Friday 16 May 2014

Whether when Ruler of Palace rents out part of palace which he occupies as official resident, such income is to be included in his total income - NO, exemption u/s 10(19A) is available: HC Larger Bench

THE issues before the Bench are - Whether mere fact that an earlier judgment of High Court was allowed to attain finality, would cast an impediment on the Revenue to take correct interpretation of that provision qua the same assessee and whether when Ruler of Palace rents out part of palace which he occupies as official resident, such income is to be included in his total income. And the Larger Bench rules that the exemption u/s 10(19A) will continue to be available to the Ruler.
Facts of the case
The assessee was the last ruling Maharaja of the princely state of kota. This reference had been made by the Division Bench to the Larger Bench on account of conflicting opinion expressed by two Division Benches of the HC on the question whether the rental income received by the Ruler from part of the palace, which was declared as his official residence under the Merged States (Taxation Concessions) Order, 1949 or Part B States (Taxation Concessions) Order, 1950, would be exempt from income tax or the same would be included in the total income of the Ruler as an assessee for the purpose of taxation. Earlier Division Bench judgment was rendered in Maharawal Laxman Singh Vs. C.I.T. (1986) 160 ITR 103 (Raj.), in which it was held that u/s 10 (19A), the annual value of any one palace in the occupation of a Ruler is exempt from tax in computing his total income. The Division Bench, while interpreting the phraseology “the annual value of any one of the palace in the occupation of Ruler”, relied on judgment of the SC in Industrial Supplies (P.) Ltd. Vs. UOI - AIR 1980 SC 1858, for distinction between ‘owner’ and ‘occupier’, wherein meaning of these words was considered and it was held that in legal sense the 'occupier' is a person in actual occupation. The Division Bench also relied on the Delhi High Court judgment in Mohammad Ali Khan Vs. C.W.T. - 1983 (14) ITR 948. The word “occupation” means that the Ruler (occupier) continues to occupy the palace, i.e., it should be in his actual use or actual possession and he should exercise actual physical control over the palace. When a portion of the palace had been let out to tenants on rent, the Ruler was not in occupation of the entire palace and cannot be said to be in actual possession or in actual use of the portion of the palace occupied by the tenants. Therefore, the annual value of the portion of the palace which was rented out to the tenants, was not exempt from tax and was to be added to the total income of the Ruler.
In subsequent Division Bench judgment in C.I.T. Vs. H.H. Maharao Bhim Singhji – 2003-TIOL-502-HC-RAJ-IT, it was held that exemption would be available in respect of entire palace where the palace of the Ruler of Indian State was declared to be his official residence, even if part of the palace was given on rent. It was not possible to split up one palace into parts for granting exemption only to that part, which is in selfoccupation of a Ruler as his official residence and to deny the benefit of exemption to the other portion of the palace rented out by him, since the entire palace is declared as his official residence. Earlier to 28.12.1971, the bona-fide annual value of the palaces of Rulers of the Indian States, which were declared by the Central Government as their official residence, was exempt from the income-tax. The Central Government in pursuance of the provisions of Clause (iii) of Paragraph 15 of the Concession Order 1950 by notification SRO 1619 dated 14.05.1954 declared 'Ummed Bhawan' and 'City Palace' of the Ruler of Kota as his official residence, which were listed at Clause 21 of the said Notification, as the “palaces” so exempt from income-tax and super tax. Indisputably, till the passes of the Constitution (Twenty-sixth Amendment) Act, 1971, the bona fide annual value of the residential palaces or palace of the Rulers declared by the Central Government, as unalienable ancestral property, was exempt from income-tax and super tax. New definition of “Ruler” was inserted by Clause (22) of Article 366. Simultaneously, a new enactment in the name of Rulers of Indian States (Abolition of Privileges) Act 1972 was passed by the Parliament, whereunder sub- Section (19A) was inserted in Section 10, restricting the exemption so granted under the Concession Orders to “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. Similar changes were also made by the aforesaid Act of 1972 with effect from 28.12.1971 by adding clause (iii) to Section 5 (1) in the Wealth Tax Act, 1957.
