Liquidator of Mahamudabad Properties
(P) Ltd Vs. Commissioner of Income Tax, West Bengal II, Calcutta [1980] INSC 68
(9 April 1980)
PATHAK, R.S.
PATHAK, R.S.
UNTWALIA, N.L.
CITATION: 1980 AIR 758 1980 SCR (3) 428 1980
SCC (3) 482
ACT:
Income Tax Act, 1961, Sections 22 and
23-Computation of Income from house property-Building not in a habitable
condition after it was released by Government consequent to
derequisitioning-Assesee claiming remission in the computation of income of the
entire annual value and also deductions on account of insurance premium and
municipal taxes relating to the property- Permissibility of remission and
deductions claimed-Competency of the High Court to give a direction to the
Appellate Tribunal, enabling the Revenue to tax income from the property when
the Revenue failed to ask for a reference against Appellate Tribunal's
decision- Nature of High Court's power in a reference case.
HEADNOTE:
The appellant-assessee, in his income tax
return for the assessment year 1962-63 (for which the previous year was the
calendar year 1961) recited that the annual value of the building
derequisitioned by the Govt. on 26-12-1960 was Rs. 1,23,672/-. However on the ground that the building had remained vacant throughout the previous year,
the assessee claimed a remission in the computation of the income of the entire
annual value. The assessee also claimed a deduction on account of insurance
premium and municipal taxes relating to the property.
The Income Tax Officer took the view that the
property was not in a habitable condition and did not admit of letting and
therefore no question arose of applying the provisions of the Income Tax Act
relating to the computation of income from property. Accordingly, he held that
the annual value as well as the vacancy claim had to be ignored.
The assessee appealed to the Appellate
Assistant Commissioner who held that although the property had remained vacant,
it possessed an annual value and should be considered for assessment. On that
view, he allowed the deductions claimed by the assessee. In second appeal, the
Income Tax Appellate Tribunal favoured the view taken by the Income Tax Officer
and accordingly held that the claim to deductions made by the assessee must
fail. The Tribunal, in other words, affirmed that the property fell outside the
scope of s. 22 of the Act and, consequently, denied the deductions. The Revenue
appeared satisfied with the order of Appellate Tribunal. But, at the instance
of the assessee a reference was made to the High Court. The High Court was of
the opinion that the Appellate Tribunal had misconceived the law in holding
that because the property was in a state of disrepair it did not possess an
annual value. As regards the assessee's claim to the specified deduction, it
held that while the insurance premium paid by it could be allowed, there was no
merit in the claim on account of vacancy remission and payments of municipal
taxes. Hence the appeal by special leave to this Court.
Dismissing the appeal, the Court,
HELD : 1. Whether the High Court was right in
including a direction to the Appellate Tribunal to take into account the annual
value of the property 429 will depend on the appreciation of the true scope of
the reference taken to the High Court. The question referred to the High Court
was rooted in the fundamental submission of the assessee that the property
possessed an annual value for the purpose of Section 22 and it was, therefore,
entitled to the vacancy remission and other deductions claimed by it. The frame
of the question indicates that it has two parts, whether the Appellate Tribunal
was right in holding that in computing the income from property the premises 3,
Gun Foundry, possessed an annual value and whether the Appellate Tribunal was
right in disallowing the vacancy remission and other deductions in respect of
that property. [434C-E] Unless the property fall within the scope of Section 22
there was no occasion for considering the assessee's claim to the deductions.
The High Court also, when considering the reference, examined the question in
its bifurcated character. But although bifurcated, the thrust of the question
was directed to the consideration of the deductions claimed by the assessee.
Whether the property possessed an annual value was necessary to determine
solely for the purpose of considering the claim to deductions. Unless the
assessee was interested in those deductions it would not have asked for a
finding that the property possessed an annual value. The High Court, was,
therefore, right in examining both parts of the question and in determining
whether the property had an annual value and the deductions claimed were
permissible. [434E-G] The High Court had to consider the first part of the
question because that was the very case of the assessee throughout from the
earliest stage of the proceeding. The need for the determination whether the
property has an annual value arises only if it is found that on the terms of
the statute the assessee is otherwise entitled to the deductions claimed by
him. If those deductions are not permissible under the relevant section, no
question arises of examining whether the property has an annual value.
Viewed in that light, the determination of
the question whether the property has an annual value falls into its proper place.
