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Commissioner of Income-tax, Bombay Vs. Abdul HusseIn Essaji Arsiwalla - Court Judgment

SooperKanoon Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 101 of 1962
Judge
Reported in[1968]69ITR174(Bom)
ActsIncome Tax Act, 1922 - Sections 9(1)
AppellantCommissioner of Income-tax, Bombay
RespondentAbdul HusseIn Essaji Arsiwalla
Appellant AdvocateG.N. Joshi, Adv.
Respondent AdvocateRajgopal, Adv.
Excerpt:
direct taxation - ground rent - section 9 (1) of income tax act, 1922 - deduction of ground rent not dependent upon actual payment - deduction allowed even if ground rent not paid - deduction can only be claimed in assessment year related to previous year to which ground rent relates - held, arrears of ground cannot be claimed in year of payment. - - 7 is in respect of vacancies during the previous year and the allowance claimable in respect thereof is clearly in respect of the previous year only. i am not satisfied that the legislature has intended to charge on the basis of the sum which a hypothetical tenant would give save upon the assumption made in favour of the assessee that the real income of an incumbrancer is the difference between the yearly value and the interest. it is..........repairing, renewing or reconstructing the property is mentioned, while in column (15) ground rent paid for the property is specified. mr. rajgopal has pointed out that whereas in column (14) the word 'paid' does not appear in respect of the interest on mortgage or other charge, etc., in column (15) the said word appears in respect of the ground rent. according to the learned counsel, therefore, while the legislature contemplated that in respect of the interest on a mortgage or charge, the said amount will be allowed as an amount in respect of the previous year irrespective of whether it is paid or not, in the case of ground rent what will be allowed is the ground rent actually paid out by the assessee. we are not impressed by this argument. there can be no doubt whatsoever that the.....
Judgment:

V.S. Desai, J.

1. The question raised on this reference under section 66(1) of the Indian Income-tax Act, 1922, relates to an amount claimed by the assessee as allowance under section 9(1)(iv) as ground rent to which the property was subject.

2. The assessee is the owner of one half share in certain properties, which are assessed to tax under section 9 of the Indian Income-tax Act. The assessment year in question is 1958-59 for which the relevant previous year was the financial year ended on 31st March, 1958. The properties were constructed on land belonging to the former G.I.P. Railways and now forming part of the assets of the Central Railways. The land was taken on lease from the railways by the assessee and one other person and constructions were put up on the land by them. The last of the leases in favour of the assessee and the other co-owner expired on the 30th June, 1951. The ground rent payable under the lease was Rs. 254 per month. After the expiry of this lease, assessee and the co-owner continued in possession of the land. There was negotiations between the assessee and his co-owner on the one hand and the railway authorities on the other, for the renewal of the lease. The railway were agreeable to the renewal of the lease but wanted an enhancement of the ground rent. The assessee and the co-owner, on the other hand, were desirous of having the lease renewed of a period of 15 years at the original rent of Rs. 254 per month. These negotiations were finally concluded and a fresh lease agreement was entered into in 1957. Thereafter, on the 1st of November, 1957, the railway authorities made a demand on the assessee requiring him to pay the arrears of ground rent calculated at the difference between the former rent of Rs. 254 per month and the enhanced rent of Rs. 540 per month for the entire period from the 1st July, 1951, to the 30th September 1957, amounting to Rs. 21,487.50 P. In the assessment for the assessment year 1958-59, the assessee claimed this amount as an allowance permissible to him under section 9(1)(iv) of the Act. The assessee's claim was that, since the demand was made on the 1st November, 1957, and the liability had been quantified at that time, the amount thereof was liable to be allowed as a deduction under section 9(1)(iv) in the assessment year 1958-59. The Appellate Assistant Commissioner took the view that the amount, which could be claimed as an allowance under section 9(1)(iv) by the assessee as ground rent, to which the property was subject, would be the ground rent for the previous year and, consequently, the amount which could be properly allowed to the assessee under the said provisions would be an amount of Rs. 1,719 pertaining to the period April 1, 1957 to March 31, 1958, in respect of the assessee's half share of the property. In the further appeal to the Income-tax Appellate Tribunal, it took that view that the entire amount claimed by the assessee would be allowed to him. In the opinion of the Tribunal, there was nothing in the language of the provision of section 9(1)(iv) which required that the amount to be allowed thereunder would only be with reference to the particular year for which the assessment was being made. According to the Tribunal, the assessee could not have claimed the amount in earlier year as, up to November 1, 1957, there was no knowledge on the part of the assessee that the railways authorities would make a claim at the revise rate which they had fixed in their letter. The assessee could not also claim it in later years because no liability would arise in those years for the said amount. According to the Tribunal, therefore, the assessee was entitled to claim the entire amount in the year of assessment. It accordingly allowed the assessee's appeal and directed the departmental authorities to allowed the said amount. Thereafter, on an application made by the department under section 66(1) it referred the following question to this court as arising out of its order :

'Whether, on the facts and in the circumstances of the case and on a proper construction of section 9(1)(iv), the assessee is entitled to the deduction of ground rent of Rs. 19,696 which pertains to the period prior to the previous year ?'

