1991 (7) TMI 34 - HC - Income Tax

Summary

Issues Involved:
1. Assessment of income from properties in the hands of the Palace Fund.
2. Ownership and permissive use of properties by the Royal Family.
3. Applicability of the Palace Fund (Partition) Act and the Palace Fund Partition (Amendment) Act.
4. Status of the Palace Fund as an individual or Hindu undivided family for tax purposes.
5. Taxability of deemed income from house properties under section 22 of the Income-tax Act, 1961.

Detailed Analysis:

1. Assessment of Income from Properties in the Hands of the Palace Fund:
The Tribunal had previously held that the income from properties reserved for the Royal Family should be excluded from the assessment of the Palace Fund. The properties did not belong to the Palace Fund, and the members of the Royal Family had only a permissive right of use and occupation. The Tribunal reaffirmed this decision, stating that the status of the Palace Fund, whether as an individual or a Hindu undivided family, does not alter the fact that the income from these properties cannot be assessed in its hands.

2. Ownership and Permissive Use of Properties by the Royal Family:
The properties in question were reserved for the use of the Royal Family during the integration of the Princely State of Cochin with Travancore. These properties could not be alienated or leased out and would revert to the State if not required by the Royal Family. The Tribunal concluded that the properties did not belong to the Palace Fund, and the Royal Family members had only a permissive right of use and occupation.

3. Applicability of the Palace Fund (Partition) Act and the Palace Fund Partition (Amendment) Act:
The Tribunal considered the scope and impact of the Palace Fund (Partition) Act, 1961, and the Palace Fund Partition (Amendment) Act, 1978. These enactments were deemed irrelevant in determining whether the properties belonged to the State Government or the Palace Fund. The Tribunal held that these acts only affected the status of the Palace Fund and not the ownership of the properties.

4. Status of the Palace Fund as an Individual or Hindu Undivided Family for Tax Purposes:
The Tribunal found that the status of the Palace Fund, whether as an individual or a Hindu undivided family, was immaterial to the issue of assessing the income from the properties. The primary consideration was whether the income from the properties accrued to the Palace Fund, which it did not, as the properties were reserved for the Royal Family's use.

5. Taxability of Deemed Income from House Properties under Section 22 of the Income-tax Act, 1961:
For income to be chargeable under the head "Income from house property," the assessee must be the owner of the property. The Tribunal concluded that the Palace Fund was not the owner of the properties in question. Therefore, the deemed income from these properties could not be assessed in the hands of the Palace Fund under section 22 of the Income-tax Act, 1961.

Conclusion:
The High Court answered all the questions in favor of the assessee, the Palace Fund, and against the Revenue. It upheld the Tribunal's findings that the properties did not belong to the Palace Fund and that the income from these properties could not be assessed in its hands. The court also concluded that no referable question arose for consideration in the original petitions filed by the Revenue.