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TMI Blog2014 (5) TMI 585X X X X Extracts X X X X X X X X Extracts X X X X ..... Rafiq:- This reference has been made by the Division Bench vide order dated 25.05.1988 to the Larger Bench on account of conflict opinion expressed by two Division Benches of this court on the question whether the rental income received by the Ruler from part of the palace, which was declared as his official residence under the Merged States (Taxation Concessions) Order, 1949 or Part B States (Taxation Concessions) Order, 1950, would be exempt from income tax or the same would be included in the total income of the Ruler as an assessee for the purpose of taxation? Earlier Division Bench judgment was rendered in Maharawal Laxman Singh Vs. C.I.T. (1986) 160 ITR 103 (Raj.), in which it was held that under Section 10(19A) of the Income Tax Act, 1961, the annual value of any one palace in the occupation of a Ruler is exempt from tax in computing his total income. The Division Bench, while interpreting the phraseology the annual value of any one of the palace in the occupation of Ruler , relied on judgment of the Supreme Court in Industrial Supplies (P.) Ltd. Vs. Union of India - AIR 1980 SC 1858, for distinction between owner and occupier , wherein meaning of these words was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted by the word palace, thus signifying that exemption of the bona-fide annual value thereof, would be restricted to a singular palace. Clause 15(iii) of the Concession Order 1950, reads as under:- Clause 15 - Exemption: Any income falling within the following classes shall be exempt from income tax and super tax and shall not be included in the total income or total world income of the person receiving them: (i) .... (ii) ..... (iii) The bona fide annual value of the residential palaces of the Ruler of a State which is situate within the State and is declared by the Central Government as his inalienable ancestral Property. The Central Government in pursuance of the provisions of Clause (iii) of Paragraph 15 of the Concession Order 1950 by notification SRO 1619 dated 14.05.1954 declared 'Ummed Bhawan' and 'City Palace' of the Ruler of Kota as his official residence, which were listed at Clause 21 of the said Notification, as the palaces so exempt from income-tax and super tax. Indisputably, till the passes of the Constitution (Twenty-sixth Amendment) Act, 1971, the bona fide annual value of the residential palaces or palace of the Rulers dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act') and the word building was used in the Wealth Tax Act, 1957 (for short, 'the WT Act'). Prior to this amendment, any number of palaces could be declared as official residence in Para 15 of the Concession Orders, 1950 for the purpose of the IT Act. However, the position was different under the WT Act, wherein even prior to 1971 any one building in the occupation of Ruler declared by the Central Government as his official residence was exempt from Wealth Tax. It is argued that the word palace under the IT Act and the word building under the WT Act will not make any difference as in both the cases, they are required to be declared official residence under the Concession Order of 1950. The Concession Order of 1950 uses word palace and the notification issued in the case of assessee on 14.05.1954 had declared two palaces as his official residence. The word building in WT Act is used in the light of the definition of assets as mentioned in Section 2(e) of the Act. The building, which is exempt, must be official residence of the Ruler. Meaning thereby, the legislature has granted exemption only to the building, which was his official residence by virtue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Learned counsel for the Revenue argued that it is settled proposition of law that provisions relating to deductions/incentives are to be strictly constructed and if there be any doubt, benefit thereof has to go to the Revenue and not to the assessee. Per contra, Shri Ajeet Kumar Sharma, learned senior counsel appearing for the assessee, has argued that the Central Government at the time of accession of the princely States in India, granted certain privileges, concession and exemptions by virtue of covenant and agreement entered into between them. The Central Government granted several exemptions to Rulers of the Indian State, and one of them was exemption in respect of the income tax and super tax on annual value of palaces, which were declared as official residence of the Ruler. There was at that time no wealth tax, as the WT Act came into effect from 01.04.1957. Clause 15(iii) of the Taxation Concessions Order of 1950 incorporated such exemptions. It is argued that only effect of sub-section (19A) inserted in Section 10 of the IT Act, following the enactment of Indian States (Abolition of Privileges) Act 1972, was that instead of several palaces in occupation of Ruler, annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel between the provisions of Section 5(1)(iii) of the WT Act and Section 10 (19A) of the IT Act, is that while