Before HC, the Revenue's counsel had argued that the provisions relating to exemption available to the Rulers were brought at par in both, except that while word “palace” was used in the relevant provision of the Act and the word “building’ was used in the Wealth Tax Act, 1957. It was argued that the word “palace” under the IT Act and the word “building” under the WT Act will not make any difference as in both the cases, they were required to be declared official residence under the Concession Order of 1950. The Concession Order of 1950 uses word “palace” and the notification issued in the case of assessee on 14.05.1954 had declared two palaces as his official residence. The word “building” in WT Act was used in the light of the definition of “assets” as mentioned in Section 2(e) of the Act. The building, which was exempt, must be official residence of the Ruler. Meaning thereby, the legislature had granted exemption only to the building, which was his official residence. It means that “building” mentioned in the WT Act and the “palace” mentioned in the IT Act, were one and the same. It was submitted that the first direct judgment on the issue was of the Delhi HC in the case of Mohammad Ali Khan Vs. CWT – 1983 (14) ITR 948. This had been upheld by SC. Earlier Division Bench judgment of HC in Maharawal Laxman Singh Vs. CIT – 1986 (16) ITR 103 rightly followed the Delhi High Court judgment in Mohammad Ali Khan, supra. In fact, subsequently, Madhya Pradesh High Court in CWT Vs. Lokendra Singh – 2001 (249) ITR 658, has also followed the same analogy. In all these judgments, the courts had held that Ruler would not be entitled for exemption in respect of part of the palace, which had been let out and was not in his occupation. Subsequent Division Bench judgment of HC in CIT Vs. H.H. Maharao Bhim Singh – 1988 (173) ITR 79, was based on the judgment of MP HC in CIT Vs. Bharat Chandra Bhanjdeo – 2003-TIOL-501-HC-MP-IT. Earlier judgment of HC in Maharawal Laxman Singh, was not cited before the division bench in CIT Vs. HHM Bhim Singh, which was evident from observation therein that no contrary decision had been cited. The subsequent judgment of Division Bench of HC in CIT Vs. HHM Bhim Singh, having thus been rendered in ignorance of the earlier Division Bench judgment in Maharawal Laxman Singh, cannot be said to lay down correct law and in the submission of the counsel, the judgment was per incurium. It was further argued that Section 23 of the IT Act only gives mode of calculating annual value of a property. Section 2(2) of the IT Act defines “annual value” in relation to any property. Section 22 pertains to income from house property. Annual value has to be determined in accordance with Section 23 of the IT Act. At the relevant point of time, even the house property in occupation of the owner for purpose, of his residence was also having annual value. It was otherwise clear from the provisions of Section 23 that the valuation of only one property or its part, which is in occupation of owner for his residential purpose is taken to be ‘nil’. It was argued that it was settled proposition of law that provisions relating to deductions/incentives were to be strictly constructed and if there were doubt, benefit thereof had to go to the Revenue and not to the assessee.
On the other hand, the assessee's counsel had argued that only effect of subsection (19A) inserted in Section 10 of the IT Act, following the enactment of Indian States (Abolition of Privileges) Act 1972, was that instead of several palaces in occupation of Ruler, annual value of any one palace in occupation of Ruler, was exempt from the income tax. It was argued that even if one part of the palace was in the self occupation of the former Ruler and another part had been let out, the exemption u/s 10 (19A) would still be available for the entire palace. It was argued that no contrary decision was cited by the Revenue, and HC while deciding the reference, considered the decision of the MP HC in C.I.T. Vs. Bharat Chandra Bhanjdeo – 2003-TIOL-501-HC-MP-IT, wherein it was held that the significant words in clause (19A) were “one palace in the occupation of a Ruler”. It was a Palace, which was under the Merged States (Taxation Concessions) Order, 1949, declared to be the official residence of a Ruler. Clause 10 (19A) does not contemplate further splitting up of portions of a palace into residential and let out portions. Therefore, even if only a part of a palace was in the occupation of a Ruler and the rest had been let out, the exemption would be available for the entire palace. In the above case HC has held that if the palace, which was declared to be official residence of the Ruler, had a number of buildings, and the exemption under the WT Act was available only in respect of one building, which was in his occupation and, therefore, the assessee’s contention that other buildings, which may not be in his occupation but declared to be an official residence and should be exempt from tax, was not accepted. It was argued that Section 10 (19A) had not used the word “building”, the phrase employed was “one palace”. So far as the case in hand was concerned, it was not disputed that this official residence was only one palace and not more than one. Ratio of the Madhya Pradesh High Court decision squarely applies to the present case as further splitting of portions of a palace is not envisaged in Section 10 (19A) of the Act.
