746/CBDT. - Income Tax - 746/CBDT

INSTRUCTION NO. 746/CBDT Dated : August 30, 1974 Section(s) Referred: 10(19A) , 5(1)(iii) of Wealth Tax Act Statute: Income - Tax Act, 1961 Attention is invited to clause 19(A) of section 10 of the I.T. Act, 1961 introduced with effect from 28th December, 1971 by the Rulers of Indian States (Abolition of Privileges) Act (54 of 1972), an Act further to amend certain enactments consequent on the derecognition of Rulers of Indian States and abolition of Privy Purses. This clause provides that:- "the annual value of any one palace in the occupation of a Ruler, being a palace, the annual value whereof was exempt from income-tax before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, by virtue of the provisions of the Merged States (Taxation Concessions) Order, 1949, or Part B States (Taxation Concessions) Order 1950, or as the case may be, the Jammu and Kashmir (Taxation Concessions) Order, 1958". "Provided that for the assessment year commencing on the 1st day of April, 1972, the annual value of every such palace in the occupation of such Ruler during the relevant previous year shall be exempt from income-tax." 2. Similar changes have been made in section 5(1) (a) (iii) of the W.T. Act, 1957 whereby only the value of any one palace in the occupation of a Ruler is exempt from W.T. It would be seen that section 10 sub-section (19A) makes a significant change in the liability to assessment of palaces of Rulers of Indian States which were declared by the Central Government as official residences of such Rulers and were treated as exempt from taxation in terms of section 15(3) of the Part B states (Taxation Concession) Order, 1950. Whereas in terms of section 15(3) of the Part B States (Taxation Concession) Order of 1950 the official residence duly notified of Rulers were treated as exempt u/s 10(19A) now introduced in the Act of 1961, what is exempt is the annual value of any one palace in the occupation of a Ruler being a palace the annual value of which was exempt from income-tax before the Amendment of the Constitution (26th Amendment) Act of 1971. 3. It is not uncommon to come across cases where following the abolition of Privy purses, residential palaces or portions of such palaces notified as official residence of the erstwhile Rulers have been let out and are fetching substantial amount of income to the owners. The Board desires that the I.T. Officers should examine all such cases both in regard to income-tax as well as wealth-tax for assessments 1971-72 onwards to see whether the exemptions claimed were tenable on merits and have been so allowed. A report indicating the number of cases reviewed and the number of cases in which mistakes have been noticed and rectificatory action taken thereon may be reported to the Board positively by 30th September, 1974.