the former relates to market value of building , the latter makes annual value of any one Palace as the basis. The judgment of the Supreme Court in Mohammad Ali Khan, supra, has therefore wrongly been relied for interpreting Section 10 (19A) by the Division Bench of this Court in Maharawal Laxman Singh, supra. The language of Section 5(1)(iii) of the WT Act was considered by the Supreme Court in respect of assessment year 1961-62, much before the introduction of sub-section (19A) by amendment in Section 10 of the IT Act with effect from 28.12.1971. The Division Bench in Maharawal Laxman Singh has completely lost sight of this aspect and intention of the legislature in bringing about this amendment. No other High Court has approved the line of reasoning expressed by the Division Bench in Maharawal Laxman Singh, supra. The Madhya Pradesh High Court in C.I.T. Vs. Bharat Chandra Bhanjdeo, supra, has rightly held that case of Mohammad Ali Khan, supra, having arisen out of WT Act, is not applicable for the purpose of interpreting Section 10 (19A) of the IT Act. The latter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at case held that each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through different assessment years has been found as a fact, one way or the other, and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in any subsequent year. The present case arises out of assessment year 1978-79 but when the issue involved in the present case has already been decided in favour of the assessee and against the Revenue in respect of five previous assessment years and four subsequent assessment years, and has attained finality, those decisions having not been challenged any further, it is no longer open to the Revenue to plead to the contrary. Not only that the Revenue has accepted two decisions in favour of the assessee, it has also not challenged the judgments of the Madhya Pradesh High Court in C.I.T. Vs. Bharat Chandra Bhanjdeo, supra, and C.I.T. Vs. Princess Usha Trust - (1985) 157 ITR 650, which took the same view. The Income Tax Department being one all over the country, the question of correctness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lways remains vested in the Ruler through tenant. The legislature has not differentiated among the de-facto and legal possession including immediate or mediate possession as far as income-tax law is concerned. The word in occupation is not synonyms of possession . Section 10(19A) of the Act does not require that any one palace should be in actual possession of a Ruler, and the Parliament did not deliberately use the word actual physical possession or actual physical control . The word 'occupation' has to be understood in the context of annual value, regardless of actual rent received or receivable by the owner. Emphasis of the legislature is on annual value and the word actual is conspicuous by its absence. Even if part of the palace is in possession of the tenant, the same continues to be in symbolic or constructive possession of the Ruler. Even if Ruler is not living in palace or even if he may be living in rented house or has vacated the palace for repair, such temporary absence of the Ruler from actual possession of the palace or any part of it, the Ruler by such temporary absence does not seize to be in occupation. The exemption can be denied only in a situati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging to assessee,the relaxation is available to only one house and the annual value of other houses is chargeable to tax having deemed the same to have let out, though not let out actually. Shri Naresh Gupta, learned counsel, argued that if the interpretation, which the Revenue is seeking to place on Section 10(19A) of the IT Act, is accepted, it would make the scheme of exemption unworkable or redundant. Because the whole palace comprising of multiple number of buildings or portion thereof, having been declared as official residence of the Ruler by the Central Government, specific provision under Section 10(19A) of the Act has been inserted to grant exemption of annual value of entire one palace, which is otherwise chargeable to income-tax under Section 23 of the Act. It is the reason why word palace in place of building , (as used in Section 5(1)(iii) of the WT Act), or in place of house (as used in Section 23 of the IT Act), has been used in Section 10(19A). It is argued that the Revenue is not seeking to charge to income tax the other buildings or portions of the same palace, which remain vacant, which otherwise is chargeable to tax under Section 23 of the IT Act. