No. SRO 1620 dated 14.5.1954). For assessment years 1975-76 and 1976-77 the assessee originally declared higher house property income figures which were subsequently revised downward. During assessment proceedings the assessee claimed that the palace was an official residence and its rental value was exempt. The Assessing Officer (ITO) denied the full claim on the ground that the entire palace was let out except for a small portion occupied by the assessee, and assessed income accordingly. The AAC confirmed the ITO. On appeal the Tribunal held that the entire income from the palace was exempt. The Commissioner (Revenue) was dissatisfied and applied for the Tribunal to make the reference which gave rise to this opinion.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the entire income from the palace of the assessee (the former Ruler of Bastar) is exempt from income-tax?
- Whether, when only a portion of a palace declared as an official residence is actually in the occupation of the Ruler (with the remaining part let out), the exemption under Section 10(19A) of the Income-tax Act applies to the entire palace or only to the portion in occupation?
Arguments of the Parties
Revenue's Arguments
- The phrase in Section 10(19A) "one palace in the occupation" contemplates that the whole palace must be in occupation for full exemption to apply; where only part of a palace is in occupation, exemption should be confined to the occupied portion and rental income from the rest should be taxable.
- Reliance was placed on the Delhi High Court decision in Mohd. Ali Khan v. CIT [1983] 140 ITR 948 and a decision of this Court in Raja Ajit Singh of Jhabua v. CIT [1983] 140 ITR 138 to support the Revenue's interpretation (the Delhi decision being under the W.T. Act).
Assessee's Arguments
- Under the Merged States (Taxation Concessions) Order, 1949, multiple palaces could be declared official residences and were exempt; Section 10(19A) restricted the pre-existing exemption to "any one palace in the occupation of a Ruler," but the legislature did not, by the language of subsection (19A), contemplate further splitting of the rental value of that one palace between occupied and let-out portions.
- The wording of subsection (19A) should be read to mean that once a palace qualifies as "one palace in the occupation," further apportionment within that palace is not intended; therefore the entire rental value of that one palace should be exempt.
- The decision in Raja Ajit Singh (this Court) did not address the splitting issue and thus was not helpful; the Delhi Mohd. Ali Khan decision involved the W.T. Act's wording ("one building") and dealt with a different factual/configurational issue (multiple buildings), so it did not support the Revenue's position here.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Mohd. Ali Khan v. CIT [1983] 140 ITR 948 (Delhi) | Interpreted a parallel provision under the W.T. Act which used the phrase "one building"—held that exemption under that Act applied to one building in occupation and not to other buildings declared as official residences but not in occupation. | The Court considered this decision but distinguished it: it arose under the W.T. Act and involved the term "building" (not "palace"); the Delhi decision concerned multiple buildings and did not address intra-palace apportionment. The Court found it of limited assistance to the present case. |
| Raja Ajit Singh of Jhabua v. CIT [1983] 140 ITR 138 (this Court) | Earlier decision of this Court dealing with aspects of Section 10(19A) (specifically the effective date from which the amendment took effect). | The Court observed that this case did not consider the present question (splitting or apportionment within one palace) and was therefore not of assistance on the issue before the Court. |
Court's Reasoning and Analysis
The Court's analysis proceeded by closely examining the statutory language and the historical context of the exemption:
- The Court noted that under the Merged States (Taxation Concessions) Order, 1949, incomes from palaces declared to be official residences were exempt, and in some States multiple palaces or buildings could be so declared.
- Section 10(19A) was introduced by the Rulers of Indian States (Abolition of Privileges) Act, 1972, with effect from December 28, 1971. The text of subsection (19A) limits the earlier broader exemption to "the annual value of any one palace in the occupation of a Ruler" whose annual value had been previously exempt under the Merged States Order.
- The Court emphasized the significance of the phrase "one palace in the occupation of a Ruler" and contrasted it with the pre-amendment position; the legislative change clearly narrowed the scope of exemption from potentially many palaces to only one palace in occupation.
- On the discrete question of whether the phrase contemplates further apportionment of the annual value of that one palace between occupied and let-out parts, the Court reasoned that the language of subsection (19A) contains no provision or wording indicating such an intended splitting up. The Court observed that if the Legislature had intended to limit exemption to only the occupied portion of the palace, it could have expressly stated so in the subsection.
- The Court considered and distinguished the Mohd. Ali Khan decision from the W.T. Act (which used "one building") and observed that the Delhi decision addressed a different configuration (multiple buildings). The decision in Raja Ajit Singh was also found not to have addressed the splitting issue (it concerned the date from which the amendment had effect).
