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H.H. Raja Agit Singh of Jhabua Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 10 of 1979
Judge
Reported in[1983]140ITR138(MP)
ActsIncome Tax Act, 1961 - Sections 10, 10(19A), 251 and 263; Rulers of Indian States (Abolition of Privileges) Act, 1972 - Sections 7
AppellantH.H. Raja Agit Singh of Jhabua
RespondentCommissioner of Income-tax
Appellant AdvocateJ.W. Mahajan, Adv.
Respondent AdvocateS.C. Bagadiya, Adv.
Excerpt:
- .....1, 1971 to march 31, 1972, is liable to tax ? (5) whether the tribunal was justified in giving effect to clause (19a) of section 10 of the income-tax act, 1961, from a date earlier than december 28, 1971, when the clause (19a) ibid has been inserted expressly with effect from december 28, 1971, by the rulers of indian states (abolition of privileges) act, 1972?' 2. the facts giving rise to this reference as set out in the statement of the case are as follows: the assessee is an ex-ruler of the erstwhile state of jhabua. the assessment year involved is 1972-73. the relevant accounting year is 1971-72. the dispute relates to the income of the assessee from property in respect of his palace at jhabua. this palace was let out to the central govt. and the assessee was earning rent.....
Judgment:

Vijayvargiya, J.

1. By this reference under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following questions of law for the opinion of this court:

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Commissioner of Income-tax had the power to revise the order of the ITO on the particular issue in question as the same was not the subject-matter of decision by the AAC in the appeal filed by the assessee ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the CIT was competent to pass the order under Section 263 of the Income-tax Act, 1961, even though the assessee's appeal against the order of the ITO was already disposed of by the AAC and the ITO's order stood merged with the AAC's order ?

(3) Whether, in view of the facts and circumstances of the case, the order passed under Section 263 of the Income-tax Act, 1961, is sustainable ?

(4) Whether, having regard to the provisions of Section 10(19A) of the Income-tax Act, 1961, inserted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, with effect from December 26, 1971, the Tribunal was justified in holding that the income of Jhabua Palace for the entire previous year from April 1, 1971 to March 31, 1972, is liable to tax ?

(5) Whether the Tribunal was justified in giving effect to Clause (19A) of Section 10 of the Income-tax Act, 1961, from a date earlier than December 28, 1971, when the Clause (19A) ibid has been inserted expressly with effect from December 28, 1971, by the Rulers of Indian States (Abolition of Privileges) Act, 1972?'

2. The facts giving rise to this reference as set out in the statement of the case are as follows: The assessee is an ex-Ruler of the erstwhile State of Jhabua. The assessment year involved is 1972-73. The relevant accounting year is 1971-72. The dispute relates to the income of the assessee from property in respect of his palace at Jhabua. This palace was let out to the Central Govt. and the assessee was earning rent therefrom in the previous year. The ITO brought the rental income to tax on the ground that the same was not exempt in view of Clause (19A) of Section 10 of the Act. However, the ITO taxed the rental income accrued to the assessee after December 28, 1971, on the ground that Clause (19A) of Section 10 of the Act came into force with effect from December 28, 1971, and that before this date the income earned by the assessee was exempt under Section 10 of the Act.

3. The Commissioner revised the order of assessment under Section 263 of the Act, because he was of the opinion that the order passed by the ITO was erroneous in so far as it was prejudicial to the interest of the Revenue. The Commissioner after hearing the assessee set aside the order of the ITO and held that the rental income of the palace for the entire previous year was liable to tax. He accordingly directed the ITO to pass a fresh assessment order in accordance with law. Aggrieved by the order of the Commissioner, the assessee preferred an appeal before the Tribunal. The Tribunal has affirmed the order of the Commissioner and has dismissed the appeal. At the instance of the assessee, the Tribunal has referred the aforesaid questions of law for the opinion of this court.

