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Sir Shadi Lal and Sons Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 721 of 1970
Judge
Reported in[1973]92ITR453(All)
ActsIncome Tax Act, 1922 - Sections 9(1); Income Tax Act, 1961 - Sections 24(1) and 147
AppellantSir Shadi Lal and Sons
RespondentCommissioner of Income-tax
Appellant AdvocateS.D. Paneja and ;M.P. Gupta, Advs.
Respondent AdvocateR.R. Misra, Adv.
Excerpt:
.....for the year 1954-55. the tribunal found that the lease deed was not produced before the income-tax officer, who made the original assessment, and as such there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. considering the claim of allowances for repairs, the tribunal held that under the terms of the lease deed, the tenant had undertaken all repairs, and so far as the assessee was concerned, the liability for repairs were of an extraordinary character like the collapse of the house and, therefore, the assessee was not entitled to any deduction in respect of repairs. the case as such clearly fell under section 147(a) of the act. can it be said that the work undertaken by the landlord to restore the..........a tenant and the owner has undertaken to bear the cost of repairs, a sum equal to one-sixth of the annual value; (b) where the property is in the occupation of a tenant who has undertaken to bear the cost of repairs,-- (i) the excess of the annual value over the amount of rent payable for a year by the tenant; or (ii) a sum equal to one-sixth of the annual value, whichever is less; (ii) the amount of any premium paid to insure the property against risk of damage or destruction; (iii) where the property is subject to a mortgage or other capital charge, the amount of any interest on such mortgage or charge ; (iv) where the property is subject to an annual charge, not being a capita] charge, the amount of such charge ; (v) where the property is subject to a ground rent, the amount of such.....
Judgment:

C.S.P. Singh, J.

1. The Income-tax Appellate Tribunal, Delhi Bench 'A', has referred the following questions for our opinion :

'(1) Whether, on the facts and in the circumstances of the case, the assessments for the years 1954-55, 1960-61 and 1961-62 were validly reopened under Section 147(a) of the Income-tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the provisions of Section 24(1)(i)(b) of the Income-tax Act, 1961, were applicable ?

(3) Whether, on the facts and in the circumstances of the case, the expenditure which was not allowed while completing the original assessments could be considered for allowance in the course of assessments reopened under Section 147(a)?'

2. The reference relates to the assessment years 1954-55, 1960-61 and 1961-62 in respect of a Hindu undivided family, which owns immovable properties and shares in limited companies. The assessee owned a house in Delhi. This house was demised to the Chinese Embassy by a deed dated 30th May, 1952. Clause 1(c) of the deed read as under:

'1. THE LESSEE hereby covenants with the lessor as follows:

(c) To maintain and keep the demised premises in good and habitable condition, tenantable, repair, execute all repairs including annual whitewashing, repairs of electric and sanitary fittings, etc., at the lessee's expenses. Major repairs such as repairs against collapse of the house, etc. shall be undertaken by the lessors at their cost.'