3. The answer to the question will depend upon what is permissible as allowance as ground rent to which the property is subject in the computation of the income from property computed under section 9 of the Indian Income-tax Act.

4. Now, the income-tax chargeable under the Indian Income-tax Act is annual in its structure and organisation. Under section 3 of the Act, which is the charging section, tax is charged in respect of the total income of the previous year. Each previous year is a distinct unit of time for the purpose of assessment and the income which is made the subject of charge is the total income of this unit of period. 'Total income' as defined in section 2(15) of the Act means total amount of income, profits and gains referred to in sub-section (1) of section 4 computed in the manner laid done in the Act. Sub-section (1) of section 4 defines the range of total income. The total income, whose range is so defined in section 4(1) is classified in section 6 into different heads and the following sections from section 7 to 12 prescribe the made of computation of the total income under these heads. It would thus be seen that under the Indian Income-tax Act, income-tax is charged on the taxable income of each previous year which is computed in the manner provided under the Act. Income taxable as income from property would, therefore, be income form property for the previous year computed in the mode of computation provided therefore. That mode is prescribed by section 9 of the Act. Under the said section, where the property consists of buildings or lane appurtenant thereto of which the assessee is the owner, the tax shall be payable in respect of the bona fide annual value of the property subject to the allowance specified in the section. Under the Explanation to the section 'annual value' of the property is deemed to be the sum for which the property might reasonably be expected to let from year to year. It will thus be seen that, under the schemes of the Income-tax Act, what is chargeable to income-tax as income from property is the income computed in the manner provided in section 9 for the previous year. Now, in the computation of this income of the previous year, section 9 has provided for certain allowances which will be permissible to the assessee as deductions from the income. The income from property, which is chargeable to tax is, as we have pointed out earlier, income for each previous year and the deductions, which are permissible in the computation of the income, are again deductions which are permissible in each previous year. Having regard to the scheme of computation, the deductions permissible under section 9 will normally have reference to the period which is the unit of assessment. Coming now to the several allowances, which are permitted under section 9, the first and the second relate to the repairs of the property and are allowable at a certain fraction of the annual value. Allowance permissible under clause (vi) is in respect of the collection charges subject to a fixed maximum, which at the relevant time was 6 per cent. of the annual value. These three items are linked with the annual value and there can, therefore, be no doubt whatsoever that the amounts permissible as deductions in respect thereof are deductions in respect of the previous year only. It may be pointed out, however, that the allowance specified in these items are not dependent upon the amount being actually expended or paid but would be allowable irrespective of whether they are actually incurred paid or expended. Item No. 3 is the amount of any annual premium paid to insure the property against risk of damage or destruction. There is no difficulty so far as this item is concerned to hold that what is allowed thereunder is the amount of the premium paid in respect of the previous year only. Item No. 5 relates to sums paid on account of land revenue in respect of the property. The allowance permissible under this item is conditional on the amount being paid as in the case of item No. 3. Although the land revenue mentioned in this item is not specified as annual land revenue, it would appear to us that, having regard to the fact that the land revenue consist of a charge for the year, the amount of and revenue referred to in this item would be the amount for the year, the allowance in respect thereof being climbable only on its having been paid as in the case of item No. 3. Item No. 7 is in respect of vacancies during the previous year and the allowance claimable in respect thereof is clearly in respect of the previous year only. We now come to item No. 4 with which we are concerned in this case. That item is as follows :

'Where the property is subject to mortgage or other capital charge, the mount of any interest on such mortgage or charge; where the property is subject to an annual charge not being a capital charge, the amount of such charge; where the property is subject to a ground rent, the amount of such ground rent; and where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital :'

5. There is a proviso following, but we are to concerned with the sams. The different allowance permitted under this item are : (1) if the property is under mortgages or other capital charge the amount of any interest on such mortgage or charge to which the property is otherwise subject; (2) the amount of an annual charge by which is meant a charge to secure an annual liability not including tax in respect of the property or income from property; (3) the amount of ground rent where the property is subject to ground rent; and (4) the amount interest payable on capital borrowed for the construction, repairs, renewal or reconstruction of buildings. From the language of the provision, it is clear that the allowances specified therein are climbable irrespective of whether they are paid or not and not conditional on their having been paid as in the case of items Nos. 3 and 5. The question to be considered is the quantum which can be claimed in the assessment of a given previous year. In our opinion, the allowance having been allowed in respect of the income of the previous year and the allowance being climbable irrespective of whether the amount is actually paid or not, the extent of the allowance is only such as would pertain to the year of account. Thus, the amount of the interest on mortgage or other capital charge would be the amount of interest for the previous year and neither the arrears of interest for the prior years paid in the previous year not the interest for the future years paid in advance during the said year. Similarly, the amount of the annual charge would be the amount of the liability for the year secured thereby and neither the arrears of the earlier years nor the advance payment for the future year. In the same way, in our opinion, would be the amount of the ground rent permissible as allowance under the said provision. The claim of the assessee, which is refused, is not for the ground rent of the previous year. That claim is allowed to him. What is refused to him is the arrears of the ground rent for the earlier period. In our opinion, this amount cannot be claimed in the assessment year in which it is paid. As we have already pointed out, the payment in respect of the ground rent is not dependent upon whether it is paid or not. If the property is subject to ground rent, the amount of the ground rent will be allowed even if it is not paid. That being the position, the claim in respect of the ground rent, in our opinion, does not arise as and when it is paid, but it arises independently thereof in each previous year and will be climbable in each previous year in respect of the ground rent for that year.