[434G-H, 435A]
2. It is not open to the Revenue to contend
that even though the claim to deduction must otherwise fail, the question
whether the property has an annual value must still be considered. If the
Revenue intended that the High Court should determine whether the property had
an annual value as a question independent of its finding on the admissibility
of the deductions, the Revenue should have applied to the Appellate Tribunal
for a reference to the High Court accordingly. It did not ask for a reference
and, therefore it is not entitled to raise that contention now. [435A-C]
However, the only way of looking at the case, is whether on the assumption that
the property has an annual value and falls within the scope of Section 22, the
assessee is entitled to the deductions under Sections 23 and 24. If he is
entitled to any of those deductions, then in order to establish the foundation
in which the deductions can be rooted it will be necessary to determine whether
the property possesses an annual value. That is what the High Court did, and
the observations made by it must be construed accordingly. It may be that the
deduction to which the assessee is found entitled runs to a far smaller figure
than the annual value property attributable to the property. In that event the
consequence will be a net annual value of some significance. And this will be
the consequence notwithstanding that 430 the reference is at the assessee's
instance and no reference at all has been brought by the Revenue. The result appears
anomalous, but after all it is for the assessee to choose whether or not he
wishes to take a reference to the High Court, and if he is found entitled to
even one of the deductions claimed by him and effect cannot be given to that
claim without the annual value of the property being computed he has only to
thank himself. [435C-F]
3. The High Court, on a reference before it,
does not act as a court of appeal. The jurisdiction is advisory and no more.
The High Court is empowered to decide the question of law referred to it, and
to return its answer to the Appellate Tribunal. The Appellate Tribunal then
takes up the appeal and disposes it of conformably with the answer returned by
the High Court. It is not part of the jurisdiction of the High Court to interfere
and modify or set aside the appellate order of the Tribunal. [435F-H]
4. The proviso to Section 23 (1) of the
Income Tax Act, 1961 can be availed of only if the property is in the
occupation of a tenant. It would seem so on the language of the proviso. The
assessee does not rest his claim on any other provision of law. In the
circumstances, the High Court is right in denying the claim in respect of
municipal taxes.
[436G-H]
5. The provisions of the Income-Tax Act
relating to the charge on income apply in relation to a specific assessment
year and the provisions of the Act providing for the computation of the
chargeable income (which includes taking into account permissible deductions in
the computation of the income chargeable under different heads) apply, in the
absence of anything to the contrary, in relation to the relevant previous year.
The total income of the previous year needs to the computed, and the different
provisions relating to the computation of income must be read and applied in the
context of the facts and circumstances obtaining during that year, unless the
context suggests the contrary. Consequently, when reading s.24(2) (ix) of the
Income Tax Act, 1961 which speaks of property which is let and which was vacant
during a part of the year, the Court must read it to mean property which was
let during the previous year and was vacant during a part of the year. It
cannot refer to property which was not let at all during the previous year.
[437D-E] In the present case, there is no evidence to show that it was ever
given out by the assessee that the property was available for letting. The
assessee is not entitled to the deductions claimed by it in respect of
municipal taxes and a vacancy remission. [437F] Maharajadhiraja of Darbhanga v.
Commissioner of Income Tax, Bihar and Orissa, A.I.R. 1931 Patna 223;
distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 2183 of 1972.
Appeal by Special Leave from the Judgment and
Order dated 28-7-1970 of the Calcutta High Court in Income Tax Reference No. 45
of 1969.
F. S. Nariman and M. M. Kshatriya for the
Appellant.
S. T. Desai, K. C. Dua, Miss A. Subhashini
for the Respondent.
431 S. Chaudhary. D. N. Gupta and T. A.
Ramachandran for the Respondent Intervener.
The Judgment of the Court was delivered by
PATHAK, J.-This appeal by special leave is directed against the judgment of the
Calcutta High Court on a question concerning the computation of income from
house property under the Income-tax Act, 1961.
The assessee, a private limited company, is
the owner of the property described as 3, Gun Foundry Road. Originally it
housed a jute baling press. The property was requisitioned by the West Bengal
Government in 1951. It was released to the assessee on December 26, 1960, after
being used for housing refugees. Evidently, the building had not received the
care it deserved, for when the assessee resumed possession he found it in a
sorry state.
The assessee filed an income-tax return for
the assessment year 1962-63 (for which the previous year was the calendar year
1961), and the return recited that the annual value of the building was Rs.
1,23,672. However, on the ground that the building had remained vacant
throughout the previous year, the assessee claimed a remission in the
computation of the income of the entire annual value. The assessee also claimed
a deduction on account of insurance premium and municipal taxes relating to the
property.
