COMMISSIONER OF INCOME-TAX, LUCKNOW vs. MADHO PD. JATIA

CIVIL APPEAL No. 150/1971Supreme Court[1977] 1 S.C.R. 20217 August 1976Bench: 3 JudgesAuthor: HANS RAJ KHANNA, R.S. SARKARIA, JASWANT SINGH B5 pages
AI SummaryDismissed

What were the facts?

The assessee, Madho Pd. Jatia, is the owner of the Grand Hotel in Delhi. For assessment years 1957-58, 1958-59, and 1959-60, the assessee claimed a deduction for irrecoverable rent amounting to Rs. 1,85,892. While a deduction for a portion of this unrealised rent was allowed in assessment year 1956-57, the Income Tax Officer rejected similar claims for the subsequent three years. The assessee appealed to the Appellate Assistant Commissioner, who declined to entertain the claim at that stage. The Income Tax Appellate Tribunal, however, permitted the assessee to raise the issue and held that the irrecoverable rent not exempted in the previous year should be exempted in the subsequent years. The High Court answered the reference in favour of the assessee, and the Commissioner of Income-tax appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the assessee is entitled to claim the benefit of exemption in respect of the balance of irrecoverable rent in subsequent years, subject to the condition that the deduction in any given year does not exceed the amount of rent payable for that year. The Court reasoned that Section 9 of the Indian Income Tax Act, 1922, computes income on a notional basis, and the fact of rent becoming irrecoverable is often known only in subsequent years. Item 38 of Notification No. 878F provides an exemption for irrecoverable rent, and while it fixes a limit for deduction in one year, there is nothing in its language to suggest that the exemption can only be claimed once. The underlying object of the exemption is to relieve the assessee from paying tax on notional income that was never actually received. Therefore, the benefit of the exemption for the balance of irrecoverable rent should be permissible in successive years until the entire irrecoverable amount is relieved, provided the annual limit is not exceeded. The Court preferred the view of the Allahabad High Court over that of the Punjab High Court in Daljit Singh's case. The appeal was dismissed.

What were the issues?

1. 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? (Mixed question of law and fact, turning on Section 9 of the Indian Income Tax Act, 1922 and Item 38 of Notification No. 878F dated March 21, 1922). Assessee's contention: The assessee argued that the benefit of exemption for irrecoverable rent, as provided by Item 38, can be claimed in subsequent years for the balance amount of irrecoverable rent, even if a portion was claimed in a prior year, provided the conditions are met and the deduction in any year does not exceed the rent payable for that year. The Tribunal and High Court supported this view. Revenue's contention: The revenue contended that no deduction could be claimed by the assessee for more than one assessment year, implying that once the benefit of exemption for irrecoverable rent was availed, it could not be claimed again for the remaining balance in subsequent years. The revenue relied on the judgment in Daljit Singh v. Commissioner of Income-tax, Delhi.

Which sections of the Income-tax Act were involved?

Section 9,Section 66(1)

AI-generated summary — verify with the full judgment below

A B c D E F G H 202 COMMISSIONER OF INCOME-TAX, LUCKNOW v. MADHO PD. JATIA August 17, 1976 (H. R. KHANNA, R. S. SARKARIA AND JASWANT SINGH, JJ.)

Indian Income Tax Act, 1922-S. 9-lrrecoverable rent-If could be deducted from income from property of only one year-Exemption-If could be f;ivm only once.

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 Tribunal held that to the extent the irrecoverable rent had not been exempted in the previous assessment ye~·r, should be exempted in the subsequent years from the income from property of the assessee.

The High Court answered the reference in favour of the assessee.

Dismissing the appeal to this Court, HELD : There is no reason why the assessee should become disentitlecl to claim the· benefit of the exemption in respect of the balance of the irrecoverable

The order continues below.

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