Commissioner of Income-Tax, Lucknow Vs.
Madho Pd. Jatia  INSC 180 (17 August 1976)
KHANNA, HANS RAJ KHANNA, HANS RAJ SARKARIA,
RANJIT SINGH, JASWANT
CITATION: 1977 AIR 420 1977 SCR (1) 665 1976
SCC (4) 92
D 1989 SC 501 (16)
Indian Income Tax Act, 1922--S.
9--Irrecoverable rent--If could be deducted from income from property of only
one year--Exemption--If could be given only once.
While assessing the income of the assessee
under the head 'property' the Income Tax Authorities allowed for one year.
deduction of a part of a large sum of
unrealised rent but rejected the claim for exclusion of the remainder during
the three subsequent assessment years. Before the Tribunal the authorities
contended that no deduction could be claimed by the assessee for more than one
assessment year. The Tribunal held that to the extent the irrecoverable rent
had not been exempted in the previous assessment year should be exempted in the
subsequent years from the income from property of the assessee. The High Court
answered the reference in favour of the assessee.
Dismissing the appeal to this Court,
HELD: There is no reason why the assessee
should become disentitled claim the benefit of the exemption in respect of the
balance of the irrecoverable rent in subsequent years subject to the condition
that in no 'year the deduction would exceed the amount of rent payable for a
year. [206 B] Section 9 of the Indian Income Tax Act, 1922 provides for
computation of income from property on a notional basis.
While computing the income from the property
the tax Authorities have to take into account its bona fide annual value.
The fact that the rent due from the tenant
had become irrecoverable would be known only in subsequent years. Section 9(1)
of the Act does not deal with deductions in respect of irrecoverable rent. Item
38 in Notification No. 878F dated March 21, 19.22 exempts from, payment of tax
such part of the income in respect of which tax is payable under the head
'property' as is equal to the amount of rent payable for a year but not paid by
a tenant of the assessee and so proved to be lost and irrecoverable. [205 B-D]
The underlying object of the exemption granted by item 38 is that the assessee
shall be entitled to claim deduction under the head 'property' in respect of
the notional rental income which, it subsequently so transpires, was never
received by him but on which he had to pay tax. Although item 38 fixes the
limit of deduction which is permissible in one year, there is nothing in the
language of that item to warrant the inference that the benefit of the
exemption can be claimed only once. There is also nothing in the language of
that item to indicate that in respect of the balance of the irrecoverable rent.
no relief is permissible even though tax on that balance amount too had been
paid by the assessee. [208 C-D] Daljit Singh v. Commissioner of Income-tax,
Delhi, 52 I.T.R. 933 not approved.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 150-1542 of 1971.
(From the Judgment and Order dated 18-12-1969
of the Allahabad High Court in Income Tax Reference No. 328/64).
G.C. Sharma, P.L. Juneja and S.P. Nayar, for
S.C. Manchanda, V.C. Prashar & Ujjal
Singh, for the Respondent.
203 The Judgment of the Court was delivered
by KHANNA, J.--These three appeals on certificate by the Commissioner of
Income-tax are against the judgment of the Allahabad High Court whereby the
High Court answered the following question referred to it under section 66(1)
of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act) in
favour of the assessee respondent and against the revenue:
"Whether in the facts and circumstances
of the case, the assessee is entitled for each of the years under consideration
to the exclusion from the income under the head 'property' of an amount equal
to the irrecoverable rent of the Grand Hotel property for one year which has
not been so excluded in the preceding assessments ?" The matter relates to
the assessment years 1957-58, 1958-59 and 1959-60.. The assessee is the owner
of a building known as Grand Hotel in Civil Lines Delhi. The income from this
building was assessed from year to year under section 9 of the Act as income
from property. Subsequently there was a dispute between the assessee and her
Protracted litigation followed and ultimately
a compromise was reached between the assessee and the tenant as per compromise
deeds dated December 8, 1954 and July 9, 1955.
According to the assessee:, a total amount of
Rs. 1,85,892 representing rent due on account of Grand Hotel became
irrecoverable from the tenant. At the time of the assessment year 1956-57 the
assessee was able to secure deduction under item No. 38 of the Government of
India notification No.
