2016-TIOL-216-SC-IT

MAHARAO BHIM SINGH OF KOTA Vs CIT: SUPREME COURT OF INDIA (Dated: December 5, 2016)

Income Tax Act - Sections 10(19A), 22, 23 - Wealth Tax Act,1957 - Section 5(iii).

Keywords - former ruler - rent - occupation - palace.

The assessee was the Ruler of the princely State of Kota, owned extensive properties which, included his two residential palaces known as "Umed Bhawan Palace" and "City Palace". The assessee used Umed Bhawan Palace for his residence. Under Section 60A of the Indian Income Tax Act, 1922, the Central Government issued an order called "The Part B States (Taxation Concessions) Order, 1950" ("The Order"). It was issued essentially to grant exemptions and reductions in rate of tax on specified kinds of income earned by the persons (Ruler and his family members). As per the order, the bona fide annual value of the residential palace of the Ruler of a State situated within the State and declared by the Central Government as his inalienable ancestral property was exempted from payment of Income-tax.

In 1976, the Ministry of Defence requisitioned portion of the Umed Bhawan Palace for their own use and paid income to the assessee. The question was whether the assessee is entitled to get full benefit of the exemption granted to him u/s 10 (19A) of the Income Tax Act 1961 (I.T. Act) from payment of income-tax or it is confined only to that portion of palace which is in his actual occupation as residence and the rest which is in occupation of the tenant would be subjected to payment of tax.

The CIT (A) ruled in assessee's favour and held that since the assessee was in occupation of part of his official residence during the assessment year in question, he was entitled to claim full benefit of the exemption for his official residence as provided u/s 10 (19A) of the I.T. Act notwithstanding the fact that portion of the residence is let out to the Defence Ministry. The Tribunal dismissed the Revenue's appeal. The Full Bench of the High Court decided the issue against the assessee.

Having heard the parties, the Supreme held that,

Whether a former ruler is entitled to claim exemption u/s 10(19A) of the IT Act for the whole of his palace even though a portion of his palace has been let out - YES: SC

++ 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, 1950 by the Central Governmen;

++ it was held in Bharatchandra Banjdeo case that it is not possible to split up one palace into parts for granting exemption only to that part in self-occupation of the ex-Ruler as his official residence and to deny the benefit of exemption to the other portion of the palace rented out by the Ruler, since the entire palace is declared as his official residence. Accordingly, it was held that even if only a part of the palace is in the self-occupation of the former Ruler and the rest has been let out, the exemption available under section 10(19A) will be available to the entire palace;

Whether the provisions of Wealth Tax Act can be used to interpret the provisions of the Income Tax Act, when Wealth Tax Act dealing with the same subject uses different language - NO: SC

++ no reliance could be placed on Section 5(iii) of the Wealth Tax Act while construing Section 10(19A) of the I.T. Act. It is due to marked difference in the language employed in both sections. If the Legislature intended to spilt the Palace in part(s), alike houses for taxing the subject, it would have said so by employing appropriate language in Section 10(19A) of the I.T. Act. We, however, do not find such language employed in Section 10(19A). in Section 10(19A) of the I.T. Act, the Legislature has used the expression "palace” for considering the grant of exemption to the Ruler whereas on the same subject, the Legislature has used different expression namely "any one building" in Section 5 (iii) of the Wealth Tax Act. We cannot ignore this distinction while interpreting Section 10(19A) which, in our view, is significant;

++ it is a settled rule of interpretation that if two Statutes dealing with the same subject use different language then it is not permissible to apply the language of one Statute to other while interpreting such Statutes. Similarly, once the assessee is able to fulfill the conditions specified in section for claiming exemption under the Act then provisions dealing with grant of exemption should be construed liberally because the exemptions are for the benefit of the assessee.

Assessee's appeal allowed