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Mohammad Ali Khan And Others v. Commissioner Of Wealth Tax, New Delhi .
Factual and Procedural Background
H.H. Nawab Sir Syed Raza Ali Khan, Nawab of Rampur, owned the Khas Bagh Palace, which the Central Government had declared to be his official residence under paragraph 13 of the Merged States (Taxation Concessions) Order, 1949. For Assessment Year 1961-62, the assessee claimed full exemption of the palace’s value under Section 5(1)(iii) of the Wealth Tax Act, 1957. The Wealth Tax Officer granted exemption only for the portion actually occupied by the Nawab and included the value of several palace buildings that were rented out (estimated at Rs 3,55,000) in the assessee’s net wealth.
The assessee’s appeal before the Assistant Commissioner and a further appeal to the Income-tax Appellate Tribunal (ITAT) were dismissed. On an application under Section 27(1) of the Act, the ITAT referred a question of law to the Delhi High Court, which answered it in favour of the Revenue. The assessee obtained a certificate of fitness, leading to the present appeal before the Supreme Court.
Legal Issues Presented
- Whether, under Section 5(1)(iii) of the Wealth Tax Act, buildings within the Khas Bagh Palace that were let out and generated rental income for the assessee could still be considered “in the occupation of a Ruler” and therefore fully exempt from wealth tax.
Arguments of the Parties
Assessee/Appellant
- Section 5(1)(iii) uses the phrase “any one building”; dissecting this phrase to permit a part-wise analysis (occupied versus let out) amounts to judicial legislation.
- Once the Central Government declares a building to be the Ruler’s official residence, the entire building is excluded from net wealth; occupation of only a portion suffices.
- Courts must give a plain, literal reading to taxing statutes and should not be guided by policy considerations. Reliance was placed on Jupudi Kesava Rao v. Pulavarthi Venkata Subbarao and Baidyanath Ayurved Bhawan (P) Ltd. v. Excise Commissioner, U.P.
Revenue/Respondent
- The statutory words “in the occupation of a Ruler” must be given full effect; only the part actually occupied by the Ruler, and not the rented-out portions, qualifies for exemption.
- A literal and grammatical reading of Section 5(1)(iii) supports partial exemption corresponding to occupation.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jupudi Kesava Rao v. Pulavarthi Venkata Subbarao, (1971) 1 SCC 545 | Courts must apply the plain, literal meaning in interpreting statutes, especially taxing statutes. | Cited by the assessee; the Court accepted the principle but found that a literal reading still requires giving effect to every word, including “in the occupation of a Ruler”. |
| Baidyanath Ayurved Bhawan (P) Ltd. v. Excise Commissioner, U.P., (1971) 1 SCC 4 | Literal interpretation prevails over policy considerations in fiscal legislation. | Reaffirmed but held not to assist the assessee because ignoring the phrase “in the occupation” would violate the same rule of literal construction. |
| J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. State of U.P., (1961) 3 SCR 185 | Every word in a statute is presumed to have been used for a purpose; none should be rendered redundant. | Used by the Court to justify giving independent meaning to the phrase “in the occupation of a Ruler”, leading to partial—not full—exemption. |
Court's Reasoning and Analysis
The Supreme Court reiterated the cardinal rule that statutory words must be understood in their natural and grammatical sense, and every word must be given effect. Applying this rule to Section 5(1)(iii), the Court held:
- The phrase “any one building” is qualified by “in the occupation of a Ruler”. Ignoring the qualifying words would defeat legislative intent and render them redundant, contrary to the principle stated in J.K. Cotton.
- Taxing statutes warrant strict construction; however, strictness applies equally to all parts of the provision. Thus, exemption extends only to the building (or part thereof) actually occupied by the Ruler and declared as the official residence.
- The assessee’s construction would allow rented portions also to be exempt, effectively deleting the occupation requirement. Such an interpretation is impermissible without legislative amendment.
- Because substantial portions of Khas Bagh Palace were let out and produced rental income, those portions fell outside the scope of Section 5(1)(iii). The wealth tax authorities and the High Court therefore acted correctly in including their value in the assessee’s net wealth.
Holding and Implications
Appeal Dismissed.
The Supreme Court affirmed the Delhi High Court’s decision, holding that only the part of a palace actually occupied by a former Ruler, and declared as his official residence, is exempt under Section 5(1)(iii). Portions leased to third parties remain taxable. The ruling clarifies the scope of the exemption for official residences of Rulers and ensures that the phrase “in the occupation of a Ruler” retains operative effect. No broader precedent was set beyond this interpretive clarification, and no order as to costs was made.
G.B Pattanaik, J.— In this appeal by grant of certificate by the Delhi High Court interpretation of Section 5(1)(iii) of the Wealth Tax Act, 1957 (hereinafter referred to as “the Act”) is involved. On an application being filed under Section 27(1) of the Act the Tribunal referred the following question to the High Court for being answered:
“Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the buildings of the Khas Bagh Palace which were let out to different persons from whom a rental income was received by the assessee were not in the occupation of the assessee within the meaning of Section 5(1)(iii) of the Wealth Tax Act, 1957 and hence the value thereof was includible in the net wealth of the assessee?”