3. In the original assessment the letting value of the property was determined at Rs. 36,000 and the assessee got a deduction of Rs. 6,000 by way of repairs. Subsequently, being of the view that the assessee had got excessive relief for repairs, the Income-tax Officer reopened the assessment under Section 147 of the Income-tax Act, 1961. On reassessment, he determined the annual letting value of the property at Rs. 40,000 and allowed a deduction of Rs. 4,000 by way of repairs under the provisions of Section 24(1)(i)(b). The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner. The assessee thereafter appealed to the Tribunal. Before the Tribunal, the assessee contended that the assessment could not be reopened either under Section 147(a) or Section 147(b), in view of the fact that the assessee had given all the necessary particulars to the Income-tax Officer and he had determined the tax after considering the particulars furnished by it. It was further urged that the Income-tax Officer could not redetermine the annual letting value at a higher figure on the ground that the tenant had undertaken to bear the repairs as, according to the assessee, the expenditure incurred on repairs was relevant only for determining the deductions to be allowed from the annual letting value, and had no bearing on the determination of the annual letting value. It was further contended that the tenant had not undertaken to spend anything on substantial repairs and, therefore, the provisions of Section 24(1)(i)(b) of the Act were not applicable. In this context, it was also pressed that the assessee had spent an amount of Rs. 5,648 on repairs for the year 1954-55. The Tribunal found that the lease deed was not produced before the Income-tax Officer, who made the original assessment, and as such there was an omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. It consequently held that the assessment could validly be reopened under Section 147(a) of the Income-tax Act, 1961, inasmuch as a result of the lease deed not having been produced before the Income-tax Officer, income had escaped assessment. Considering the claim of allowances for repairs, the Tribunal held that under the terms of the lease deed, the tenant had undertaken all repairs, and so far as the assessee was concerned, the liability for repairs were of an extraordinary character like the collapse of the house and, therefore, the assessee was not entitled to any deduction in respect of repairs. As regards the enhancement of the annual letting value on reassessment, it took the view that even if the assessee's contention was accepted that the annual letting value could not be enhanced on reassessment, the assessee would not stand to gain, inasmuch as on the view it took, the assessee was not entitled even to the deduction of Rs. 4,000 granted by the Income-tax Officer. In respect of another contention raised by the assessee that, as the assessment had been reopened, the Income-tax Officer should have reconsidered the disallowance of expenses, which it had claimed in the original assessment, the Tribunal took the view that the allowance or disallowance of the expenses was concluded by the original assessment and the same could not be reopened on reassessment.

4. Coming to the first question, we are of the view that there is no substance in the assessee's contention that the assessment could not be reopened under Section 147(a) of the Income-tax Act. In computing the income from house property, the Income-tax Officer had to determine the annual letting value of the house, and also to fix the deductions in respect of repairs which could be allowed under the Act. For a correct determination of both these questions, the lease deed was a material document. This being so, it was incumbent on the assessee to have filed the lease deed before the Income-tax Officer at the time of the original assessment. The Tribunal has repelled the assessee's contention that the lease deed had been produced by it at the time of the original assessment. This being so, there was an omission on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that year. The case as such clearly fell under Section 147(a) of the Act.

5. The answer to the third question is obvious. It is settled law that on reassessment, the entire assessment is not opened. Thus, claims which had been disallowed during the original assessment cannot be reagitated on the assessment being reopened for bringing to tax certain income which has escaped assessment. The controversy on reassessment is confined to matters which are relevant in respect of the income which had not been brought to tax during the course of the original assessment. It has not been contended that the disallowance of expenditure made during the course of the original assessment, which the assessee wanted to be reconsidered during reassessment, were relevant for the enquiry on which the Income-tax Officer had re-embarked on reassessment. The disallowance of these expenses in the original assessment had become final, and this being so, it was not open for the assessee to make a claim for these items of expenditure.

6. The second question may now be considered. Section 24(1)(i)(a) and (b) may, for the sake of convenience, be quoted:

'24. Deductions from income from house property.--(1) 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:--

(i) in respect of repairs,--

(a) where the property is in the occupation of the owner, or where the property is let to a tenant and the owner has undertaken to bear the cost of repairs, a sum equal to one-sixth of the annual value;

(b) where the property is in the occupation of a tenant who has undertaken to bear the cost of repairs,--

(i) the excess of the annual value over the amount of rent payable for a year by the tenant; or

(ii) a sum equal to one-sixth of the annual value, whichever is less;

(ii) the amount of any premium paid to insure the property against risk of damage or destruction;

(iii) where the property is subject to a mortgage or other capital charge, the amount of any interest on such mortgage or charge ;

(iv) where the property is subject to an annual charge, not being a capita] charge, the amount of such charge ;

(v) where the property is subject to a ground rent, the amount of such ground rent;

(vi) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital;

(vii) any sums paid on account of land revenue in respect of the property;

(viii) any sums spent to collect the rent from the property, not exceeding six per cent. of the annual value of the property;

(ix) where the property is let and was vacant during a part of the year, that part of the annual value which is proportionate to the period during which the property is wholly unoccupied or, where the property is let out in parts, that portion of the annual value appropriate to any vacant part which is proportionate to the period during which such part is wholly unoccupied; and

(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.'

