PETITIONER:
COMMISSIONER OF INCOME-TAX, LUCKNOW
Vs.
RESPONDENT:
MADHO PD. JATIA
DATE OF JUDGMENT17/08/1976
BENCH:
KHANNA, HANS RAJ
SARKARIA, RANJIT SINGH
SINGH, JASWANT
CITATION:
1977 AIR 420 1977 SCR (1) 665
1976 SCC (4) 92
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
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
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
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
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