Reliance was also placed on the judgment of the SC in Radhasavami Satsang Vs. C.I.T. – 2002-TIOL-745-SC-IT and it was argued that SC in that case held that each assessment year being a unit, what was decided in one year may not apply in the following year but where a fundamental aspect permeating through different assessment years has been found as a fact, one way or the other, and parties had allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in any subsequent year. The present case arises out of AY 1978-79 but when the issue involved in the present case has already been decided in favour of the assessee and against the Revenue in respect of five previous AYs and four subsequent assessment years, and had attained finality, those decisions having not been challenged any further, it was no longer open to the Revenue to plead to the contrary. Not only that the Revenue had accepted two decisions in favour of the assessee, it had also not challenged the judgments of the Madhya Pradesh High Court in C.I.T. Vs. Bharat Chandra Bhanjdeo, supra, and C.I.T. Vs. Princess Usha Trust – (1985) 157 ITR 650, which took the same view. It had referred to Section 2(2) for definition of “annual value” and Sections 22 and 23, and argued that for the purpose of Section 10(19A), the annual value of the whole palace had to be determined. The first and prime condition for the purpose of “House Property Income”, and for the “Annual Value of the property”, the Annual value of such property, of which the assessee was owner, had to be determined. In other words, the palace, which was owned by and belongs to assessee, i.e. the Ruler, had to be treated as his house. Section 23, for determination of annual value of the property, covers both (1) self occupied portion and (2) rented portion of the residential palace and both of them collectively determine “Annual Value” of the property i.e. of one palace. It was argued that if any part of the palace was not legally owned by the Ruler, then “Annual Value” of entire palace cannot be arrived at for the purpose of Section 10(19A). The Ruler should be owner for the purpose of determining “Annual Value” of the entire palace. Even if the tenant was treated as in occupation of rented portion, he was not owner and hence the annual value of that part cannot be determined. The word “occupation” would therefore mean the palace belonging to and owned by the owner. This therefore clearly shows that the palace cannot be split up for the purpose of Section 10(19A) and exemption was available in respect of the entire palace. In fact, the interpretation, which the Revenue has contended would result in absurd consequences.
It was further argued that the word ‘occupation’ denotes the right of holding or possessing the property. It denotes the right to control, enjoy or to do some act regarding appropriation of the property. It was wide term that includes possession, both de-facto civil or constructive. Corpus and animus to control the palace or its parts, always remain vested in the Ruler to control, use and enjoy it either by way of his residence or letting out. In the event of letting out, the mediate possession of it always remains vested in the Ruler through tenant. The legislature had not differentiated among the de-facto and legal possession including immediate or mediate possession as far as income-tax law was concerned. The word ‘in occupation’ was not synonyms of ‘possession’. Section 10(19A) does not require that ‘any one palace’ should be in actual possession of a Ruler, and the Parliament did not deliberately use the word “actual physical possession or “actual physical control”. The word 'occupation' had to be understood in the context of annual value, regardless of actual rent received or receivable by the owner. Emphasis of the legislature was on annual value and the word actual was ‘conspicuous’ by its absence. Even if part of the palace was in possession of the tenant, the same continues to be in symbolic or constructive possession of the Ruler. Even if Ruler was not living in palace or even if he may be living in rented house or had vacated the palace for repair, such temporary absence of the Ruler from actual possession of the palace or any part of it, the Ruler by such temporary absence does not seize to be in occupation. The exemption can be denied only in a situation where the Ruler had parted with the possession of the entire palace. The occupation therefore was determined by dominant use of the palace. If it was principally being used by the Ruler as his residence, merely because he had rented out some parts of it, such as the garage, outhouse, quarters, go-downs or any other part of the building, it does seize to be his official residence. It was lastly submitted that in case of exemption, the language of the statute has to liberally construed. This being a charging Section, the benefit of any ambiguity has to go to the assessee. Even if the word “Occupation” used in the context of Section 10(19A) appears to be ambiguous or capable of more meaning than one, then this Court ought to prefer interpretation which favours the assessee.