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emption of annual value under income-tax law and has been used as abundant caution by the draftsman. Learned counsel has also relied on certain excerpts of the Book from the Principles of Statutory Interpretation, 12th Edition 2010, Reprint 2011, by Justice G.P. Singh, in support of his this argument. It is argued that the Supreme Court in Mohammad Ali Khan, supra, had no occasion to interpret the special provision of exemption contained in phrase in the occupation of a Ruler , in reference to annual value used in Section 10(19A) of the Act of 1961, more so in the light of general provisions contained in Sections 22 and 23 thereof. The Supreme Court had also no occasion to examine whether such phrase is fit with the scheme of taxation under income-tax law particularly in reference to the words annual value . The judgment of the Supreme Court can be relied on for the proposition of law, which it actually decides and not, which can be logically deduced therefrom. When a particular point was neither argued nor considered by the Court, the decision of such court is not authority on such point and such point is said to pass sub-silentio. Reliance, in support of this argument is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of Special Leave to Petition by All India Council for Technical Education against judgment of Punjab and Haryana High Court on the premise that the decision of the Delhi High Court in similar case was not challenged and allowed to become final. Repelling that contention, it was held by the Supreme Court that it is possible that All India Council for Technical Education did not assess or realize the effect or impact of such a decision or likelihood of gradual dilution and may have thought it to be one time measure applicable to only small section with reference to single institution. In State of Maharashtra Vs. Digambar (1995) 4 SCC 683, it was held by the Supreme Court that sometimes, the State Government may not choose to file appeals against certain judgments of the High Court rendered in writ petitions. They are considered as stray cases and not worthwhile invoking the discretionary jurisdiction of the Supreme Court under Article 136 of the Constitution. At other times, it is also possible for the State not to file appeals in some matters on account of improper advice or in negligence or improper conduct of the officers concerned. It is further possible that even where SL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the doctrines, namely, doctrine of res-judicata, the estoppel, the legitimate expectations or fair play in action, would be attracted in such a situation. Adverting again now to the merits, answer to the question posed in this matter would primarily depend on interpretation of Section 10(19A) of the Income Tax Act, 1961, inserted by Amending Act of 1972 where-under the exemption is claimed by/granted to, the Ruler in respect of annual value of any one palace in his occupation declared to be his official residence. It would be therefore instructive to reproduce the provision for the facility of reference:- (19A) 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 Sixty Amendment) Act 1971, by virtue of the provisions of the Merged State (Taxation Concessions) Order 1₹ 949 or the Part B States (Taxation Concession) Orders, 1950 or as the case may be, the Jammu and Kashmir (Taxation Concessions) Order 1958. Provided that for the assessment year commencing on 1st day of April, 1972, the annual value of every such palace in the occupation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n parts on the basis of occupation or otherwise. Such an interpretation would lead to rejection of the words in the occupation of a Ruler , held the Court. This very argument was raised before the Supreme Court in Mohammad Ali Khan, supra, in the context of similar provision contained in Section 5(1)(iii) of the WT Act. Rejecting the argument, the Supreme Court held that it is the principle of construction that the words of a statute are first understood in their natural, ordinary or popular sense and phrase and sentence are construed according to their grammatical meaning unless that leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. It has been often held that the intention of the Legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said, as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless, has to be avoided. Obviously, the aforesaid rules of construction are subject to exceptions. Just as it is not p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpreting tax laws the courts would be guided by the gist of the legislation instead of by the apparent meaning of the words used and the language employed. The courts shall have regard to the object and the scheme of the tax law under consideration and the purpose for which the cess is levied, collected and intended to be used. The courts shall make endeavour to search where the impact of the cess falls. The subject-matter of levy is not to be confused with the method and manner of assessment or realisation. The Supreme Court in Nasiruddin and Others Vs. Sita Ram Agarwal - (2003) 2 SCC 577, in para 37 of the report, observed that:- 37. The court's jurisdiction to interpret a statute can be invoked when the same is ambiguous. It is well known that in a given case the Court can iron out the fabric but it cannot change the texture of the fabric. It cannot enlarge the scope of legislation or intention when the language of provision is plain and unambiguous. It cannot add or subtract words to a statute or read something into it which is not there. It cannot