Full Judgment Text
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PETITIONER:
LIQUIDATOR OF MAHAMUDABAD PROPERTIES (P) LTD
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, WEST BENGAL II, CALCUTTA
DATE OF JUDGMENT09/04/1980
BENCH:
PATHAK, R.S.
BENCH:
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
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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
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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]
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Maharajadhiraja of Darbhanga v. Commissioner of Income
Tax, Bihar and Orissa, A.I.R. 1931 Patna 223; distinguished.
JUDGMENT:
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
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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
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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
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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
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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
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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.
439