ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, KOTA vs. BHIM SINGH, KOTA

PER VIJAY PAL RAO, JM :

This appeal by the revenue is directed against the order dated 11.08.2017 of

ld. CIT (A), Kota for the assessment year 2014-15. The revenue has raised the

following grounds :-

“ On the facts and in the circumstances of the case, the ld. CIT (A) has erred in –

i) Deciding the appeal of the assessee in its favor following his predecessor’s order ignoring the fact that the orders based on which the CIT (A) allowed relief to the assessee have not been accepted by the department and appeal is pending in different appellate fora.

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ii) The appellant craves liberty to raise additional ground and to modify/amend the ground of appeal at the time of hearing.”

Though the grounds raised by the revenue are general in nature and have not

specified the grievance against the impugned order, however, at the time of hearing

the ld. A/R of the assessee as well as the ld. D/R have agreed that the revenue has

challenged the order of the ld. CIT (A) to the extent of disallowances made by the

AO were deleted. Therefore, the grounds as raised before the ld. CIT (A) by the

assessee which were allowed by the ld. CIT (A) are to be considered in this appeal

of the revenue.

the AO from Umed Bhawan Palace, Kota which was undisputedly in the occupation

of ex-Ruler HH Maharao Bhim Singhji till he expired in the year 1991. Thereafter the

said palace is in the occupation of successor of HH Maharao Bhim Singhji, Kota and

the assessment are being framed in the hands of the successor. The dispute was

also regarding the status of the assessee claimed as Individual whereas the AO

framed the assessment in the hands of HUF. The various disallowances made by

the AO in the assessment framed under section 143(3) were deleted by the ld. CIT

(A) as under :-

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Thus it is clear that the ld. CIT (A) has followed the decision of this Tribunal in

assessee’s own case for the earlier assessment years.

earlier decision, however, the AO has specifically pointed out the fact that after the

death of HH Maharao Bhim Singhji, the successor of the estate of ex-Ruler including

the Umed Bhawan Palace can be considered as HUF instead of Individual. Further

the exemption under section 10(19A) is not available to the successor specifically on

the reason that the ex-Ruler is no more in occupation of the Palace during the

previous year relevant to the assessment year under consideration. Thus the

learned D/R has submitted that as per the proviso to section 10(19A) it is a condition

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that the assessment year commencing on 1st day of 1972 the annual value of such

Palace in the occupation of such Ruler during the relevant previous year shall be

exempt from income-tax. When this condition is not satisfied in the case of the

assessee then the exemption under section 10(19A) is not available. The ld. D/R has

relied upon the order of the A.O.

3.1. On the other hand, the ld. A/R has submitted that the issues in this appeal of

the revenue are covered by the earlier decision of this Tribunal as well as the

decision of Hon’ble Supreme Court in assessee’s own case reported in 390 ITR 532

(SC). He has also relied upon the decision of this Tribunal in assessee’s own case for the assessment years 2012-13 and 2013-14 vide order dated 4th October, 2017 in

ITA No. 261 & 262/JP/17 and C.O. No. 20 & 21/JP/2017.

record, at the outset, we note that identical issues were considered by this Tribunal

in assessee’s own case for the assessment years 2012-13 and 2013-14. The ld.CIT

(A) has also decided the appeal of the assessee by following the earlier orders of the

Tribunal. The Hon’ble Supreme Court in assessee’s own case reported in 390 ITR

532 (SC) has considered the issue in para 25 to 39 as under :-

“25. In order to claim exemption from payment of income-tax on the residential palace of the Ruler under Section 10(19A), it is necessary for the Ruler to satisfy that first, he owns the palace as his ancestral property; second, such palace is in his occupation as his residence; and third, the palace is declared exempt from payment of income-tax under Paragraph 15 (iii) of the Order, 1950 by the Central Government. 26. Now, the question arises that where part of the residential palace is found to be in occupation of the tenant and remaining is in occupation of the Ruler for his residence, whether in such circumstances, the Ruler is entitled to claim