The counsel appearing as intervener in response to the notice to the Bar, had, in addition to adopting arguments already made on behalf of assessee, submitted that there was no provision in the IT Act, 1922 or thereafter, in the Act of 1961 in this regard, until 28.12.1971, when the Constitution (Twenty Sixth Amendment) Act, 1971 was enacted by the Parliament. The controversy had arisen due to use of the phrase “...in the occupation of a Ruler,” suffixed in Section 10(19A) after the words “...any one palace...”. This was a special provision inserted to grant exemption to annual value, which was otherwise chargeable to income-tax in general provision contained in Section 23. Annual Value in respect of one house or its part, which was in actual occupation of assessee (self-acquired property) had been exempted substantially in Section 23 itself. However, the annual value was chargeable to tax, if such house or its part was let out actually. Further, in the event of having more than one house belonging to assessee, the relaxation was available to only one house and the annual value of other houses is chargeable to tax having deemed the same to have let out, though not let out actually. It was argued that if the interpretation, which the Revenue was seeking to place on Section 10(19A) was accepted, it would make the scheme of exemption unworkable or redundant. Because the whole palace comprising of multiple number of buildings or portion thereof, having been declared as official residence of the Ruler by the Central Government, specific provision under Section 10 (19A) had been inserted to grant exemption of annual value of entire one palace, which was otherwise chargeable to income-tax. It was the reason why word “palace” in place of “building”, or in place of “house”, has been used in Section 10(19A). It was argued that the Revenue was not seeking to charge to income tax the other buildings or portions of the same palace, which remain vacant, which otherwise was chargeable to tax u/s 23. However, it was seeking to charge to tax the other buildings or portions of the same palace, which had been let out actually. Had it been the intention of the legislature, there was no need to insert Section 10(19A), inasmuch as the same was covered by Section 23 itself. Interpretation of the Revenue if accepted, would lead to an absurdity and inconsistency, as in that situation, part of the provisions of Section 23 would come to play to charge the let out portions or buildings of the same palace and part would not by leaving the other vacant portions and buildings of the same palace. It could not be the intention of the legislature.
It was argued that the language was already available to the draftsman in Section 5(1)(iii) of the WT Act, as such, the same in substance had been borrowed therefrom resulting the inclusion of phrase “...in the occupation of a Ruler” in Section 10(19A). The phraseology “...in the occupation of a Ruler...” is superfluous and unwarranted for the exemption of annual value under income-tax law and has been used as abundant caution by the draftsman. Learned counsel has also relied on certain excerpts of the Book from the Principles of Statutory Interpretation, 12th Edition 2010, Reprint 2011, by Justice G.P. Singh, in support of his this argument. I was argued that the Supreme Court in Mohammad Ali Khan, supra, had no occasion to interpret the special provision of exemption contained in phrase “in the occupation of a Ruler”, in reference to “annual value” used in Section 10(19A) of the Act of 1961, more so in the light of general provisions contained in Sections 22 and 23 thereof. The Supreme Court had also no occasion to examine whether such phrase is fit with the scheme of taxation under income-tax law particularly in reference to the words “annual value”. The judgment of the Supreme Court can be relied on for the proposition of law, which it actually decides and not, which can be logically deduced therefrom. When a particular point was neither argued nor considered by the Court, the decision of such court is not authority on such point and such point is said to pass subsilentio. Reliance, in support of this argument is placed on the judgments of the Supreme Court in Municipal Corporation of Delhi Vs. Gurnam Kaur – AIR 1989 SC 38, M/s. A-One Granites Vs. State of U.P. and Others – AIR 2001 SC 1203 and Deepak Bajaj Vs. State of Maharashtra and Another – 2008-TIOL-212-SC-COFEPOSA.