The Income-tax Officer took the view that the
property was not in a habitable condition and did not admit of letting and
therefore no question arose of applying the provisions of the Income Tax Act
relating to the computation of income from property. Accordingly, he held that
the annual value as well as the vacancy claim had to be ignored.
The assessee appealed to the Appellate
Assistant Commissioner, who held that although the property had remained
vacant, it possessed an annual value and should be considered for assessment.
On that view, he allowed the deductions claimed by the assessee. In second
appeal, the Income Tax Appellate Tribunal favoured the view taken by the Income
Tax Officer and accordingly held that the claim to deductions made by the
assessee must fail. The Tribunal, in other words, affirmed that the property
fell outside the scope of S. 22 of the Act and, consequently, denied the
deductions.
The Revenue appeared satisfied with the order
of the Appellate Tribunal. But, at the instance of the assessee, a reference
was made to the High Court at Calcutta on the following question:-
"Whether on the facts and in the circumstances of the case and on the
interpretation of sections 22 and 23 of the 432 Income-tax Act, 1961 the
Tribunal was right in holding that in computing the income from property the
bonafide annual value of the property at 3, Gun Foundry Road, Calcutta has not
to be taken and in disallowing the vacancy remission and other deductions in
respect of the aforesaid property ?" The High Court was of opinion that
the Appellate Tribunal had misconceived the law in holding that because the property
was in a state of disrepair it did not possess an annual value. As regards the
assessee's claim to the specified deductions, it held that while the insurance
premium paid by it could be allowed, there was no merit in the claim on account
of vacancy remission and payment of municipal taxes. Accordingly, the High
Court recorded:- "On the first part of the question we hold that the
Tribunal was wrong in holding that there was no annual value of this property
No. 3, Gun Foundary Road and that it was outside the scope of section 22 of the
Income-tax Act, 1961. We hold and we are of the opinion that this property has
an annual value in the facts and circumstances of the case and it should be
taken into account in the light of the principles and observations we have made
above. We therefore set aside that part of the order of the Tribunal and answer
the question accordingly. The answer to this first part of the question is in
the negative. The answer to the second part of the question follows from the
answer to the first part of the question and is that the only deduction in the
facts and circumstances of the present reference which the assessee can get is
the deduction for insurance premium paid. We hold further on this part of the
question that the other deductions, namely, (a) vacancy remission and (b)
municipal taxes are not permissible and the assessee is not entitled to claim
them in the present reference. We answer the second part of the question
accordingly.
The Tribunal, therefore, will dispose of the case
conformably to this judgment and the interpretation of the principles
enunciated herein under section 260 of the Income-tax Act, 1961." At the
outset a serious controversy arose before us on the point whether the High
Court was right in including a direction in its judgment that the Appellate
Tribunal should take into account its finding 433 that the property possessed
an annual value. The assessee says that when the Appellate Tribunal had held
that the property did not fall within the scope of s. 22, it was for the
Revenue, in case it desired to charge the assessee on income from this
property, to apply for a reference to the High Court. It is urged that the
Revenue having omitted to do so, it was not open to the High Court to make an
order enabling the Revenue to tax any income from that property.
On behalf of the Revenue, the submission is
that inasmuch as the assessee had taken the case in reference to the High Court
for an adjudication on the deductions claimed by it the point whether the
property possessed an annual value and its income was chargeable was directly
raised by the assessee itself, and therefore, the High Court was right in
rendering a decision on this point.
"Income from house property" is one
of the heads into which different categories of income included in the total
income have been classified. For the purpose of computing "income from
house property", a code of provisions is incorporated in ss. 22 to 26 of
the Act. S. 22 declares that the annual value of property consisting of buildings
or lands appurtenant thereto in the ownership of the assessee, excepting such
portions of the property occupied for any business or profession carried on by
him of which the profits are chargeable to income tax, shall be chargeable to
income tax as "income from house property". The annual value is
determined after making a deduction on account of municipal taxes. The income
from house property is then subject to the deductions set forth in Sec. 24. The
deductions are made for the purpose of computing the net figure of the income
from property.
