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PETITIONER: COMMISSIONER OF INCOME-TAX, LUCKNOW

       Vs.

RESPONDENT: MADHO PD. JATIA

DATE OF JUDGMENT17/08/1976

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ SARKARIA, RANJIT SINGH SINGH, JASWANT

CITATION:  1977 AIR  420            1977 SCR  (1) 665  1976 SCC  (4)  92  CITATOR INFO :  D          1989 SC 501  (16)

ACT:          Indian Income Tax Act, 1922--S. 9--Irrecoverable   rent--If         could   be  deducted from income from property of  only  one         year--Exemption--If could be given only once.

HEADNOTE:           While assessing the income of the assessee under the  head         ’property’ the Income Tax Authorities allowed for one  year.         deduction  of a part of a large sum of unrealised  rent  but         rejected the claim for exclusion of the remainder during the         three  subsequent assessment years. Before the Tribunal  the         authorities contended that no deduction could be claimed  by         the assessee for more than one assessment year.  The  Tribu-         nal  held that to the extent the irrecoverable rent had  not         been  exempted  in the previous assessment year,  should  be         exempted  in  the  subsequent years  from  the  income  from         property of the assessee. The High Court answered the refer-         ence in favour of the assessee.         Dismissing the appeal to this Court,             HELD: There is no reason why the assessee should  become         disentitled claim the benefit of the 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 payable for a year.  [206 B]             Section  9 of the Indian Income Tax Act,  1922  provides         for computation of income from property on a notional basis.         While computing the income from the property the tax Author-         ities have to take into account its bona fide annual  value.         The fact that the rent due from the tenant had become  irre-         coverable would be known only in subsequent years.   Section         9(1) of the Act does not deal with deductions in respect  of         irrecoverable rent.  Item 38 in Notification No. 878F  dated         March  21, 19.22 exempts from, payment of tax such  part  of         the income in respect of which tax is payable under the head         ’property’  as 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. [205 B-D]             The  underlying object of the exemption granted by  item         38 is that the assessee shall be entitled to claim deduction

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       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 permissible 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 had been paid by the  asses-         see.  [208 C-D]             Daljit Singh  v.  Commissioner of Income-tax, Delhi,  52         I.T.R. 933 not approved.

JUDGMENT:             CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 150-1542         of 1971.             (From  the  Judgment and Order dated 18-12-1969  of  the         Allahabad High Court in Income Tax Reference No. 328/64).              G.C. Sharma, P.L. Juneja and S.P. Nayar, for the Appel-         lant.                S.C.  Manchanda, V.C. Prashar & Ujjal Singh, for  the         Respondent.         203         The Judgment of the Court was delivered by             KHANNA,  J.--These three appeals on certificate  by  the         Commissioner  of Income-tax are against the judgment of  the         Allahabad  High  Court whereby the High Court  answered  the         following question referred to it under section 66(1) of the         Indian Income-tax Act, 1922 (hereinafter referred to as  the         Act)  in favour of the assessee respondent 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  irrecoverable  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 build-         ing  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 as income from property.   Subsequently         there  was  a dispute between the assessee and  her  tenant.         Protracted  litigation followed and ultimately a  compromise         was  reached  between  the assessee and the  tenant  as  per         compromise  deeds dated December 8, 1954 and July  9,  1955.         According  to the assessee:, a total amount of Rs.  1,85,892         representing  rent  due  on account of  Grand  Hotel  became         irrecoverable from the tenant. At the time of the assessment         year 1956-57 the assessee 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  specifically         made  before the Income tax Officer but was made  in  appeal         before the Appellant Assistant Commissioner.  The  Appellate         Assistant Commissioner declined to entertain the claim  made         at  such a late stage.  When the matter went up  before  the         Tribunal  in  further  appeal, the  Tribunal  permitted  the         assessee  to raise that point before it.  It was then  urged