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exemption for the whole of his residential palace under Section 10(19A) or such exemption would confine only to that portion of the palace which is in his actual occupation. In other words, whether the exemption would cease to apply to let out portion thereby subjecting the income derived from let out portion to payment of income-tax in the hands of the Ruler. 27. This very question was examined by the M.P. High Court in the case of Bharatchandra Banjdeo (supra) in detail. It was held that no reliance could be placed on Section 5(iii) of the Wealth Tax Act while construing Section 10(19A) for the reason that the language employed in Section 5(iii) is not identical with the language of Section 10(19A) of the I.T. Act. Their Lordships distinguished the decision of Delhi High Court rendered in the case of Mohd. Ali Khan v. CIT [1983] 140 ITR 948/12 Taxman 330, which arose under the Wealth Tax Act. It was held that even if the Ruler had let out the portion of his residential palace, yet he would continue to enjoy the exemption in respect of entire palace because it is not possible to split the exemption in two parts, i.e., the one in his occupation and the other in possession of the tenant. 28. Justice G.L. Oza, the learned Chief Justice (as His Lordship then was), speaking for the Bench held as under: '8. It is, therefore, clear that under this order the income from all the palaces of a Ruler which are declared to be the official residence were exempt. Under clause (19A) of Section 10, only one palace in occupation has been exempted and it appears that similarly in the W.T. Act instead of using the word "palace" they have used the words "one building in occupation of a Ruler" which has been exempted from tax. 9. It is not in dispute that in this reference the property in question is a palace. It is also not in dispute that a portion of it is in occupation. The only question which has been raised by learned counsel for the Revenue is that if only a portion of the palace is in occupation, the exemption under clause (19A) of Section 10 would be available only for that part and not for the whole. The change brought about by the insertion under the Merged States (Taxation Concessions) Order is clearly illustrated by the two provisions quoted above. By clause (19A), the exemption has been limited only to one palace in occupation. If the Legislature intended a further splitting up, it would have been provided in clause (19A) that such portion of the palace in occupation is only exempted, but it appears that the language used by the Legislature did not contemplate a further splitting up. In Mohd. Ali Khan's case: [1983] 140 ITR 948 (Delhi) which is a case under the W.T. Act, the only question considered was that if the palace which was declared to be an official residence had a number of buildings, as the exemption under the W.T. Act is available only in respect of one building which is in occupation and, therefore, the assessee's contention, that the other buildings which may not be in occupation but declared to be an official residence should be exempted, was not accepted. In clause (19A) of Section 10, in the place of "building", the

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phrase employed is "one palace" and so far as the case in hand is concerned, it is not disputed that this official residence is only one palace and not more than one. Under these circumstances, in our opinion, clause (19A) could not be interpreted to mean that it contemplates further splitting up of portions of a palace. The language of clause (19A) of Section 10 does not justify it. It is settled that in cases of exemption, the language of the statute has to be liberally construed but even if this principle is not considered, there are no words in clause (19A) of Section 10 from which an intention for splitting up of the palace into portions could be gathered. In this view of the matter, therefore, the contention advanced by the learned counsel for the Revenue cannot be accepted.'

"So far as the first question relating to exemption claimed under section 10(19A) is concerned, there is a direct decision in CIT v. Bharatchandra Banjdeo, [1985] 154 ITR 236 (MP). It was held therein that it is not possible to split up one palace into parts for granting exemption only to that part in self-occupation of the ex-Ruler as his official residence and to deny the benefit of exemption to the other portion of the palace rented out by the Ruler, since the entire palace is declared as his official residence. Accordingly, it was held that even if only a part of the palace is in the self-occupation of the former Ruler and the rest has been let out, the exemption available under section 10(19A) will be available to the entire palace. No decision taking a contrary view has been cited before us. We do not find any good ground to depart from that view, when the view taken in that decision is undoubtedly a plausible view. In the case of a taxing statute, a plausible view in favour of the assessee should be preferred in these circumstances. Following that decision, the first question has to be answered against the Revenue and in favour of the assessee."

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"5. In coming to this conclusion, this Court has followed another decision of the Madhya Pradesh High Court in CIT v. Bharatchanda Banjdeo (1985) 154 ITR 236 (M.P.). The decision of this Court in CIT v. H.H. Maharao Bhim Singhji (1988) 173 ITR 79, we are informed by the learned counsel, has not been appealed against. 6. In that view of the matter, we are of the opinion that the application under Section 256(1) has rightly been rejected by the Tribunal and do not deserve further consideration."

"5. Exemptions in respect of certain assets-Wealth-tax shall not be payable by an assessee in respect of the following assets and such assets shall not be included in the net wealth of the assessee- (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (iii) any one building in the occupation of a Ruler, being a building which immediately before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, was his official residence by virtue of a declaration by the Central Government under paragraph 13 of the Merged States (Taxation Concessions) Order, 1949, or paragraph 15 of the Part B States (Taxation Concessions) Order, 1950;"

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language in Section 10(19A) of the I.T. Act. We, however, do not find such language employed in Section 10(19A). 36. As rightly pointed out by the learned senior counsel for the appellant, Section 23(2) and (3), uses the expression "house or part of a house". Such expression does not find place in Section 10(19A) of the I.T. Act. Likewise, we do not find any such expression in Section 23, specifically dealing with the cases relating to "palace". This significant departure of the words in Section 10(19A) of the I.T. Act and Section 23 also suggest that the Legislature did not intend to tax portion of the "palace" by splitting it in parts.

Thus the issue involved in this appeal has been considered by the Hon’ble Supreme

Court and particularly the exemption under section 10(19A) of the IT Act was

allowed to the assessee in respect of the value of the Palace in question. Though

the objection of the AO as well as the contentions raised by the ld. D/R have

substance and merits as the conditions prescribed in the proviso to section 10(19A)

such Palace should be in occupation of the ex-Ruler during the relevant previous

year for eligible for the exemption from income-tax, however, in view of the decision

of the Hon’ble Supreme Court on the point which is a binding principle and law of

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the land, we do not find any reason to interfere with the impugned order of the ld.

CIT (A). Accordingly the appeal of the revenue deserves dismissal.

Order is pronounced in the open court on 14/06/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Jaipur Dated:- 14/06/2018. Das/

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

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