In order to decide whether the High Court was
right in including a direction to the Appellate Tribunal to take into account
the annual value of the property, it is necessary to appreciate the true scope
of the reference taken to the High Court. The Income Tax Officer had found that
the property, having regard to its condition, was not capable of being let to
tenants and therefore the gross value and the deductions claimed had to be
ignored. The assessee was aggrieved by that finding. It must be remembered that
in its return the assessee had indicated that the property possessed an annual
value of Rs. 1,23,672 unless the property had an annual value, it believed, it
could not be entitled to the deductions claimed by it. In appeal before the
Appellate Assistant Commissioner, its case was that the property could not be
ignored for the purposes of the Income-tax Act. The contention was accepted by
Appellate Assistant Commissioner, who held that the annual value of the
property could not be 434 ignored and further that the vacancy remission and
other deductions claimed by the assessee were admissible. When the Revenue
proceeded in appeal to the Appellate Tribunal it urged that the assessee was
not entitled to the deduction claimed in respect of the property. The Appellate
Tribunal considered the evidence relating to the condition of the building, and
was of opinion that the building was not in a habitable condition and it could
not be said that the property could be reasonably let out at any particular
annual value. In its opinion, the property fell outside the scope of Section 22
and, therefore, the Income Tax Officer was right in ignoring the property
altogether and in not computing any profit or loss in respect of it. The
Appellate Tribunal set aside the order of the Appellate Assistant Commissioner
and restored the order of the Income Tax Officer. It was in the context of this
train of proceedings that the assessee now took the case in reference to the
High Court. The question referred to the High Court was rooted in the
fundamental submission of the assessee that the property possessed an annual
value for the purpose of Section 22 and it was, therefore, entitled to the
vacancy remission and other deductions claimed by it. The frame of the question
indicates that it has two parts, whether the Appellate Tribunal was right in
holding that in computing the income from property the premises 3, Gun Foundry,
possessed an annual value and whether the Appellate Tribunal was right in
disallowing the vacancy remission and other deductions in respect of that
property. Plainly, unless the property fell within the scope of Section 22
there was no occasion for considering the assessee's claim to the deductions.
The High Court also, when considering the reference, examined the question in
its bifurcated character. But although, bifurcated, the thrust of the question
was directed to the consideration of the deductions claimed by the assessee.
Whether the property possessed an annual value
was necessary to determine solely for the purpose of considering the claim to
deductions. Unless the assessee was interested in those deductions it would not
have asked for a finding, that the property possessed an annual value. The High
Court was, therefore, right in examining both parts of the question and in
determining whether the property had an annual value and the deductions claimed
were permissible. The assessee can have no quarrel with the High Court
considering the first part of the question, because that was the very case of
the assessee throughout from the earliest stage of the proceeding. From what
has gone before it is apparent that the determination whether the property has
an annual value arises only if it is found that on the terms of the statute the
assessee is otherwise entitled to the deductions claimed by him. If those
deductions are not permissible under 435 the relevant section, no question
arises of examining whether the property has an annual value. Viewed in that
light, the determination of the question whether the property has an annual
value falls into its proper place. It cannot be contended that even though the
claim to deductions must otherwise fail, the question whether the property has
an annual value must still be considered. Such a contention is not open to the
Revenue. If the Revenue intended that the High Court should determine whether
the property had an annual value as a question independent of its finding on
the admissibility of the deductions, the Revenue should have applied to the
Appellate Tribunal for a reference to the High Court accordingly. It did not
ask for a reference and, therefore it is not entitled to raise that contention
now.
It seems to us that there is only one way of
looking at the case, and that is whether on the assumption that the property
has an annual value and falls within the scope of Section 22, the assessee is
entitled to the deductions under Sections 23 and 24. If he is entitled to any
of those deductions, then in order to establish the foundation in which the
deductions can be rooted it will be necessary to determine whether the property
possesses an annual value.
That is what the High Court did, and the
observations made by it must be construed accordingly. It may be that the
deduction to which the assessee is found entitled runs to a far smaller figure
than the annual value property attributable to the property. In that event the
consequence will be a net annual value of some significance. And this will be
the consequence notwithstanding that the reference is at the assessee's
instance and no reference at all has been brought by the Revenue. The result
appears anomalous, but after all it is for the assessee to choose whether or
not he wishes to take a reference to the High Court, and if he is found
entitled to even one of the deductions claimed by him and effect cannot be
given to that claim without the annual value of the property being computed he
has only to thank himself.
At the same time, we must point out that the
High Court, after holding that the property has an annual value, has erred in
stating that it sets aside that part of the order of the Appellate Tribunal.
The High Court, on a reference before it, does not act as a court of appeal.
The jurisdiction is advisory and no more. The High Court is empowered to decide
the question of law referred to it, and to return its answer to the Appellate
Tribunal. The Appellate Tribunal then takes up the appeal and disposes it of
conformably with the answer returned by the High Court.
It is not part of the jurisdiction of the
High Court to interfere and modify or set aside the appellate order of the
Tribunal.