877F dated March 21, 1922 as regards
unrealised rent in previous years. The assessee made similar claims for
deduction at the time of the assessment for the years 195758, 1958-59 and
1959-60. The claim was not specifically made before the Income tax Officer but
was made in appeal before the Appellant Assistant Commissioner. The Appellate
Assistant Commissioner declined to entertain the claim made at such a late
stage. When the matter went up before the Tribunal in further appeal, the
Tribunal permitted the assessee to raise that point before it. It was then
urged on behalf of the department that in view of the deduction made for the
assessment year 1956-57, no further deduction could be claimed by the assessee
for the subsequent years.
This contention advanced on behalf of the
department was not accepted by the Tribunal. The Tribunal took the view that
the claim could properly be made for the deduction in the assessment for the
three years with which we are concerned in spite of the fact that such claim
had been allowed in assessee's favour in the year 1956-57. On this view the
Tribunal directed the Income-tax Officer to compute the total rent which had
become irrecoverable in respect of Grand Hotel property. The Tribunal further
directed that to the extent the-irrecoverable rent had not been exempted in the
previous assessment for 1956-57 should be exempted during the year under appeal
in so far as income from property was concerned. On application filed by the
Commissioner of Income-tax the question reproduced above was referred to the
High Court. The High Court, as stated above, answered the question in the
affirmative in favour of the assessee.
204 In appeal before us Mr. Sharma on behalf
of the appellant has assailed the judgment of the High Court. As against that,
Mr.. Manchanda on behalf of the assesseerespondent has canvassed for the
correctness of the view taken by the High Court.
Before dealing with the contentions advanced
before us, it would be appropriate to refer to the relevant provisions on the
subject. Section 9 of the Act deals with tax payable under the head
"Income from property". According to that section, the tax shall be
payable by an assessee under the head "Income from property" in
respect of the bona fide annual. value of property consisting of any buildings
or lands appurtenant thereto of which he is the owner, other than such portions
of such property as he may occupy for the purposes of any business, profession
or vocation carried on by him the profits c,f which are assessable to tax, subject
to certain allowances. These allowances have been specified in section 9, but
for the purpose of present appeals it is not necessary to .refer to them.
"Annual value" any property, for the purpose of section 9, shall,
according to subsection (2) of that section, be deemed to be the sum for which
the property might reasonably be expected to let from year to year. Subsection
(2) is followed by a number of provisos, but we are not concerned with them in
these appeals. Section 60 of the Act empowers the Central Government to make
exemptions. According to the section, the Central Government may, by
notification in the Official .Gazette,, make an exemption, reduction in rate or
other modification, in respect of income-tax in favour of any class of income,
or in regard to the whole or any part of the income of any class of persons. In
exercise of the powers conferred by the above section the Central Government
issued notification No. 878F dated March 21, 1922. Item 38 of that notification
reads as under:
"The following classes of income shall
be exempt from the tax payable under the said Act:
(38) Such part of the income in respect of
which they said tax is payable under the head 'property' as is equal to the
amount of rent payable for a year but not paid by a tenant of the assessee and
so proved to be lost and irrecoverable, where-(a) the tenancy is bona fide;
(b) the defaulting tenant has vacated or
steps have been taken to compel him to vacate the property;
(c) the defaulting tenant is not in occupation
of any other property of the assessee;
(d) the assessee has taken all reasonable
steps to substitute legal proceedings for the recovery of the unpaid rent or
satisfies the Income-tax Officer that legal proceedings would be useless; and
205 (e) the annual value of the property to which the unpaid rent relates has
been included in the assessee's income of the year during. which that rent was
due and income tax has been duly paid on such assessed income." Section 9
of the Act makes provision for computation of income from property on a
notional basis. According to this section, the income shall be taken to be the
bona fide annual value of the property. In making the computation, certain
allowances which are mentioned in section 9 would have to be deducted. In case
the property in question was in occupation of a tenant, the taxing authorities
have, while computing the income from that property, to take: into account its
bona fide annual value. The questions to whether the tenant who was in
occupation of the property has,. in fact, paid the rent or not would not enter
into consideration at that stage, unless it be found that the rent due from the
tenant has become irrecoverable. The fact that the rent due from the tenant has
become irrecoverable would in a majority of cases be known only in subsequent
years and not in the year during which the tenant has remained in occupation.