6. Mr. Rajgopal, the learned counsel appearing for the assessee, tried to argue that there was a distinction between interest on mortgage or on a capital charge and ground rent in respect of the property. According to him, whereas interest on mortgage would be an annual payment, ground rent nee not be annual but may depend upon the agreement between the parties. In the present case, he points out that the ground rent was fixed per month and was also payable per month. According to him, therefore, the ground rent allowable under the provision would be as is claimed from the assessee or as is paid by him. In the present case, according to the learned counsel, the claim for the additional amount of ground rent was made in the relevant assessment year and, consequently, the property become subject to the extra amount of ground rent in that year and the assessee was entitled to claim it as an allowance under section 9(1)(iv). Alternatively, he has argued that, although the items of interest on mortgage or capital charge and ground rent are included in the same items, a distinction is a intended to be made between them by the legislature so far as the allowance climbable in respect thereof is concerned, and he has in that connection referred us to the income-tax return form prescribed under the rules made under section 59 of the Act. In part IV of the Form, which relates to the income from property in column (14) interest on mortgage or charge or any annual charge on the property or interest on capital borrowed for acquiring, constructing, repairing, renewing or reconstructing the property is mentioned, while in column (15) ground rent paid for the property is specified. Mr. Rajgopal has pointed out that whereas in column (14) the word 'paid' does not appear in respect of the interest on mortgage or other charge, etc., in column (15) the said word appears in respect of the ground rent. According to the learned counsel, therefore, while the legislature contemplated that in respect of the interest on a mortgage or charge, the said amount will be allowed as an amount in respect of the previous year irrespective of whether it is paid or not, in the case of ground rent what will be allowed is the ground rent actually paid out by the assessee. We are not impressed by this argument. There can be no doubt whatsoever that the amount of interest on mortgage or other charge is allowable irrespective of whether it is paid or not. In Behari Lal Mullick v. Commissioner of Income-tax it was held as follow :

'An amount of interest due on a mortgage debt but not actually paid is an allowable item of expenditure under head 'house property income under section 9'.

7. Rankin C.J. pointed out as follows :

'In section 9 certain allowances are authorized by way of deduction from 'the bona fide annual value' of the property - itself a hypothetical figure. The first two allowances have reference to repairs and do not depend upon proof of any actual expenditure. The third and the fourth are expressly made to depend upon what has actually been paid. The sixth is defined only by a limit and the seventh is left to the discretion, as regards amount, of the Income-tax Officer. In this context I am of opinion that the absence of the word 'paid' in the fourth clause is not without significance. I am not satisfied that the legislature has intended to charge on the basis of the sum which a hypothetical tenant would give save upon the assumption made in favour of the assessee that the real income of an incumbrancer is the difference between the yearly value and the interest.'

8. The absence of the word 'paid' in the fourth clause applied equally to all the items specified therein and it would not, therefore, be possible to make distinction between the items by reference to the columns in the income-tax return form made under the rules. It is no doubt true that the rules are statutory rules made under section 59 of the Act and under sub-section (5) of the said section the rules, on publication in the Official Gazette, would have the same effect as if enacted in the Act. However, as pointed out by Rankin C.J. in the case already referred to, no exercise of the rule-making power conferred by section 59 can over-ride the provision of the statute. It is a cardinal principle of interpretation that it is this main statute which will govern the rules made under the rule-making power given under the Act and not vice versa. If the interpretation of the provision of the statute is clear, a rule framed under the rule-making power given under the statute, cannot affect it. It is well-settled that rules must be interpreted in the light of the section under which it is made, and no exercise of the rule-making power can affect or derogate from the full operative effect of the provisions of the statute. See Commissioner of Income-tax v. Central Popular Assurance Co. Ltd. and In re North British & Mercantile Insurance Co.

9. If the interpretation which Mr. Rajgopal has suggested on the basis of the contents of column (15) of the Income-tax return form were to be accepted, the allowance by way of ground rent would be claimable only on condition of its having been paid, which, as we have already pointed out, would clearly be contrary to the language of the provision. In our opinion, therefore, on a proper construction of the provision of section 9(1)(iv) of the Indian Income-tax Act, the only amount which was claimable by the assessee in respect of the ground rent of the property was the ground rent for the period of the previous year and the extra amount, which was claimed by him in respect of the arrears for the prior 75 months, was clearly not permissible to be allowed to him.

10. In the result, therefore, our answer to the question referred to us is in the negative. The assessee will pay the costs of the Commissioner.

11. Question answered in the negative.


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