re-write or recast legislation. It is also necessary to determine that there exists a presumption that the legislature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnating the statutory provisions. Wherever the language is clear the intention of the legislature is to be gathered from the language used. While doing so what has been said in the statute as also what has not been said has to be noted. The construction which requires for its support addition or substitution of words or which results in rejection of words has to be avoided. As stated by the Privy Council in Crawford v. Spooner [(1846) 6 Moore PC 1] we cannot aid the Legislature's defective phrasing of an Act, we cannot add or mend and, by construction make up deficiencies which are left there . In case of an ordinary word there should be no attempt to substitute or paraphrase of general application. Attention should be confined to what is necessary for deciding the particular case. This principle is too well settled and reference to few decisions of this Court would suffice. [See; Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd. Vs. Custodian of vested Forests, Palghat and Another - AIR 1990 SC 1747, Union of India and Another Vs. Deoki Nandan Aggarwal - AIR 1992 SC 96, Institution of Chartered Accountants of India Vs. Price Waterhouse and Another - (1997) 6 SCC 312, and Harbhajan Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(2) of the IT Act has been defined to mean its annual value as determined under Section 23. Now Section 23 relates to Section 22 of the Act, which deals with the income from house property. Section 23 provides as to how the annual value for the purpose of Section 22 shall be determined. The Ruler is therefore exempt from income tax as per Section 10(19A) on annual value of the income of the palace declared as his official residence only if he is in occupation of such palace and not otherwise. Contention that since exemption even otherwise is available to the assessee in respect of house under Section 23 of the Act, the legislature could never have intended to give any restricted meaning to the word 'palace' so as to limit the exemption to only such part of it which is in his actual possession, cannot be countenanced for the simple reason that a 'palace' cannot be taken as synonymous of the 'house'. A house is house and palace is palace. A house is a compact building whereas a palace may consist of number of buildings. In order to interpret a provision introduced by the legislature by way of amendment, it has to be seen what was the mischief, it wanted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and meaning of term occupation in contra-distinction to the word possession , let us now consider some of the decided cases dealing with this aspect. In Ram Das Vs. Devindar - (2004) 3 SCC 684, the Supreme Court while dealing with meaning and distinction of the words possession and occupation held that they in common parlance may be used interchangeably but in law, the possession over a property may amount to holding it as an owner, but to occupy it is to keep possession of by being present in it. In Bimla Devi Vs. First Additional District Judge and Others - (1984) 2 SCC 582, the Supreme Court, was dealing with interpretation of Section 21(1)(b) of the Uttar Pradesh Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972, which provided that the building must have been in occupation of the landlord for residential purposes which alone would be a conclusive proof of personal necessity. It was contended that the landlord was not in actual occupation of the premises, therefore, explanation (iv) to Section 21(1)(b) of the said Act would not be attracted. Explanation (iv) provided the fact that the building under tenancy is a part of a building, the remaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court may presume that he has ceased to occupy the building or abandoned it. It is trite that benefit of exemption in a notification or circular or a statutory provision or a rule and incentive thereunder has to be granted on strict construction thereof and if such benefit is admissible on fulfillment of certain condition, it would not be granted unless that condition is satisfied. A provision or notification granting concession/incentive has to be in the first stage interpeted strictly. If on such construction, the subject falls within its scope, then full play has to be given to the same so as to extend the intended benefit. In case of any ambiguity or doubt regarding interpretation of ordinary tax statute, the relevant provision has to be construed in favour of assess. If however, there be any doubt about interpretation of any provision or notification granting exemption/ incentive, the benefit thereof has to go to the Revenue. A constitution bench of the Supreme Court in Commissioner of Central Excise Vs. Hari Chand Shri Gopal - (2011) 1 SCC 236, while revisiting previous judgments on the subject, held that a provision providing for an exemption, concession or excepti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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