Full Judgment Text
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PETITIONER:
SIR SHADI LAL AND SONS, SHAMLI
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, KANPUR
DATE OF JUDGMENT27/11/1987
BENCH:
VENKATACHALLIAH, M.N. (J)
BENCH:
VENKATACHALLIAH, M.N. (J)
KANIA, M.H.
CITATION:
1988 AIR 424 1988 SCR (2) 87
1988 SCC Supl. 42 JT 1987 (4) 517
1987 SCALE (2)1476
ACT:
Income Tax Act, 1961: Section 24(1)(i)(a) and (b)-
Tenant undertaking to ’bear cost of repairs’-Deduction
towards cost of ’repairs’-Whether owner entitled to claim
deduction on assessable income-Idea of ’repair’-Meaning of.
Words & Phrases: ’Repair’-Meaning.
HEADNOTE:
%
The appellants, a Hindu undivided family, leased out a
house owned by them. The covenant in the lease deed stated
that the tenant will maintain and keep the demised premises
in good and habitable condition, tenantable, repair, execute
all repairs including annual white washing, repairs of
electric and sanitary fittings etc. at the lessee’s
expenses, and that the lessors shall undertake at their own
cost major repairs such as repairs against collapse of the
house.
Originally in the assessments for the years 1954-55,
1960-61 and 1961-62, the annual letting value of the
property was arrived at RS.36,000 and a deduction of
Rs.6,000 was allowed for repairs under s. 24(1)(i)(a) of the
Income Tax, Act, 1961. Subsequently, the assessments were
re-opened on the ground that the assessee had got excess
relief.
In the re-assessments, the Income Tax officer held that
as the lessee had undertaken to keep the premises in good
and habitable condition, execute all repairs, the deduction
of Rs.6,000 was impermissible. He accordingly determined the
annual letting value of the property at Rs.40,000 and
allowed a deduction of Rs.4,000 towards repairs under
s.24(1)(i)(a) of the Act. In the reopened assessment for the
year 1954-55, the assessee’s claim for deduction of Rs.5,645
being the cost of the repairs undertaken by them was
disallowed on the ground that this was a case where the
tenant had undertaken to bear the cost of the repairs and,
therefore, the allowance for repairs was limited to the
limit permissible under s. 24(1)(i)(b). The Appellate
Assistant Commissioner and the Income Tax Appellate Tribunal
affirmed the above view.
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At the instance of the assessee, the Tribunal stated a
case and referred it to the High Court which though answered
against the assessee, granted a certificate under s. 261 of
the Act, regarding the applicability of s. 24(1)(i)(b) and
reconsideration of deduction of the expenditure which was
not allowed in the original assessment in the course of
reopened assessments.
In the appeal by special leave, it was urged that the
covenant for repairs embodied in lease deed did not cast the
burden to carry out the repairs exclusively on the lessee
and that since the lessor had also undertaken to carry out
some of the repairs, s. 24(1)(i)(b) was not attracted and
the benefit of s. 24(1)(i)(a) was therefore available.
On the question whether, having regard to the terms of
the covenant, it could be said that the tenant had
undertaken to bear the cost of repairs within the meaning,
and for purposes, of s. 24(1)(i)(b) of the Act.
Dismissing the appeals,
^
HELD: 1.1 This is clearly not a case where the burden
of carrying out repairs as understood in the context of s.
24(1)(i)(b) of the Income Tax Act, 1961 is shared between
the lessor and the lessee. The obligation is on the lessee
alone. The obligation under the latter part of the covenant
does not relate to such repairs. [93G-H]
1.2 The idea of ’repair’ may include replacement or
even a renewal. But the converse may not be true. All
replacements or renewals need not necessarily be ’repairs’.
In the case of a building, restoration of stability of
safety of a subordinate or subsidiary part of it or any
portion of it can be considered as repair while the
reconstruction of the entirety of the subject matter may not
be so regarded. [93B-C]
A general covenant to repair without any such words as
tenantable or habitable or good repair is satisfied if the
premises are kept in a substantial state of repair. [92H]
Having regard to somewhat comprehensive nature of the
obligations that go with and are attachment to and
recognised under the tenant’s covenants for ’repairs’, it
must be held that the covenant in the present case is one
under which the tenant has undertaken ’substantial repairs’
and it must, accordingly, be held to fall within clause
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(b) of s. 24(1)(i) of the Act and not under clause (a) of
the section and that the allowance for repairs must be one
under, and limited to that provision. [93F]
Commissioner of Income-tax v. Parbutty Churn Law, 57
ITR 609; Lurcoff v. Wakely and Wheeler, [1911] I K.B. 905;
Rodesia Railway Ltd. v. Income-tax Collector, [1933] Appeal
Cases 368; Ravenseft Properties Ltd. v. Davstone (Holdings)
Ltd., [1980] Q.B. 12 and Halsbury’s Laws of England, 4th
Edn., paragraph 286, referred to
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 960 to
962 (NT) of 1975.
