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Maharao Bhim Singh of Kota thr. Maharao Brij Raj Singh, Kota v. Commissioner of Income Tax, Rajasthan - (Supreme Court) (05 Dec 2016)

There should be a finality attached to the issue once it stands decided by the higher Courts on merits


Direct Taxation

Appellant was Ruler of the princely State of Kota. He owned extensive properties which, included two residential palaces known as "Umed Bhawan Palace" and "City Palace". The Appellant is using Umed Bhawan Palace for his residence. In exercise of powers conferred by Section 60A of Indian Income Tax Act, 1922/Act Central Government issued an order called "The Part B States (Taxation Concessions) Order, 1950"/Order. It was issued essentially to grant exemptions, reductions in rate of tax and the modifications in relation to specified kinds of income earned by the persons (Ruler and his family members) from various sources as specified therein.

Paragraph 15 of Order deals with various kinds of exemptions. Item (iii) of Paragraph 15, which is relevant for this appeal, provides that the bona fide annual value of the residential palace of the Ruler of a State which is situate within the State and is declared by the Central Government as his inalienable ancestral property would be exempt from payment of Income-Tax. In pursuance of the powers conferred under item (iii) of Paragraph 15 of Order, Central Government, Ministry of Finance (Revenue Division) issued a notification bearing No. S.R.O. 1619 dated 14th May, 1954 declaring the Appellant's two palaces, viz., Umed Bhawan and City Palace as his official residences. Ministry of Defence requisitioned portion of Umed Bhawan Palace for their own use and realized Rs. 80,000/- as rent by invoking provisions of Requisition and Exhibition of Immovable Property Act, 1952.

Commissioner of Income Tax (Appeals) held that, since Appellant was in occupation of part of his official residence during assessment year in question, he was entitled to claim full benefit of exemption for his official residence as provided under Section 10(19A) of Act notwithstanding fact that portion of the residence is let out to Defence Ministry. Tribunal affirmed order of Commissioner of Income Tax and dismissed Revenue's appeal. High Court held that so long as Assessee continues to remain in occupation of his official residential palace for his own use, he would be entitled to claim exemption available under Section 10(19A) of Act but when he is found to have let out any part of his official residence and at the same time is found to have retained its remaining portion for his own use, he becomes disentitle to claim benefit of exemption available under Section 10(19A) for the entire palace. It was held that in such circumstances, he is required to pay Income-Tax on income derived by him from portion let out in accordance with provisions of the Act and benefit of exemption remains available only to extent of portion which is in his occupation as residence.

Section 10 of Act, provides that in computing the total income of a previous year of any person, any income falling within any of the sub-clauses of Section 10 shall not be included. Sub-clause (19A) says that, annual value of any one palace which is in occupation of a Ruler and whose annual value was exempt from income-tax before the commencement of the Constitution (Twenty-sixth Amendment) by virtue of the provisions of the Merged States (Taxation concessions) Order, 1949 or the Part B States (Taxation Concessions), Order 1950 would be exempt from payment of Income-Tax.

In order to claim exemption from payment of income-tax on the residential palace of the Ruler under Section 10(19A), it is necessary for the Ruler to satisfy that first, he owns the palace as his ancestral property; second, such palace is in his occupation as his residence; and third, the palace is declared exempt from payment of income-tax under Paragraph 15 (iii) of the Order by the Central Government. In Section 10(19A) of Act, Legislature has used the expression "palace" for considering the grant of exemption to Ruler whereas on same subject, Legislature has used different expression namely "any one building" in Section 5(iii) of Wealth Tax Act.

Section 23(2)and (3), uses the expression "house or part of a house". Such expression does not find place in Section 10(19A) of the Act. Likewise, there is no such expression in Section 23, specifically dealing with the cases relating to "palace". This significant departure of words in Section 10(19A) of the Act and Section 23 also suggest that the Legislature did not intend to tax portion of the "palace" by splitting it in parts. It is a settled Rule of interpretation that if two statutes dealing with same subject use different language then it is not permissible to apply language of one statute to other while interpreting such Statutes. Similarly, once the Assessee is able to fulfill conditions specified in Section for claiming exemption under the Act then provisions dealing with grant of exemption should be construed liberally because exemptions are for benefit of Assessee.

Supreme Court opined that, view taken by the M.P. High Court in Bharatchandra Banjdeo's case and Rajasthan High Court in H.H. Maharao Bhim Singhji's case is a correct view. In such a factual situation where the Revenue consistently lost the matter on the issue then, there was no reason much less justifiable reason for the Revenue to have pursued the same issue any more in higher courts. Though principle of res judicata does not apply to income-tax proceedings and each assessment year is an independent year in itself, yet, in the absence of any valid and convincing reason, there was no justification on the part of the Revenue to have pursued the same issue again to higher Courts. There should be a finality attached to the issue once it stands decided by the higher Courts on merits. This principle, applies to this case on all force against the Revenue. Supreme Court allowed Appellant’s appeal.

Relevant : Commissioner of Income-tax v. Bharatchandra Banjdeo  MANU/MP/0137/1985: (1985) 154 ITR 236 (MP) : 1986 (27) Taxman 456 (M.P.), Commissioner of Income-Tax v. H.H. Maharao Bhim Singh  MANU/RH/0184/1987: (2002) 124 Taxman 26 : (1988) 173 ITR 79 (Raj.), Section 10, 23 of Income Tax Act, 1961, Section 5 of Wealth Tax Act, 1957


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