436 As has been said earlier, the High Court
considered both parts of the question referred to it, whether the property
possessed an annual value and whether the deductions claimed by the assessee
were admissible. It examined first whether the deductions were admissible. It
found that the amount of Rs. 689 paid on account of fire insurance premium in
respect of the property was deductible from the annual value under s. 24(1)
(ii). Regarding the claim under s. 24(1) (ix) on account of vacancy remission,
it disallowed the deduction on the ground that the property was not let during
the previous year. The claim to deduction under s. 23 of the municipal taxes
paid in respect of the property was also rejected in the view that the
municipal taxes could be deducted only if the property was in the occupation of
a tenant. The High Court then turned to the fundamental question whether the
property possessed an annual value for the purpose of s. 22, and held that
merely because the building was in a state of disrepair it could not be
predicated that it had no annual value. In the result, on the question referred
by the Appellate Tribunal it returned the opinion that the property possessed
an annual value and that the assessee was entitled to a deduction in respect of
insurance premium only.
In this appeal, the only question is whether
the High Court is right in holding that the assessee is not entitled to any
deduction on account of municipal taxes and the vacancy remission claimed by
it.
The claim to the deduction of municipal taxes
is made under the proviso to s. 23(1). The proviso reads:
"Provided that where the property is in
the occupation of a tenant, the taxes levied by any local authority in respect
of the property are under the law authorising such levy, payable wholly by the
owner, or partly by the owner and partly by the tenant, a deduction shall be
made equal to the part, if any, of the tenant's liability borne by the
owner." It is immediately apparent that the proviso to s. 23(1) can be
availed of only if the property is in the occupation of a tenant. It would seem
so on the language of the proviso. The assessee does not rest his claim on any other
provision of law. In the circumstances, the High Court is right in denying the
claim in respect of municipal taxes.
The next deduction claimed requires the
consideration of s. 24(1) (ix) of the Act.
437 S. 24(1)(ix) reads :
"24 (1) Income chargeable under the head
'Income from house property' shall, subject to the provisions of subsection
(2), be computed after making the following deductions, namely:- xx xx xx xx xx
(ix) Where the property is let and was vacant during a part of the year, that
part of the annual value which is proportionate to the period during which the
property is wholly unoccupied or, where the property is let out in parts, that
portion of the annual value appropriate to any vacant part, which is
proportionate to the period during which such part is wholly unoccupied.....
" The question is whether the property, 3 Gun Foundry Road, which
admittedly has remained vacant since December 26, 1960 can attract s.
24(2)(ix). It is plain that it cannot. The provisions of the Income-tax Act relating
to the charge on income apply in relation to a specific assessment year and the
provisions of the Act providing for the computation of the chargeable income
(which includes taking into account permissible deductions in the computation
of the income chargeable under different heads) apply, in the absence of
anything to the contrary in relation to the relevant previous year. The total
income of the previous year needs to be computed, and the different provisions
relating to the computation of income must be read and applied in the context
of the facts and circumstances obtaining during that year, unless the context
suggests the contrary. Consequently, when reading s. 24(2) (ix) which speaks of
property which is let and which was vacant during a part of the year, we must
read it to mean property which was let during the previous year and was vacant
during a part of the year. It cannot refer to property which was not let at all
during the previous year. In the present case, there is no evidence to show that
it was ever even given out by the assessee that the property was available for
letting.
We were referred to Maharajadhiraja of
Darbhanga v. Commissioner of Income-tax, Bihar and Orissa,(1) where it was
observed by the Patna High Court that s. 9 (1) paragraph 7 of the Income Tax
Act, 1922 could be invoked in a case where a house not in the occupation of the
owner was habitually let to tenants and the vacancies referred to are vacancies
between the different tenancies, or a house though not let is dismantled and
shut up by the owner. We have carefully read the judgment 438 delivered by that
High Court and it appears that the observation is a mere obiter. The actual
point for decision was in fact quite different. It was a case where the
assessee, who owned several houses kept them furnished and open for his
residence and never let them to any tenant, and he did not occupy some of them
during the relevant previous year. He claimed a vacancy remission in respect of
them. The High Court, in our opinion, rightly rejected the claim. It may also
be pointed out that the statutory provision considered there was materially
different from the one before us.
In our judgment, the assessee is not entitled
to the deductions claimed by it in respect of municipal taxes and a vacancy
remission. The High Court is right in its view in respect of this part of the
case.
The appeal is dismissed. There is no order as
to costs.
S.R. Appeal dismissed.
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