From the Judgment and order dated 2.3.1973 of the
Allahabad High Court in Income Tax Reference No. 721 of
1970.
S.L. Aneja, Pawan Aneja and K.L. Tarieja for the
Appellants.
C.M. Lodha, Ms. A. Subhashini and K.C. Dua for the
Respondents.
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The Judgment of the Court was delivered by
VENKATACHALIAH, J. These assessee’s appeals, by
certificate, arise out of the Judgment and order dated
2.3.1973 of the Allahabad High Court in I.T.R. No. 721 of
1970 answering certain questions of law referred for the
opinion of the High Court against the assessee.
2. The assessee is a Hindu Undivided Family. The
assessment years are 1954-55, 1960-61 and 1961-62. The
principal controversy in these appeals pertains to the
allowance of and deduction for ’repairs’ in respect of a
house property at Delhi leased out to the Chinese Embassy
under a deed of lease dated 30.5.1952.
Originally assessments were completed including therein
the annual letting value of this property at Rs.36,000 and
allowing a deduction of Rs.6,000 for repairs under Section
24(1)(i)(a) of the Income-tax Act, 1961 (Act) or the
corresponding provisions of the Act of 1922. Subsequently,
the assessments were reopened on the ground that the
assessee had got excess of relief. In the re-assessments the
Income-tax officer held that as the lessee had undertaken
’to keep
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the premises in good and habitable condition, execute all
repairs’, the deduction of Rs.6,000 was impermissible. The
Income-tax officer accordingly determined the annual letting
value of the property at Rs.40,000 and allowed a deduction
at Rs.4,000 towards ’repairs’ under Section 24(1)(i)(b) of
the Act. In respect of the assessment year 1954-55, the
assessee claimed unsuccessfully that he had undertaken’
considerable repairs and that a sum of Rs.5,645 should be
allowed. This claim was negatived by the Income-tax officer
who confined the allowance for repairs to the limit
permissible under Section 24(1)(i)(b) of the Act on the
premise that this was a case where the tenant had undertaken
to bear the cost of repairs. This view was affirmed by the
Appellate Asst. Commissioner of Income Tax and the Income-
tax Appellate Tribunal (’Tribunal’).
It is, perhaps, relevant to mention that some of the
assessment years are governed by the provisions of the 1922
Act. But, having regard to the similarity of the provisions,
this does not assume any significance or affect the
substance of the matter.
3. At the instance of the assessee, the Tribunal stated
a case and referred the following three questions of law for
the opinion of the High Court:
(1) "Whether on the facts and in the circumstances of
the case, the assessments for the years 1954-55, 1960-61 and
1961-62 were validly reopened under Section 147(a) of the
Income Tax Act, 1961?"
(2) "Whether on the facts and in the circumstances of
the case, the provisions of Section 24(1)(i)(b) of the
Income-tax Act, 1961, were applicable?"
(3) "Whether on the facts and in the circumstances of
the case, the expenditure which was not allowed while
completing the original assessments could be considered for
allowance in course of assessments re-opened under Section
147(a)?"
As stated earlier, the High Court answered the questions
against the assessee, but granted a certificate under
Section 261 of the Act as in its opinion two important
questions arose out of the judgment. The questions the High
Court had in mind are questions No. 2 and 3, supra.
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4. It must, at the outset, be observed that the
question as to the validity of the re-opening of the
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assessments which was raised before the High Court was not,
in our opinion rightly, re-agitated here Learned counsel for
the appellants urged that the High Court was in error in its
opinion on questions 2 and 3. The third question referred
was whether where once an assessment is re-opened by a valid
notice, the whole proceedings of assessment were at large
and all the claims and allowances which had been disallowed
in the original-assessment could be re-agitated by the
assessee. The High Court has answered this proposition
against the assessee.
We may take up and dispose of this contention first. It
is seen from the order of the Tribunal that though certain
reliefs were claimed by the assessee before the authorities,
the matter before the Tribunal was, however, confined to the
question of allowance for repairs. The relief on the claim
for repairs, if otherwise tenable, can be granted even
without going into this larger question. It is, therefore,
unnecessary to consider this contention in this case.
5. We may now turn to question No. 2 as formulated in
the reference. Learned counsel urged that the covenant for
repairs embodied in the lease-deed did not cast the burden
to carry out the repairs exclusively on the lessee and that
since the lessor had also undertaken to carry out some of
the repairs, Section 24(1)(i)(b) was not attracted and that
in the circumstances the benefit of Section 24(1)(i)(a) was
available to the assessee. Counsel relied upon Commissioner
of Income-tax v. Parbutty Churn Law, 57 ITR 609.
