Commissioner of Income-tax, Lucknow v. Madho Pd. Jatia

KHANNA, J.-Tbese three appeals on certificate by the Commis­ sioner of Income-ta.x are against the judgment of the Allahabad High Court whereby the High Court answered the following question referred to it iinder section 66(1) of the Indian! Income-tax Act, 1922 (hereinafter referred to as the Act) in favour of the assessee-respon­ dent and against the revenue : "Whether in the facts and circumstances of the case, the assessee is entitled for each of the years under consideration to the exclusion from the income under the head 'property' of an amount equal to the irrecoverab!e rent of the Grand Hotel property for one year which has not been so excluded in the preceding assessments ?" The matter relates to the assessment years 1957-58, 1958-59 and 1959-60. The assessee is the owner of a building known as Grand Hotel in Civil Lines Delhi. The income from this building was assessed from year to year under section 9 of the Act a;; income from property. Subsequently there -was a dispute between the assessee and her tenant. Protracted litigation followed and ultimately a compro­ mise was reached between the assessee and the tenant as per com­ promise deeds dated December 8, 1954 and July 9, 1955. Accord­ ing to the ussessee,. a total amount of Rs. 1,85,892 representing rent due on account of Grand Hotel became irrecoverable from the tenant. At the tiine of the assessment year 1956-57 the as~essee was able to secure deduction under item No. 38 of the Government of India notification No. 877F dated .March 21, 1922 as regards unrealised rent in previous years. The assessee made similar claims for deduction at the time of the assessment for the years 1957-58, 1958-59 and 1959-60. The claim was not sepecifically made before the Jncome­ tax Officer but was made in appeal before the Appellate Assistant Commissioner. Th:e Appellate Assistant Commissioner declined to entertain the claim made,at such a ]ate stage. When the matter went up before the Tribunal in further appeal, the Tribunal permitted the asses~ee to raise that point before it. It was then urged on. behalf of the department that in view of the deduction made for the assess­ ment year J 956-57, no further de<luction could be claimed by the assessee for the subsequent years. This contention advanced on behalf of the department was not accepted by the Tribunal. The Tribunal took the view that the claim could properly be made for the deduction in the assessment for the three· years with which we a;e concerned in spite of the fact that such claim had been allowed in assessee's favour in the year 1956-57. On this view the Tribunal directed the Income-tax Officer to compute the tob! rent which had become irr~coverable in respect of Grand Hotel property.. The Tribu­ nal further directed that to the extent the irrecoverable rent had not been exempted in the previous assessment for 1956-57 should be exempted during the year under appeal in so far as income. from property \vas concerned. Ort application filed by the Conu11issioner of Income-tax the question rep'rOduced above was referred to the High Court. The High Court, as stated above, answered the question in the affirmative in favour of the assessee. 204 SUPREME COURT REPORTS (1977] 1 S.C.R. In appeal before us Mr. Sharma on behalf of the appellant has assailed the judgment of the High Court. As against that, J\Jr. Manchanda on behalf of the assessee-respondent has canvassrd for the correctness of the view taken by the High Comt. Before dealing with the contentionS'-advanccd before us, it would be appropriate to refer to the relevant provisions on the subject. Section 9 of the Act deals with tax payable un.:l~r the head "Income from property". Accordiag to that section, the tax shall be payable by an asscsse.e under the head "Income from property" in respect of the bo1U1 fide annual value of property consisting of any buildings < •r lands nppL•1tenant thereto of which he is the owner, other than such portions of such property as he may occupy for the purposes of any business, profession or vocation carried on by him the profits d which are assessable to tax, subject to certain allowances. These allowances have been specified in section 9, but for the purpose of present appeals it is not necessary to refer to them. "Annual value" of any property, for the purpose of section 9, shall, according to sub­ seciion (2) of that section, be deemed to be the sum for which the property might reasonably be expected to let from year to year. Sub­ section (2) is followed by a number of provisos, but we are not con­ cerned with them in ·these appeals. Section 60 of thP, Act empowers the Central Government to make exemptions. According to the sec­ tion, the Central Government may, by notification in the Official Gazette,, make an exemption, reduction in rate or other modification, in respect of income-tax in favour of any class of income, or in regard to the whole or any part of the income of any class of persons. In exercise of the powers conferred by the above secticn, the Central Government issued notification No. 878F dated Marrh 21, 1922. Item 38 of that notification reads as under : "The following classes of income shall be exempt from the tax payable under the said Act : (38) Such part of the income in respect of which the said tax is payable under the head 'property' as is elJual to the amount of rent payable for a year but not paid by a tenant of the assessee and so proved toi be !osr and ir­ recoverable, where- (a) the tenancy is bona fide; (b) the defaulting tenant has vacated or steps have been . taken to compel him to vacate Lhe property; ( c) the defaulting tenant is not in occupation of any other property of the assessee; (d) the assessee has taken all reasonable steps to substi­ tute legal proceedings, for the recovery of the unpaid rent or satisfies the Income-tax Officer that legal proceedings would be useless; and COM.fy1R. OF INCOMJ;: TAX v. MADHO