4. As regards questions Nos. (1) and (2), a similar question came up for consideration before us in Misc. Civil Case No. 142 of 1978 (Alok Paper Industries v. C1T), decided on January 14, 1981 : [1983]139ITR1064(MP) . In that case the ITO allowed certain deduction paid by the assessee as interest. In the appeals preferred by the assessee before the AAC and the Tribunal, the deduction allowed by the ITO was not involved and was not considered. The appeal of the assessee was partly allowed by the AAC and the further appeal preferred by the assessee was also allowed by the Tribunal. Thereafter, the Commissioner was of the opinion that in allowing the deduction the assessment order pased by the ITO was erroneous in so far as it was prejudicial to the interest of the Revenue. The Commissioner after hearing the assessee set aside the order of assessment. On these facts the question referred to this court was whether the Commissioner was competent to initiate proceedings under Section 263 of the Act, inasmuch as the order of the ITO had merged in the appellate order of the AAC and the Income-tax Appellate Tribunal. Following our decision in Jaora Sugar Mills Ltd, v. Union of India (M.P. No. 55 of 1978, decided on October 12, 1979) : [1982]134ITR385(MP) we held that as the particular point was not the subject-matter of appeal and was not actually considered in appeal, the decision of the ITO could not be held to have been merged in the order of the appellate authority and, therefore, the Commissioner was competent to initiate proceedings under Section 263 of the Act. The facts of the present case are also similar. In the present case the order of the ITO holding that the rent of the palace prior to December 28, 1971, was not liable to tax, was not the subject-matter of appeal before the AAC and was also not considered by him. In the circumstances following our decision in the two cases referred to above our answers to questions Nos. (1) and (2), referred to us, are in the affirmative and against the assessee.

5. Now, as regards the merits of the case, the ITO taxed the income of the palace which accrued to the assessee after December 28, 1971, on the ground that Clause (19A) of Section 10 of the Act came into force with effect fromthat date and the income earned before that date was exempt under Section 10 of the Act. The Tribunal, however, was of the opinion that the ITO was required to see the provisions of the Act as they were in force on April 1, 1972, i. e., on the 1st of April of the assessment year in question, because the same would govern the chargeability of tax on the total income of the previous year. As a matter of law the view expressed by the Tribunal is correct. However, the Tribunal committed an error in applying the said principle to the facts of this case because the law in force on April 1, 1972, itself made the income of the Jhabua Palace taxable with effect from December 28, 1971. It is not in dispute that prior to the enactment of Clause (19A) (s. 10 of the Act), the income of the Jhabua Palace was wholly exempt from tax. By Section 7 of the Rulers of Indian States (Abolition of Privileges) Act, 1972 (No. 54 of 1972), Clause (19A) was inserted in Section 10 of the Act before Clause 20 thereof. The relevant provisions of Section 7 of the said Act are as follows :

'7. Amendment of Act 43 of 1961.--In the Income-tax Act, 1961,--

(a) in Section 10,--.....

(iii) before Clause 20, the following clause shall be inserted and shall be deemed to have been inserted with effect from the 28th day of December, 1971, namely:-- '(19A) the annual value of any one palace in the occupation of a Ruler, being a palace, the annual value whereof was exempt from income-tax before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, by virtue of the provisions of the Merged States (Taxation Concessions) Order, 1949, or the Part B States (Taxation Concessions) Order, 1950, or, as the case may be, the Jammu and Kashmir (Taxation Concessions) Order, 1958.'

6. The said Act although came into force on September 11, 1972, provided that Clause (19A) in Section 10 of the Act shall be deemed to have been inserted with effect from December 28, 1971. Thus, although the said Clause (19A) was in force on April 1, 1972, but by that clause the exemption granted to erstwhile rulers in respect of the annual value of the palaces was withdrawn and the annual value of only one of the palaces in the occupation of the ruler was exempted from income-tax with effect from December 28, 1971. In the circumstances by reason of Clause (19A) of Section 10 of the Act the exemption which was in force prior to December 28, 1971, was not taken away in any manner by the insertion of the said clause which, as stated above, came into force with effect from December 28, 1971. In the circumstances, in our opinion, the Tribunal was not justified in holding that the annual value of the Jhabua Palace from April 1, 1971, to December 28, 1971, was also taxable because of the provisions of Clause (19A) of Section 10 of the Act. In our opinion, the ITO was right in taxing the income ofthe Jhabua Palace which accrued from December 28, 1971. Our answers to questions Nos. (3), (4) and (5) referred to us are, therefore, in the negative and against the Department.

7. The reference is answered accordingly. In the circumstances of the case, the parties shall bear their own costs of this reference.


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