6. Section 24(1)(i)(b) of the Act provides that where a
property is in the occupation of a tenant "who has
undertaken to bear the cost of repairs", the deduction
towards repairs which the assessee-owner is entitled to is
either the excess of the annual value over the amount of
rent payable for a year by the tenant; or a sum equal to
one-sixth of the annual value whichever is lesser. There is
no dispute that if Section 24(1)(i)(b) is applicable the
computation would be correct.
The only question, therefore, is whether, having regard
to the terms of the covenant, it could be said that the
tenant had undertaken to bear the cost of repairs within the
meaning and for purposes of Section 24(1)(i)(b) of the Act.
The covenant in this behalf in the lease deed dated 9.9.1952
is in terms following:
"To maintain and keep the demised premises in good
and
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habitable condition, tenantable, repair execute
all repairs including annual white washing,
repairs of electric and sanitary fittings etc., at
the lessee’s expenses. Major repairs such as
repairs against collapse of the house etc., shall
be undertaken by the lessors at their own cost."
The view of the High Court, in substance, is that this
covenant satisfies the requirements of and attracts Section
24(1)(i)(b) . The correctness of this view turns upon what
in the law of landlord and tenant is, the content of a
covenant for ’repairs’ and whether by the terms of the
present agreement, the tenant is said to have undertaken the
burden of such ’repairs’.
Referring to what is implicit in and carried with the
covenant for "repairs", Halsbury states:
"Under a covenant to repair, a tenant is liable to
repair but not to renew. ’Repair’ in this sense
means the restoration by renewal or replacement of
subsidiary parts of the whole, whereas ’renewal’
as distinguished from repair, means the re-
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construction of the whole or of substantially the
whole. Where the demised building is erected on
in-herently defective foundations, the tenant is
not liable to substitute new foundations .. "
(See Halsbury’s Laws of England 14th Edn.
paragraph 285)
In regard to the Standard of Repairs, Halsbury, at
paragraph 286, states:
"If he has expressly covenanted to put a house
into tenantable repair and to keep it in such
repair, and it is not in tenantable repair at the
commencement of the tenancy, the tenant must do
the necessary repairs, not with standing that the
building is thereby put in a better condition than
when the landlord let it. The effect is the same
if, without expressly covenanting to put it into
repair, the tenant only covenants to keep the
house in tenantable repair. Such a covenant
presupposes putting the house in such repair, and
keeping it in repair during the term. The
construction of the covenant is the same whether
the covenant specifies ’tenantable’ or ’habitable’
or ’good’ repair. A general covenant to repair
without any such words is satisfied if the
premises are kept in a substantial state of
repair.
(emphasis supplied)
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7. The oft quoted observations in Lurcott v. Wakely and
Wheeler, [1911] 1 K.B. 905 as to what is meant by ’repairs’
are generally considered apposite. This has been referred to
and relied upon by the High Court. The observations in
Lurcott’s case was referred to with approval by the Privy
Council in Rodesia Railway Ltd. v. Income-tax Collector,
[1933] Appeal cases 368.
The idea of ’repair’ may include replacement or even a
renewal. But the converse may not be true. All replacements
or renewals need not necessarily be ’repairs’. In the case
of a building, restoration of stability or safety of a
subordinate or subsidiary part of it or any portion of it
can be considered as repair while the re-construction of the
entirety of the subject matter may not be so regarded. The
somewhat comprehensive import of the word ’repair’ in this
context is evident from the reliance by Forbes J. in
Ravenseft Properties Ltd. v. Davstone (Holdings) Ltd.,
[1980] Q.B. 12 on the following observations of Sir Herbert
Cozens-Herdy MR in Lurcott’s case (supra):
"It seems to me that we should be narrowing in a
most dangerous way the limit and extent of these
covenants if we did not hold that the defendants
were liable under covenants framed as these are to
make good the cost of repairing this wall in the
only sense in which it can be repaired, namely, by
re-building it according to the requirements of
the county council."
Having regard to somewhat comprehensive nature of the
obligations that go with and are attached to and recognised
under the tenant’s covenants for ’repairs’, it must be held
that the covenant in the present case is one under which the
tenant has undertaken ’substantial repairs’ and it must,
accordingly, be held to fall within Section 24(1)(i)(b) of
the Act and that the allowance for repairs must be one
under, and limited to, that provision. The case of the
assessee that it should fall under Section 24(1)(i)(a), we
are afraid, is very nearly unarguable. There is no substance
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in the contention.
This is clearly not a case where the burden of carrying
out repairs as understood in the context of Section
24(1)(i)(b) is shared between the lessor and the lessee. The
obligation is on the lessee alone. The obligation under the
latter part of the covenant does not relate to such repairs.
The appellant’s reliance on Commissioner of Income-tax v.
Parbutty Churn Law, supra is in the facts of the present
case misplaced.
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9. In the result, for the foregoing reasons these
appeals fail and are dismissed, but in the circumstances,
without an order as to costs.
N.P.V. Appeals dismissed.
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