2. The assessee late H.H Nawab Sir Syed Raza Ali Khan, Nawab of Rampur is the owner of Khas Bagh Palace. The said palace was declared by the Central Government in exercise of power under para 13 of the Merged States (Taxation Concessions) Order, 1949, to be the official residence of the Ruler. During the Assessment Year 1961-62 the assessee claimed exemption of the aforesaid palace in computation of the wealth under the Wealth Tax Act under Section 5(1)(iii) of the Act. The Wealth Tax Officer on consideration of the materials before him came to the conclusion that the palace having consisted of a number of buildings the assessee would be entitled to exemption only in respect of the building or the portions of the building which is in the occupation of the Ruler and on the said conclusion he found that the estimated market value of several buildings which had been let out to be Rs 3,55,000. This valuation obviously he found out on the basis of the rental income derived by the assessee. He accordingly took that into consideration in computation and levying wealth tax on the same. Being aggrieved by the order of the Officer the assessee moved an appeal and the Assistant Commissioner in appeal as well as the Tribunal in second appeal confirmed the assessment made. But on an application being filed under Section 27 of the Act the Tribunal made the reference on the question, as already stated. The High Court in the impugned decision came to the conclusion that a restrictive interpretation of Section 5(1) of the Act would disentitle the assessee of any exemption since the building in question is not under the occupation of the Ruler fully. It also came to the conclusion that liberal interpretation of the said provision would entitle the assessee to exemption to the extent the assessee occupies the building or the portion of the building and, therefore, the liberal interpretation should be preferred. With this finding the High Court answered the question referred to in favour of the Revenue and against the assessee.
3. Mr Sharma, the learned counsel appearing for the appellant, contended that the expression “any one building” in Section 5(1)(iii) is not susceptible of an interpretation by making a further dissection to import into it the portion of the building or whole of the building as that would tantamount to a fresh legislation which the Court is not empowered to do. According to the learned counsel the Central Government having declared the Khas Bagh Palace to be the official residence of the assessee in exercise of power under para 13 of the Merged States (Taxation Concessions) Order, 1949, the said building would be excluded from the purview of the Act by virtue of Section 5(1)(iii) of the Act. This being the position, the High Court committed an error in answering the question posed in favour of the Revenue. The learned counsel urged that in interpreting the taxing statute it is not permissible for the Court to look to the policy behind the statute and the Court would be entitled to give a plain meaning to the words used in the statute. In support of this contention reliance was placed on the decisions of this Court in Jupudi Kesava Rao v. Pulavarthi Venkata Subbarao (1971) 1 SCC 545 and Baidyanath Ayurved Bhawan (P) Ltd. v. Excise Commr., U.P (1971) 1 SCC 4 It is, therefore, urged that a plain literal meaning being given to each part of Section 5(1)(iii), the said provision is susceptible of only one construction, namely, that building which has been declared by the Central Government to be the official residence of the Ruler cannot be included in the assets of the assessee for the purpose of determining the wealth tax payable by an assessee.
4. Dr Gauri Shankar, the learned Senior Counsel appearing for the Revenue, on the other hand, contended that in interpreting Section 5(1)(iii) of the Act the expression “in the occupation of a Ruler” has to be borne in mind and if each and every word used in Section 5(1)(iii) of the Act is given its literal grammatical meaning then the only conclusion possible is the building or the part of the building in occupation of the Ruler and which has been declared by the Central Government as the official residence of the Ruler would be exempted under the said provision.
5. In order to appreciate the rival contention it would be appropriate to notice Section 5(1)(iii) of the Act:
“5. (1) Wealth tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee—
(i) ***
(ii) ***
(iii) any one building in the occupation of a Ruler declared by the Central Government as his official residence under paragraph 13 of the Merged States (Taxation Concessions) Order, 1949, or paragraph 15 of the Part B States (Taxation Concessions) Order, 1950.”
6. It is a cardinal principle of construction that the words of a statute are first understood in their natural, ordinary or popular sense and phrases and sentences are construed according to their grammatical meaning unless that leads to some absurdity or unless there is something in the context or in the object of the statute to suggest the contrary. It has been often held that the intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a consequence a construction which requires for its support addition or substitution of words or which results in rejection of words as meaningless has to be avoided. Obviously the aforesaid rules of construction is subject to exceptions. Just as it is not permissible to add words or to fill in a gap or lacuna, similarly it is of universal application that effort should be made to give meaning to each and every word used by the legislature. In J.K Cotton Spg. and Wvg. Mills Co. Ltd. v. State of U.P (1961) 3 SCR 185, AIR 1961 SC 1170, (1961) 1 LLJ 540 it was observed by this Court:
“… the courts always presume that the legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect.”
7. In case of taxing statute it has been held by this Court in several cases that one must have regard to the strict letter of the law and if the Revenue satisfies the Court that the case falls strictly in the provisions of law, the subject can be taxed. This being the position, a fair reading of Section 5(1)(iii) of the Act would reveal that only the building or the part of the building in occupation of the Ruler which has been declared by the Central Government to be the official residence under the Merged States (Taxation Concessions) Order, 1949, will not be included in the net wealth of the assessee. The contention advanced by the learned counsel for the appellant that once a building has been declared as the official residence and a portion of the said building is under occupation of the assessee then the said building should come under the purview of Section 5(1)(iii) of the Act even if the substantial portion of the same has been rented out by the assessee to the tenant or for any other purpose would make the expression “in the occupation of a Ruler” redundant and those words in the provision would not have their play.
8. We have carefully considered the principles of construction of the statute enunciated by this Court in the decision cited by the learned counsel for the appellant and we do not find any principle stated therein, which is contrary to the principle we have adopted in this case in interpreting Section 5(1)(iii) of the Act. In the aforesaid premises, we are of the considered opinion that the High Court rightly answered the question posed in favour of the Revenue and against the assessee and the said judgment of the High Court does not require any interference by this Court.
9. This appeal is accordingly dismissed. But in the circumstances, there will be no order as to costs.
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