- Relying on the plain wording of subsection (19A) and the absence of any phrase indicating intra-palace apportionment, the Court concluded that subsection (19A) could not be interpreted to require splitting the rental value of a single palace between occupied and let-out portions.
Holding and Implications
CORE RULING: The contention advanced by the Revenue that where only a portion of a palace is in occupation the exemption under Section 10(19A) applies only to the occupied portion and not to the remainder, cannot be accepted.
Direct effect on the parties: The Court's interpretation supports the Tribunal's conclusion that the annual value of the one palace in the occupation of the ex-Ruler (as contemplated by Section 10(19A)) is not to be further split into occupied and let-out portions for the purpose of the exemption. Consequently, the Tribunal's view that the entire income from that palace is exempt aligns with the Court's statutory interpretation.
The opinion does not elaborate broader policy or precedent consequences beyond this statutory interpretation, nor does it state that it is laying down any new broader principle beyond the particular interpretation of subsection (19A) as applied to the facts of this reference.
1. This is a reference made by the Income-tax Appellate Tribunal at the instance of the Revenue for answering the following question :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the entire income from the palace of the assessee, who is the former Ruler of Bastar, is exempt from income-tax ?"
2. The facts stated by the Tribunal in the statement of the case are that this assessment pertains to an ex-Ruler of Bastar, a State which merged in the province of Central Provinces and Berar under the States Merger (Governor's Provinces) Order, 1949, and, according to Notification No. SRO 1620, dated May 14, 1954, in pursuance of para. 13 of the above Order of 1979 at item 39, the palace at Jagdalpur of the Ruler of Bastar had been declared as the official residence of the Ruler. It is stated that in the return of income, the income from house property was originally shown as Rs. 50,055 and Rs. 57,088 which was subsequently revised to Rs. 13,473 and Rs. 14,135 for the assessment years 1975-76 and 1976-77, respectively. In the course of the assessment proceedings, it was claimed that the palace at Jagdalpur is recognised as official residence and as such its rental value is exempted under the Act. The ITO negatived the claim on the ground that the entire palace at Jagdalpur is rented out leaving a small portion used for residence and that only the annual letting value of the residential portion in occupation of the assessee is exempt. The income from property has been assessed at Rs. 47,060 and Rs. 47,630 for the assessment years 1975-76 and 1976-77. The assessee preferred an appeal before the AAC, who confirmed the ITO's findings, holding that the income from property has been correctly computed. On further appeal before the Tribunal, the Tribunal took the view that the entire income from the palace of the assessee who is the former Ruler of Bastar is exempt from tax. The Tribunal took the view that if the palace is in occupation of the assessee and which is the official residence of the ex-Ruler, then it is exempt from tax as, according to the Tribunal, the law does not provide that if a portion only is occupied by the Ruler and the remaining is let out, the portion which is let out should be computed for purposes of income-tax. Dissatisfied with the order of the Tribunal, the Commissioner submitted an application for making a reference and the Tribunal has made this reference.
3. It is not disputed that under the Merged States (Taxation Concessions) Order, 1949, this palace was declared to be an official residence and was exmpt from tax. In this reference, we are concerned with the language of Section 10(19A) of the Income-tax Act, as amended by the Rulers of Indian States (Abolition of Privileges) Act, 1972. Section 10(19A) reads :
"(19A) the annual value of any one palace in the occupation of a Ruler, being a palace, the annual value whereof was exempt from income-tax before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, by virtue of the provisions of the Merged States Taxation Concessions) Order, 1949, or the Part B States (Taxation Concessions) Order, 1950, or, as the case may be, the Jammu and Kashmir (Taxation Concessions) Order, 1958 :
Provided that for the assessment year commencing on the 1st day of April 1, 1972, the annual value of every such palace in the occupation of such Ruler during the relevant previous year shall be exempt from income-tax."
4. The significant words in this provision are "one palace in the occupation of a Ruler" and further that it should be a palace which under the Merged States (Taxation Concessions) Order, 1949, was declared to be an official residence. So far as the second test is concerned, this palace was declared as an official residence and is not disputed. Learned counsel for the Revenue contended that the phrase "one palace in the occupation" contemplates that if the whole palace is in occupation, then alone exemption is attracted. If part of the palace is in occupation, then the exemption will be only of that part of the rental income which is in occupation and the rest which is not in occupation will be chargeable to tax. Learned counsel relied on a decision of the Delhi High Court in Mohd. Ali Khan v. CIT [1983] 140 ITR 948, and also a decision of this court in Raja Ajit Singh of Jhabua v. CIT [1983] 140 ITR 138.