Held that,
++ before embarking upon examination of merits of the case, we would at the outset deal with the objection by the assessee that the Revenue cannot take a different interpretation of Section 10(19A) in respect of assessment year 1978-79, contrary to interpretation which has attained finality qua the same assessee in previous five and subsequent four assessment years. This argument is noted to be rejected for the simple reason that there can be no estoppel against statute. The issue raised is based on phraseology of Section 10 (19A), which was interpreted in the judgment dated 12.08.1987 in D.B. Income-tax Reference No.41/1980. That judgment of this court was based on the Madhya Pradesh High Court in Bharat Chandra Bhanjdeo, which distinguished the judgment of Delhi HC in Mohammad Ali Khan, holding that the exemption under WT Act is available only in respect to one building, whereas in IT Act it is for the entire palace. The Madhya Pradesh High Court in Bharat Chandra Bhanjdeo, did not have the benefit of analyzing subsequently delivered judgment of the Supreme Court in Mohammad Ali Khan, supra, which upheld the Delhi High Court judgment in Mohammad Ali Khan. We have critically examined that judgment and for the reasons, which shall presently spell out herein after, we find no distinction between the issue involved in that matter and the present one. Therefore, despite judgment of this court having attained finality qua the other assessment years, the Revenue can still canvass before this court as to what is the correct interpretation of Section 10(19A) as the assessment in respect of the year in question has yet not attained finality. The judgments cited by the assessee in this behalf are therefore distinguishable. In the judgment of the SC in All India Council for Technical Education Vs. Surinder Kumar Dhawan and Others – (2009) 11 SCC 726, an objection was raised with regard to maintainability of Special Leave to Petition by All India Council for Technical Education against judgment of Punjab and Haryana High Court on the premise that the decision of the Delhi High Court in similar case was not challenged and allowed to become final. Repelling that contention, it was held by the Supreme Court that it is possible that All India Council for Technical Education did not assess or realize the effect or impact of such a decision or likelihood of gradual dilution and may have thought it to be one time measure applicable to only small section with reference to single institution;
++ in Col. B.J. Akkara (Retd.) Vs. Government of India and Others – (2006) 11 SCC 709, the Supreme Court followed the ratio of the judgment in State of Maharashtra Vs. Digambar, supra, and held that the every judgment of the High Court may not be challenged by the State where the financial repercussions are negligible or where the appeal is barred by limitation. It may also be not challenged due to negligence or oversight of the dealing officers or on account of wrong legal advice or on account of non comprehension of the seriousness or magnitude of the issue involved. When however similar matters subsequently crop up and the magnitude of financial implications are realized, the State is not prevented or barred from challenging the subsequent decisions or resisting subsequent writ petitions, even though judgment on a similar issue was allowed to reach finality in the case of others. Of course, the position would be viewed differently, if petitioners plead and prove that the State had adopted a “pick and choose” method only to exclude the petitioners on account of mala-fides or ulterior motives. Neither the principle of res-judicata nor the principle of estoppel is attracted in such a situation. The administrative law of principles of legitimate expectations and fairness in action are also not attracted. In the present case too, we find that correctness of interpretation that is placed on the language of Section 10(19A) is going to have serious repercussions for Revenue as it affects not only the Ruler in the present case but throughout the country wherever such a situation is obtaining or may obtain in future. Mere fact therefore that earlier judgment of this court or that of Madhya Pradesh High Court was allowed to attain finality, would not have an impediment for the Revenue to take correct interpretation of that provision qua the same assessee. There is ample justification for doing so in view of contrary opinion expressed by this Court and Madhya Pradesh High Court in other cases. None of the doctrines, namely, doctrine of res-judicata, the estoppel, the legitimate expectations or fair play in action, would be attracted in such a situation;
