Exemption us 10(19A) apply to whole palace including let out part and not confined only to portion in actual occupation of Ruler-Supreme Court
ABCAUS Case Law Citation:
ABCAUS 1075 (2016) (12) SC
Assessment Year: 1978-79
Important Case Laws cited:
Maharawal Laxman Singh vs. C.I.T.
C.I.T. vs. H.H. Maharao Bhim Singhji
M/s Radhasoami Satsang, Saomi Bagh, Agra vs. CIT
The Parashuram Pottery Works Co. Ltd. vs. The Income Tax Officer
Commissioner of Income Tax vs. Excel Industries Ltd.
Union of India & Ors. vs. Wood Papers Ltd. & Anr.
Commissioner of Income-tax vs. Bharatchandra Banjdeo
Substantial Question of Law The Question:
Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the rental income from Umed Bhawan Palace was exempt under Section 10(19A) of the IT Act,1961.
Brief Facts of the Case:
The appellant was the Ruler of the princely State of Kota, now a part of Rajasthan. Among the extensive properties which he owned included two residential palaces known as “Umed Bhawan Palace” and “City Palace“. The appellant was using Umed Bhawan Palace for his residence.
As per the Part B States (Taxation Concessions) Order 1950, the bona fide annual value of the residential palace of the Ruler of a State which is situate within the State and is declared by the Central Government as his inalienable ancestral property would be exempt from payment of Income-tax. The Government, under the powers of the order, issued notification dated 14.05.1954 declaring the said two palaces, as his official residences.
In 1976, the Ministry of Defence requisitioned portion of the Umed Bhawan Palace for their own use and realized Rs.80,000/- as rent by invoking the provisions of Requisition and Exhibition of Immovable Property Act, 1952.
Thus the question arose whether the rental income received by the appellant from the requisitioned property by way of rent is taxable in his hands or the exemption u/s Section 10 (19A) of the Income Tax Act 1961 is confined only to the portion in actual occupation as residence?
The Commissioner of Income Tax (Appeals) answered the question in appellant’s favour and held that he was entitled to claim full benefit of the exemption u/s 10 (19A) notwithstanding the fact that portion of the residence is let out to the Defence Ministry.
The Revenue carried the matter in appeal before the Income Tax Appellate Tribunal. The ITAT affirmed the order of the CIT(A) and dismissed the Revenue’s appeal. The Tribunal, however, on an application made by the Revenue u/s 256(1) referred the question of law as above to the High Court of Rajasthan.
The earlier two decisions of the Rajasthan High Courts on the subject were contrary to each other. In Maharwal Laxman Singh, the High Court had answered the question in favour of the Revenue. Whereas in the case of H. H. Maharao Bhim Singhji, the High Court had answered the question against the Revenue and in favour of the assesse.
However, the High Court answered the question against the assessee and in favour of the Revenue holding that the law laid down in H.H. Maharao Bhim Singhji did not lay down correct principle of law whereas the law laid down in Maharawal Laxman Singh was the correct principle of law.
Aggrieved by the decision of the rajasthan High Court, the assessee agitated the matter before the Hon’ble Supreme Court.
It was also contended that there is a significant departure in the wordings of Section 10(19A) and Section 23 of the I.T. Act i.e it does not employ the word “part of house”
Contentions of the Assessee:
It was urged that when the question involved had already decided in favour of the appellant in all previous assessment years (1973-74 to 1977-78), by the Supreme Court, there was no justifiable reason for the Revenue to have pursued the same question again only for the assessment year in question (1978-79) to the High Court.
It was submitted that since the issue involved pertained to grant of exemption to the assessee from payment of income-tax, such provisions should be regarded as exception and construed liberally in appellant’s favour unlike the charging provisions, which are interpreted strictly.
It was contended that the High Court was not justified in placing reliance on Section 5(iii) of the Wealth Tax Act, 1957 while interpreting Sections 10(19A), 22 and 23 of the Income Tax Act and Paragraph 15 of the Order.
It was further contended that the question involved had already been answered by the M.P. High Court in favour of the assessee and the reason given for distinguishing the view taken by the M.P. High Court was not well founded.
Observations made by the Apex Court:
The Hon’ble Supreme Court observed that in order to claim exemption from payment of income-tax on the residential palace of the Ruler under Section 10(19A), it is necessary for the Ruler to satisfy that:
- he owns the palace as his ancestral property;
- such palace is in his occupation as his residence; and
- the palace is declared exempt from payment of income-tax under Paragraph 15 (iii) of the Order, 1950 by the Central Government
According to the Hon’ble Court, the question that arose for its consideration was that where part of the residential palace is found to be in occupation of the tenant and remaining is in occupation of the Ruler for his residence, whether in such circumstances, the Ruler is entitled to claim exemption for the whole of his residential palace under Section 10(19A) or such exemption would confine only to that portion of the palace which is in his actual occupation.
The Apex Court observed that M. P. High Court had held that no reliance could be placed on Section 5(iii) of the Wealth Tax Act while construing Section 10(19A) for the reason that the language employed in Section 5(iii) is not identical with the language of Section 10(19A) of the I.T. Act and relying upon the aforesaid decision, Rajasthan High Court answered the question in favour of the appellant for the assessment years (1973-74 to 1977-78). Following the aforesaid view, the High Court of Rajasthan had declined to make reference to the High Court under Section 256(1) of the I.T. Act in later Assessment Years and dismissed the application made by the Revenue under Section 256(2).
The Court opined that the view taken by the Madhya Pradesh High Court and the one taken in the in favour of the assessee was the correct view.
According to the Apex Court there is a marked difference in the language employed in Section 5(iii) of the Wealth Tax Act and Section 10(19A) of the I.T. Act. It observed that in Section 10(19A), the expression “palace” has been used for considering the grant of exemption to the Ruler whereas on the same subject, the Legislature has used different expression namely “any one building” in Section 5 (iii) of the Wealth Tax Act. Also as pointed out by the appellant’s counsel, Section 23(2) and (3), uses the expression “house or part of a house”. Whereas such expression does not find place in Section 10(19A) which also suggest that the Legislature did not intend to tax portion of the “palace” by splitting it in parts.
The Court stressed that as a settled rule of interpretation if two Statutes dealing with the same subject use different language then it is not permissible to apply the language of one Statute to other while interpreting such Statutes. Similarly, once the assessee fulfills the conditions specified in section for claiming exemption under the Act then provisions dealing with grant of exemption should be construed liberally because the exemptions are for the benefit of the assessee.
Since for the earlier assessment years (1973-74 till 1977-78), the SLP of the Revenue had been dismissed by Supreme Court by affirming the order of the Rajasthan High Court in H.H. Maharao Bhim Singhji’s case, the Apex Court opined that in the absence of any valid and convincing reason, there was no justification on the part of the Revenue to have pursued the same issue again to higher Courts.
The Court concluded that, the reasoning and the conclusion arrived at by the view taken by the Rajasthan High Court in Maharaval Lakshmansingh’s case does not lay down correct principle of law whereas the view taken by the M.P. High Court in cases of Bharatchandra Bhanjdeo and Rajasthan High Court in H.H. Maharao Bhim Singhji lays down correct principle of law.
Held:
The exemption u/s 10(19A) applies to whole palace and not confine only to portion in the Ruler’s actual occupation.
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