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Commissioner of Income-tax Vs. M.P. Jatia - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 328 of 1964
Judge
Reported in[1970]76ITR201(All)
ActsIncome Tax Act, 1922 - Sections 66(1); Income Tax Act, 1961 - Sections 24 and 24(1)
AppellantCommissioner of Income-tax
RespondentM.P. Jatia
Appellant AdvocateShanti Bhushan, Adv. General and ;R.R. Misra, Adv.
Respondent AdvocateAshok Gupta and ;B.L. Gupta, Advs.
Excerpt:
.....out. ' 6. we have pointed out that, according to the tribunal, all the necessary conditions have been satisfied. 38 of the government notification dated march 21, 1922, was that it is unfair to assess tax on the assumed income of property in spite of the fact that the landlord failed to collect rent from the tenant. if such allowance can be made for one assessment year we see no good reason why such allowance may not be made in favour of the landlord-assessee for subsequent years, ft is true that deduction for any assessment year cannot exceed rent for one year. but, if it is found that duration of unrealised rent exceeds a period of one year, there is no good reason why similar claim by the landlord should not be made at the time of assessment in subsequent years......that the notification dated march 21, 1922, limits the quantum of the relief to the extent of a year's rent and unabsorbed part of the irrecoverable rent cannot be carried forward to subsequent years.13. one will readily accept the position that relief for one assessment year cannot exceed rent for one year. but, with respect to the punjab high court we are unable to accept its view that similar relief may not be available for successive years. it was observed in daljit singh's case that there is no provision in the notification for carrying forward losses to subsequent years. it may, however, be pointed out that the very provision that unrealised rent during one year may be allowed for at the time of assessment for subsequent year is itself in the nature of carrying forward loss from.....
Judgment:

V.G. Oak, C.J.

1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. Smt. Indermani Jatia was the assessee at all material times. The assessment years are 1957-58, 1958-59 and 1959-60. Her legal representative, Madhav Prasad Jatia, has been brought on the record.

2. The assessee owned at Delhi a building known as Grand Hotel. She experienced much difficulty in collecting rent from her tenant, who occupied Grand Hotel. At the time of the assessment for 1956-57, the assessee was able to secure deduction under item No. 38 of the Government Notification No. 878-F dated March 21, 1922, as regards unrealised rent in previous years. The assessee made similar claims for deduction under item No. 38 of the Government Notification No. 878-F dated March 21, 1922, at the time of assessment for the years 1957-58, 1958-59 and 1959-60. The claim was not specifically made before the Income-tax Officer. A claim was made in appeal before the Appellate Assistant Commissioner. He declined to recognise the claim made at such a late stage. When the matter went before the Tribunal in further appeal, the Tribunal permitted the assessee to raise the point before it. On merits it was urged for the department that, in view of the deduction made for the assessment year 1956-57, no further deduction could be claimed for 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 deduction for the relevant assessment years in spite of the fact that a similar claim had been allowed in the 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, and to the extent that it had not been exempted in previous assessment, it should be exempted for the year under assessment.

3. Being dissatisfied with the decision of the Tribunal, the Commissioner of Income-tax, U.P., applied under Section 66(1) of the Act for a reference to court. In pursuance of that application, the Tribunal has referred the following question of law to this court:

'Whether, on 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 any amount equal to the irrecoverable rent of the Grand Hotel property for one year which has not been so excluded in the preceding assessment ?'

4. It is a little difficult to understand the scope of the question referred to the court. In paragraph 6 of the statement of the case the Tribunal observed that all the conditions necessary for invoking the exemption have been satisfied. If all the conditions for invoking the exemption are satisfied, it would appear that a case for exemption has been made out. Yet, the Tribunal has referred to this court the question whether the assessee is entitled to the exemption claimed by her. We take it that the question iswhether, on the facts found by the Tribunal, the assessee is entitled to thebenefit of item No. 38 of the Government notification.

5. The Government notification dated March 21, 1922, runs thus:

'The following classes of income shall be exempt from the tax payableunder the said Act......

