COMMISSIONER OF INCOME-TAX, LUCKNOW vs. MADHO PD. JATIA

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5 PETITIONER: COMMISSIONER OF INCOME-TAX, LUCKNOW Vs. RESPONDENT: MADHO PD. JATIA DATE OF JUDGMENT17/08/1976 BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ SARKARIA, RANJIT SINGH SINGH, JASWANT CITATION: 1977 AIR 420 1977 SCR (1) 665 1976 SCC (4) 92 CITATOR INFO : D 1989 SC 501 (16) ACT: 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. HEADNOTE: 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 Tribu- nal 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 refer- ence 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 Author- ities have to take into account its bona fide annual value. The fact that the rent due from the tenant had become irre- coverable 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 http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5 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 asses- see. [208 C-D] Daljit Singh v. Commissioner of Income-tax, Delhi, 52 I.T.R. 933 not approved. JUDGMENT: 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 the Appel- lant. 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 build- ing 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 tenant. 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 1957- 58, 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 http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5 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 ale con- cerned 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 appel- lant has assailed the judgment of the High Court. As against that, Mr.. Manchanda on behalf of the assessee- respondent 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 pay- able 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 speci- fied 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 ap- peals. Section 60 of the Act empowers the Central Govern- ment to make exemptions. According to the section, the Central Government may, by notification in the Offi- cial .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 the 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 irre- coverable, where-- (a) the tenancy is bona fide; (b) the defaulting tenant has vacated or steps have been taken to compel him to vacate the http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5 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 wheth- er the tenant who was in occupation of the property has,. in fact, paid the rent or not would not enter into considera- tion 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 occupa- tion. 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 deduc- tions for the balance of the irrecoverable rent in subse- quent 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 exemp- tion 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 succes- sive 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 deduc- tion which can be claimed by the assessee at an assessment http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5 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 assess- ment for one year. In case, however, the amount of irrecov- erable 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 sub- ject to the condition that in no year the deduction would exceed the amount of rent payable: for a year. the asses- see, 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 adopt- ed. The fact that such an interpretation is also in conso- nance 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 dis- missed. (1) 52 1. T.R. 9 33. 1 ?207