1985 (1) TMI 20 - HC - Income Tax

Summary

Issues:
Interpretation of exemption under Part B States (Taxation Concessions) Order, 1950 for the annual letting value of Manik Bagh Palace.

Analysis:
The judgment pertains to a reference under section 256(2) of the Income-tax Act, 1961, regarding the exemption claim of the Princess Usha Trust for the annual letting value of Manik Bagh Palace, Indore. The Income-tax Officer included the palace's annual letting value as taxable income, which was contested by the assessee. The Appellate Assistant Commissioner accepted the exemption claim, leading to an appeal by the Revenue to the Tribunal. The Tribunal upheld the exemption, citing the Part B States (Taxation Concessions) Order, 1950. The Revenue argued that the trust was not entitled to the exemption under section 10(19A) of the Income-tax Act, as the trust was not the Ruler. However, the court noted that the exemption applied to the palace in the occupation of the Ruler, which was in force before the Rulers of Indian States (Abolition of Privileges) Act, 1972. The court highlighted that the exemption was granted to the official residences of the Ruler, and Princess Usha Raje, the beneficiary under the trust, was recognized as the Ruler of Indore.

The court rejected the Revenue's argument that the trustees were liable to pay tax under sections 160 and 161 of the Income-tax Act, citing previous judgments that were distinguishable on facts. The court emphasized that there was no evidence to suggest that Princess Usha Raje had ceased to occupy the palace as her official residence. The court also discussed the interpretation of the terms "of" and "belonging to" in relevant case laws. Ultimately, the court held in favor of the assessee, stating that the exemption order did not require the Ruler to reside in the palace at all times, and the trust had been granted exemption in the past. Therefore, the court concluded that the annual letting value of Manik Bagh Palace was exempt from income tax under the Part B States (Taxation Concessions) Order, 1950. The judgment favored the assessee and ruled against the Revenue, with no order as to costs.