None of the clauses dealing with allowances which are permissible under section
9 (1) of the Act deal with rent due from a tenant which remains irrecoverable.
It was to meet such an eventuality that exemption was granted as per item No.
38 in notification No. 878F dated March 21, 1922. Item 38 exempts from payment
of tax such part of the income in respect of which tax is payable under the
head 'property' as is equal to the amount of rent payable for a year but not
paid by a tenant of the assessee and so proved to be lost and irrecoverable. In
order to claim the benefit of the above exemption, the assessee has also to
show that the requirements of clause (a) to (e) of item 38 have been satisfied.
It was not disputed before the High Court that conditions mentioned in clauses
(a) to (e) of item No. 38 had been fulfilled in the instant case. The dispute
between the parties centres on the point as to whether in the event of the
amount of the irrecoverable rent being more than the amount of rent payable for
a year, the assessee can claim the deduction only in one year equal to the
amount of rent payable for a year, or whether the assessee can claim deductions
for the balance of the irrecoverable rent in subsequent years also. In other
words, the question is whether in the event of the amount of irrecoverable rent
being more than the amount of the rent payable for a year of the property, the
assessee can claim the benefit of the exemption mentioned in item 38 only once
or whether the assessee can claim the benefit of that exemption in successive
years also till such time as. the assessee gets relief in respect of the whole
of the amount of irrecoverable rent. Both the Tribunal and the High Court took
the view that it would be permissible to claim the benefit of the exemption in
successive years. After hearing the learned counsel for the parties, we find no
cogent ground to take a different view.
The language of item 38 which has been
reproduced above shows that if other conditions are satisfied, the deduction
which can be claimed by the assessee at an assessment cannot exceed the amount
of 206 rent payable for a year. The item thus places a limit in respect of the
deduction which is permissible in an assessment for one year. In case, however,
the amount of irrecoverable rent exceeds the amount of rent payable for a year,
the right of the assessee to claim the benefit of the above exemption does not,
in our opinion, get exhausted by his having claimed exemption in one year. We
land no cogent reason as to why the assessee should become disentitled to claim
the benefit of the above exemption in respect of the balance of the irrecoverable
rent in subsequent years subject to the condition that in no year the deduction
would exceed the amount of rent payable: for a year. the assessee, it has to be
borne in mind, seeks exemption in respect of the notional rental income which
he, in fact, never received but on which he had in terms of section 9 of the
Act to pay tax. The underlying object of the exemption granted by item 38 is
that the assessee shall be entitled to claim deduction 'under the head
'property' in respect of the notional rental income which, it subsequently so
transpires, was never received by him but on which he had to pay tax. Although
item 38 fixes the limit of deduction which is permissible in one year, there is
nothing in the language of that item to warrant the inference that the benefit
of the exemption can be claimed only once. There is also nothing in the
language of that item to indicate that in respect of the balance of the
irrecoverable rent, no relief is permissible even though tax on that balance
amount too has been paid by the assessee. It is well settled that there is no
equity about tax. if the provisions of a taxing statute are clear and
unambiguous, full effect must be given to them irrespective of any
consideration of equity. Where however the provisions are couched in language
which is not free from ambiguity and admits of two interpretations, a view
which is favourable to the subject should be adopted. The fact that such an
interpretation is also in consonance with ordinary notions of equity would further
fortify the court in adopting such a course.
Mr. Sharma has invited our attention to the
judgment of the Punjab High Court in the case of Daljit Singh v Commissioner of
Income-tax Delhi(1) wherein the Punjab High Court took a different view. For
the reasons stated above,.
we prefer the view taken by the Allahabad
High Court in the judgment under appeal to that of the Punjab High Court in
Daljit Singh's case.
The appeal consequently fails and is
dismissed with costs.
One hearing fee.
P.B.R. Appeal dismissed.
(1) 52 1. T.R. 9 33.