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       on  behalf of the department that in view of  the  deduction         made  for the assessment year 1956-57, no further  deduction         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  ale  con-         cerned 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         total  rent  which had become irrecoverable  in  respect  of         Grand Hotel property.  The Tribunal 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  was  concerned.   On  application  filed  by   the         Commissioner of Income-tax the question reproduced 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             In  appeal before us Mr. Sharma on behalf of the  appel-         lant  has  assailed  the judgment of the  High   Court.   As         against  that,   Mr.. Manchanda on behalf of  the  assessee-         respondent  has  canvassed for the correctness of  the  view         taken by the High Court.             Before dealing with the contentions advanced before  us,         it would be appropriate to refer to the relevant  provisions         on   the  subject. Section 9 of the Act deals with tax  pay-         able  under the head "Income from property".   According  to         that section, the tax shall be payable by an assessee  under         the head "Income from property" in respect of the bona  fide         annual.  value  of property consisting of any  buildings  or         lands  appurtenant 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 c,f which are assessable to tax,  subject         to  certain allowances.   These allowances have been  speci-         fied in section 9, but for the purpose of present appeals it         is  not necessary to .refer to them. "Annual  value"     any         property, for the purpose of section 9, shall, according  to         subsection (2) of that section, be deemed to be the sum  for         which the property might reasonably be expected to let  from         year  to  year.  Subsection (2) is followed by a  number  of         provisos,  but we are not concerned with them in  these  ap-         peals.   Section 60 of the Act empowers the Central  Govern-         ment  to  make exemptions.  According to  the  section,  the         Central   Government  may, by  notification  in  the   Offi-         cial  .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 section the Central Government         issued notification No. 878F  dated March 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 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  irre-         coverable, where--                  (a) the tenancy is bona fide;                      (b) the defaulting tenant has vacated or  steps                  have   been  taken  to compel  him  to  vacate  the

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                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 substitute legal proceedings for the recovery of                  the unpaid rent or satisfies the Income-tax Officer                  that  legal proceedings would be useless; and                  205                     (e)  the annual value of the property  to  which                  the  unpaid rent relates has been included  in  the                  assessee’s  income 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  income shall be taken to be  the  bona  fide         annual  value of the property.  In making  the  computation,         certain  allowances 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  authorities  have,         while computing the income from that property, to take: into         account its bona fide annual value.  The questions to wheth-         er the tenant who was in occupation of the property has,. in         fact,  paid the rent or not would not enter into  considera-         tion  at  that stage, unless it be found that the  rent  due         from the tenant has become irrecoverable. The fact that  the         rent due from the tenant has become irrecoverable 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         permissible  under section 9 (1) of the Act deal with   rent         due  from  a 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  the  head         ’property’  as 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, 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  can  claim         the  deduction only in one year equal to the amount of  rent         payable for a year, or whether the assessee can claim deduc-         tions  for the balance of the irrecoverable rent  in  subse-         quent  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 assessee can claim the benefit of the  exemp-         tion mentioned in item 38 only once or whether the  assessee         can claim the benefit of that exemption in successive  years         also till such time as. the assessee gets relief in  respect         of the whole of the amount of irrecoverable rent.  Both  the         Tribunal  and the High Court took the view that it would  be         permissible to claim the benefit of the exemption in succes-         sive  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  satisfied, the  deduc-         tion  which can  be claimed by the assessee at an assessment

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       cannot exceed the amount of         206         rent  payable for a year.  The item thus places a  limit  in         respect of the deduction which is permissible in an  assess-         ment for one year. In case, however, the amount of  irrecov-         erable  rent exceeds the amount of rent 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 land  no  cogent         reason  as to why the assessee should become disentitled  to         claim  the benefit of the above exemption in respect of  the         balance  of the irrecoverable rent in subsequent years  sub-         ject  to the condition that in no year the  deduction  would         exceed  the amount of rent payable: for a year.  the  asses-         see, it has to be borne in mind, seeks exemption in  respect         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 underlying 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 permissible 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 unambiguous, full effect must be given         to them irrespective of any consideration of equity.   Where         however the provisions are couched in language which is  not         free  from  ambiguity and admits of two  interpretations,  a         view which is favourable to  the subject  should  be  adopt-         ed.  The fact that such an interpretation is also in  conso-         nance 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(1) 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   dis-         missed.         (1) 52 1. T.R. 9 33.                                         1         ?207