PD. (Khanna, J.) 205 ( e) the annuaf value of the property to which the unpaid ·A rent relates has been .included in the assessee's in- come of the year during which that rent was due and income tax has been duly paid on such assessed income." Section 9 of the Act makes provision for computation of income from property on a notional basis. According to this section, the . B income shall be taken to be the bona fide annual value of the pro­ perty. Jn making the computation, certain ;:llowanccs which are mentioned in section 9 would have to be deducted. In case the property in question was in occupation of a tenant, the taxing autho- rities have, while computing the income from that property, to take into account its bona fide annual value. The q ucstion as to whether the tenant who was in ocq~pation of the property has,. in fact, paid C the rent 01 not would not enter intq'.considcr::ition at that stage, unkss it be found that the rent due from the tenant has become irrecover- able. The fact that the rent due from the tenant has become irrecover- able would in a majority of cases be known only in !Subsequent years and not in the year during which the• tenant has remained in occupa- tion. None of the clauses dealing with allowances which are per- missible under section 9 ( 1) of the Act deal with rent due from a D tenant which remains irrecoverable. It was to meet such an eventuality that exemption was granted as per item No. 38 in notification No. 878F dated March 21, 1922. Item 38 exempts from payment of tax such part of the income in respect of which tax is payable under thei head 'property' a1s is equal to the amount of rent payable for a year but not paid by a tenant of the assessee and so proved to be lost and irrecoverable. In order to claim the benefit of the above exemption, E the assessee has also to show that the requirements of clause (a) to (e) of item 38 have been satisfied. It was not disputed before the High Court that conditions mentioned in clauses (a) to ( e) of item No. 38 had been fulfilled in the instant case. The dispute between the parties centres on the point as to whether in the event of the amount of the irrecoverable rent being more than the amount of rent payable for a year, the assessee ean gJ).im the deduction only in one F year equal to the a·mount of rent 'payable for a year, or whether the assessee can claim deductions for the balance of the irreaoverable rent in subsequent years also. In other words, the question is whether in the event of the amount of irrecoverable rent being more than the amount of the rent payable for a year of the property, the assessec can claim the benefit of the exemption mentioned in item 38 only once or whether the assessee can claim the benefit of that exemption G in successive years also till such time as the assessec gets relief in respect of the whole of thei amount of irrecoverable rent. Both the Tribunal and the High Court took the view that it would be permissi- ble to claim the benefit of the exemption in successive years. After hearing the learned counsel for the parties, we find no cogent ground to take a different view. The language of item 38 which has been reproduced above shows that if other conditions. are satified, thei deduction which can be claimed by the assessee at an assessment cannot exceed the amount of 206 SUPREME ·COURT REPORTS [1977] 1 s.c.R. rent payable for a year. The item thus places a limit in respect of the deduction which is permissible in an assessment ~or one year. In case, however, the amount of irrecoverable rent exceeds the amount of rerrt payable for a year, the right of the assessee to claim the benefit of the above exemption does not, in our opinion, get exhausted by his having claimed exemption in one year. We find no cogent reason as to why :.he assessee should become disentitlcd to claim the benefit of the above. exemption in respect of the balance of the irrecoverable rent in subsequent years subject to the condition that in no year the deduction would exceed the amount of rent payabl·;: for a year. The assessee, it has to be borne in mind, seeks exemption in respt<ct of the notional rental income which he, in fact, never received but on which he had in terms of section 9 of the Act to pay tax. The under­ lying object of the exemption granted by item 38 is that the assessee shall be entitled to claim deduction under the head 'property' in respect of the notional rental income which, it subsequently so transpires, was never received by him but on which he had to pay tax. Although item 38 fixes the limit of, deduction which is permili­ sible in one year, there is nothing in the language of that item to warrant the inference that the benefit of the exemption can be claimed only once. There is also nothing in the language of that item to indicate that in respect of the balance of the irrecoverable rent, no relief is permissible even though tax on that balance amount too has been paid by the assessee. It is well settled that there is no equity about tax. If the provisions of a taxing statute are clear and unam­ biguous, full effect must be given to them irrespective of any consi­ deration of equity. Where however the provisions are couched in language which is not free from ambiguity and admits of two inter­ pretations, a view which is favourable to the subject should be adopted. The fact that such an interpretation is also in consonance with ordinary notions of equity would further fortify the court in adopting such a course. Mr. Sharma has invited our attention to the judgment of the Punjab High Court in the case of Daljit Singh v Commissioner of Income-tax Delhi(') wherein the Punjab High Court took a different view. For the reasons stated above,. we prefer the view taken by the Allahabad High Court in the judgment under appeal to that of the Punjab High Court in Daljit Singh's case. The appeal consequently fails and is dismissed with costs. One hearing fee. P.B.R. Appeal dismissed. l) 52 J. T. R. 9 33.