7. It will be noticed that, so far as Clause (a) is concerned, the owner is entitled to a deduction equal to one-sixth of the annual value, only in case the owner has undertaken to bear the cost of repairs. This clause does not come into play in case the tenant has to bear the cost of repairs. Clause (b) deals with the case where the tenant has undertaken to bear the cost of repairs. The deduction allowable under this sub-clause is, however, equivalent' to an amount equal to the excess of the annual value over the amount of rent payable by the tenant, or a sum equal to one-sixth of the annual value, whichever is less. So far as the present case is concerned, if it is held that it is the landlord who has undertaken the cost of repairs, then inasmuch as the annual value of the house has been fixed at Rs. 40,000 while the amount of rent for which the accommodation has been let out is Rs. 36,000, the assessee is entitled to deduction for repairs to the tune of Rs. 4,000 as allowed by the Income-tax Officer, inasmuch as this sum is less than one-sixth of Rs. 40,000. Counsel for the assessee, however, contends that inasmuch as under the lease deed the assessee had undertaken to bear the cost of some repairs, which could be termed as major repairs, it is Clause (a) that applies and not Clause (b). In support of this contention, he has drawn our attention to a decision of the Calcutta High Court in the case of Commissioner of Income-tax v. Parbutty Churn Law, [1965] 57 I.T.R. 609 (Cal.). In this case, their Lordships of the Calcutta High Court were dealing with a case under Section 9(1)(i) and 9(1)(ii) of the Indian Income-tax Act, 1922. These provisions are in pari materia with Section 24(1)(i)(a) and (b) of the Income-tax Act, 1961, It was held that Section 9(1)(i) of the Indian Income-tax Act, 1922, applied 'where the landlord had undertaken to bear the cost of substantial repairs, and Section 9(1)(ii) apply where the tenant had undertaken to bear the cost of substantial repairs. On the facts of that case, it was held that the tenant had undertaken to bear the cost of petty repairs only, and, so far as substantial repairs were concerned, they had to be undertaken by the landlord. In the view that we take, which we shall state shortly hereafter, it is not necessary to express any opinion on the question as to whether the word 'repairs' as used in Section 9(1)(i) or 9(1)(ii) of the 1922 Act, or by Section 24(1)(i)(a) or (b) of the Income-tax Act, 1961, means substantial repairs and the quantum of deduction which the landlord gets depends on the question as to whether he has undertaken to carry out substantial repairs in the demised building. In the case of Rhodesia Railways Ltd, v. Income-tax Collector, Bechuanaland Protectorate, [1933J 1 I.T.R, 227 (P.C.) their Lordships of the Privy Council quoted with approval the observation of Buckley L.J. in Lurcott v. Wakely & Wheeler, [1911] 1 K.B. 905, 923-24 (C.A.) regarding the meaning to be ascribed to the word 'repairs'. Their Lordships, on page 232, observed as under:

'As was pointed out by Buckley L.J. (as he then was) in Lurcott v. Wakely & Wheeler. ''Repair' and 'renew' are not words expressive of a clear contrast', and 'Repair is restoration by renewal, or replacement of subsidiary parts of a whole. Renewal as distinguished from repair, is reconstruction of the entirety, meaning by the entirety not necessarily the whole but substantially the whole subject-matter under discussion'.'

8. Now, under the terms of the present lease deed, the lessee issaddled with the liability of executing all repairs. So far as the landlord is concerned, the lease deed enjoins on him to carry out major repairs, such as repairs against the collapse of the house, etc. The major repairs contemplated under the lease deed are akin to collapse of the house, i.e., the whole structure. Can it be said that the work undertaken by the landlord to restore the collapse of the premises or work of a like nature could be called 'repairs'? We are of the view that it would not be 'repairs' but renewal or reconstruction. We are in respectful agreement with the view expressed by Buckley L.J. in Lurcoft v. Wakely & Wheeler which, as has been seen, has met the approval of their Lordships of the Privy Council. This being so, the deduction for repairs could be considered only under Section 24(1)(i)(b) of the Income-tax Act, 1961.

9. We, therefore, answer the first and second questions in the affirmative and the third question in the negative, all against the assessee. The department is entitled to its costs which we assess at Rs. 200. Counsel's fee is assessed at the same figure.


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