(38) Such part of the income in respect of which the said tax is payableunder the head 'Property' as is equal to the amount of rent payable for ayear but not paid by a tenant of the assessee and so proved to be lost andirrecoverable, where-

(a) the tenancy is bona fide ;

(b) the defaulting tenant has vacated, or steps have been taken to compel him to vacate the 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 institute legal proceedings for the recovery of the unpaid rent or satisfies the Income-fax Officer that legal proceedings would be useless ; and

(e) the annual value of the property to which the unpaid rent relates has been included in the assessed income of the year during which that rent was due and income-tax has been duly paid on such assessed income.'

6. We have pointed out that, according to the Tribunal, all the necessary conditions have been satisfied. We, therefore, take it that the conditions mentioned in Clauses (a) to (e) of item No. 38 of the Government notification have been fulfilled in the instant case. The question is whether the assessee is precluded from the benefit of the exemption on the short ground that a similar exemption was granted to the assessee for the assessment year 1956-57.

7. Dr. Misra, appearing for the applicant, relied upon the following words appearing in the opening part of item No. 38 of the notification:

'as is equal to the amount of rent payable for a year............'

8. Dr. Misra contended that the exemption permissible under item No. 38 of the Government notification is available for one assessment year only.

9. It will be convenient to refer to the corresponding provision under the Income-tax Act, 1961. Section 24 of the Income-tax Act, 1961, deals with deductions from income from house property. Sub-section (1) of Section 24 of the 1961 Act states:

'Income chargeable under the head 'Income from house property' shall, subject to the provisions of Sub-section (2), be computed after making the following deductions, namely :......

(x) subject to such rules as may be made in this behalf, the amount in respect of rent from property let to a tenant which the assessee cannot realise.'

10. Rule 4 of the Income-tax Rules, 1962, provides for unrealised rent. Rule 4 of the 1962 Rules runs thus :

'Under Clause (x) of Sub-section (1) of Section 24, deduction shall be allowed of such part of income in respect of which tax is payable under the head 'Income from house property' as is equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable.........'

11. There is no indication in Rule 4 to suggest that deduction under this rule may not be; claimed by an assessee for successive years. But Dr. Misra contended that the plan of Rule 4 of the 1962 Rules is different from the plan of item No. 38 of the Government notification dated March 21, 1922.

12. A similar case went before the Punjab High Court in Daljit Singh v. Commissioner of Income-tax, [1964] 52 I.T.R. 933 . It was held that the notification dated March 21, 1922, limits the quantum of the relief to the extent of a year's rent and unabsorbed part of the irrecoverable rent cannot be carried forward to subsequent years.

13. One will readily accept the position that relief for one assessment year cannot exceed rent for one year. But, with respect to the Punjab High Court we are unable to accept its view that similar relief may not be available for successive years. It was observed in Daljit Singh's case that there is no provision in the notification for carrying forward losses to subsequent years. It may, however, be pointed out that the very provision that unrealised rent during one year may be allowed for at the time of assessment for subsequent year is itself in the nature of carrying forward loss from one year to a subsequent year.

14. The basis of item No. 38 of the Government notification dated March 21, 1922, was that it is unfair to assess tax on the assumed income of property in spite of the fact that the landlord failed to collect rent from the tenant. If such allowance can be made for one assessment year we see no good reason why such allowance may not be made in favour of the landlord-assessee for subsequent years, ft is true that deduction for any assessment year cannot exceed rent for one year. But, if it is found that duration of unrealised rent exceeds a period of one year, there is no good reason why similar claim by the landlord should not be made at the time of assessment in subsequent years. The expression 'rent payable for a year' appearing in item No. 38 of the notification merely emphasises the fact that deduction for any one year cannot exceed rent payable for one year. That expression does not rule out similar deduction in subsequent years. Of course, deduction for the assessment of any one year cannot exceed rent payable for a year. Subject to that limitation, it would be open to an assessee to claim deduction in successive years, if the assessee is able to make out that theperiod of unpaid rent far exceeds one year. The Tribunal was right inholding that the mere fact that deduction had been claimed and allowed tothe assessee's favour for the assessment year 1956-57, did not preclude theassessee from claiming similar deduction before the Tribunal for thesubsequent years 1957-58, 1958-59 and 1959-60. The view taken by theTribunal on this point is correct.

15. We answer the question referred by the Tribunal in the affirmative, and in favour of the assessee. The Commissioner, of Income-tax, U.P., shall pay the assessee Rs. 200 as costs of the reference.


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