5. Learned counsel for the assessee, on the other hand, contended that under the Merged States (Taxation Concessions) Order, 1949, even more than one palace could be declared as official residence and once under that order they were declared as official residence, they were exempt from tax, but by the introduction of Section 10(19A) the Legislature limited this exemption only to one such palace which is in occupation and from the language of sub-section (19a) of section 10, it could not be contended that the Legislature further intended the splitting up of the rental value of one palace also in parts in respect of occupation and it was, therefore, contended that if it is one palace and is in occupation, further splitting up is not contemplated within the meaning of the language of sub-section (19a) of section 10.
6. Learned counsel contended that in Raja Ajit Singh of Jhabua v. CIT [1983] 140 ITR 138 (MP), which is a decision of this court, this matter has not been considered at all. In that reference, the only question was from what date effect can be given to the amendment incorporated in sub-section (19a) of section 10 and it is, therefore, of no assistance so far as this case is concerned. The Delhi decision, according to the learned counsel, is on the W.T. Act and even in that decision, there was no question of splitting up of the matter further as in the W.T. Act in place of "one palace", "one building" is mentioned and what has been considered in that case is that out of so many buildings which were declared as official residence, if only one building is in occupation, exemption can be granted in respect of that building and not in respect of others and to that extent that decision is also of no help so far as this case is concerned.
7. It is clear that under the Merged States (Taxation Concessions) Order, 1949, all buildings and palaces declared to be the official residence were declared exempt from tax and in some of the States when one building or palace was declared as an official residence, they were exempt from tax. This provision of Sub-section (19A) to Section 10 was incorporated by the Rulers of Indian States (Abolition of Privileges) Act, 1972, with effect from December 28, 1971, and from the language of Sub-section (19A), it is clear that the exemption which was available for a number of palaces declared to be the official residence under the Merged States (Taxation Concessions) Order, 1949, was limited to only one place in occupation. Sub-clause (iv) of Clause (13) to the Merged States (Taxation Concessions) Order, 1949, was amended by Order No. 377, dated March 14, 1951. Clause (iv), which exempted the income of the property which was declared to be an official residence, reads :
"The bona fide annual value of the palaces of Rulers of Indian States which are declared by the Central Government as the official residence of such Rulers."
8. It is, therefore, clear that under this order the income from all the palaces of a Ruler which are declared to be the official residence were exempt. Under sub-section (19a) of section 10, only one palace in occupation has been exempted and it appears that similarly in the W.T. Act instead of using the word "palace" they have used the words "one building in occupation of a Ruler" which has been exempted from tax.
9. It is not in dispute that in this reference the property in question is a palace. It is also not in dispute that a portion of it is in occupation. The only question which has been raised by learned counsel for the Revenue is that if only a portion of the palace is in occupation, the exemption under sub-section (19a) of section 10 would be available only for that part and not for the whole. The change brought about by the insertion under the Merged States (Taxation Concessions) Order is clearly illustrated by the two provisions quoted above. By Sub-section (19A), the exemption has been limited only to one palace in occupation. If the Legislature intended a further splitting up, it would have been provided in Sub-section (19A) that such portion of the palace in occupation is only exempted, but it appears that the language used by the Legislature did not contemplate a further splitting up. In Mohd. Ali Khan's case [1983] 140 ITR 948 (Delhi), which is a case under the W.T. Act, the only question considered was that if the palace which was declared to be an official residence had a number of buildings, as the exemption under the W.T. Act is available only in respect of one building which is in occupation and, therefore, the assessee's contention, that the other buildings which may not be in occupation but declared to be an official residence should be exempted, was not accepted. In Sub-section (19A) of Section 10 of the I.T. Act, in the place of "building", the phrase employed is "one palace" and so far as the case in hand is concerned, it is not disputed that this official residence is only one palace and not more than one. Under these circumstances, in our opinion, Sub-section (19A) could not be interpreted to mean that it contemplates further splitting up of portions of a palace. The language of sub-section (19a) of section 10 does not justify it. It is settled that in cases of exemption, the language of the statute has to be liberally construed but even if this principle is not considered, there are no words in sub-section (19a) of section 10 from which an intention for splitting up of the palace into portions could be gathered. In this view of the matter, therefore, the contention advanced by the learned counsel for the Revenue cannot be accepted.
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