++ the Madhya Pradesh High Court in Commissioner of Income-Tax Vs. Bharat Chandra Bhanjdeo, propounded the law that though on language of subsection (19A) of Section 10 of the Act the legislature restricted exemption to one palace in the occupation of a Ruler, but it could not be contended that legislature further intended splitting of one palace in parts on the basis of occupation or otherwise. Such an interpretation would lead to rejection of the words “in the occupation of a Ruler”, held the Court. This very argument was raised before the Supreme Court in Mohammad Ali Khan, in the context of similar provision contained in Section 5(1)(iii) of the WT Act. Rejecting the argument, the SC held that it is the principle of construction that the words of a statute are first understood in their natural, ordinary or popular sense and phrase and sentence are construed according to their grammatical meaning unless that leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. It has been often held that the intention of the Legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said, as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless, has to be avoided. Obviously, the aforesaid rules of construction are subject to exceptions. Just as it is not permissible to add words or to fill in a gap or lacuna, similarly it is of universal application that effort should be made to give meaning to each and every word used by the Legislature;
++ in M/S. Grasim Industries Limited vs Collector of Customs – 2002-TIOL-497-SC-CUS-LB, the Supreme Court held that no words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. It is said that every statute is an edict of the legislature. The elementary principle of interpreting any word while considering a statute is to gather the mens or sententia legis of the legislature. Where the words are clear and there is no obscurity, and there is no ambiguity and the intention of the legislature is clearly conveyed, there is no scope for the Court to take upon itself the task of amending or alternating the statutory provisions. Wherever the language is clear the intention of the legislature is to be gathered from the language used. While doing so what has been said in the statute as also what has not been said has to be noted. The construction which requires for its support addition or substitution of words or which results in rejection of words has to be avoided. As stated by the Privy Council in Crawford v. Spooner [(1846) 6 Moore PC 1] "we cannot aid the Legislature's defective phrasing of an Act, we cannot add or mend and, by construction make up deficiencies which are left there". In case of an ordinary word there should be no attempt to substitute or paraphrase of general application. Attention should be confined to what is necessary for deciding the particular case. This principle is too well settled and reference to few decisions of this Court would suffice. [See; Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd. Vs. Custodian of vested Forests, Palghat and Another – AIR 1990 SC 1747, Union of India and Another Vs. Deoki Nandan Aggarwal – AIR 1992 SC 96, Institution of Chartered Accountants of India Vs. Price Waterhouse and Another – (1997) 6 SCC 312, and Harbhajan Singh Vs. Press Council of India and Others – JT 2002 (3) SC 21].;
++ it is well settled law that the words have to be interpreted in the perspective in which the Legislature has enacted the particular provision of law and the words take colour from the context in which they occur. The Supreme Court has pointed out in Union of India Vs. Raman Iron Foundry – (1974) 3 SCR 556, in para 6 at page 1270, that while interpreting the words, the context and collocation of particular expression have to be considered and the context in which the words occur have an important role in the meaning to be attributed to the particular words occurring in a particular statute. It is thus trite that words in a statute should be so construed so as not to be considered as surplusages or superfluous. Each word, as is well known, must be given its proper meaning. If the aforementioned principle of interpretation of statue is applied, it must be held that parliament made its intention clear so as to cover the entire field including the field of taxation; as otherwise there is absolutely no reason as to why consciously the words, “in the occupation of a Ruler” have been used in Section 10(19A) of the Act. The jurisdiction to interpret a Statute can be invoked only when the same is ambiguous. If it is couched in plain, simple and clear language, the courts have to interpret the same in the way it appears on the face of it;
++ there is substantial similarity in the language of Section 5(1)(iii) of the WT Act and Section 10(19A) of the IT Act on all relevant aspects except that word “building” has been substituted by “palace” in the latter. In our considered opinion, therefore ratio of the Supreme Court judgment in Mohammad Ali Khan, would squarely apply to the present case as herein also Section 10(19A) of the Act postulates exemption from income-tax on “the annual value of any one palace in the occupation of Ruler”. The occupation of the Ruler in the palace would therefore be necessary precondition for claiming exemption. In cases where the Ruler has not been able to show that the palace declared as his official residence was exclusively in his occupation, he would not be entitled to any exemption. What is exempted is annual value of any one palace and exemption is extended on the condition of the Ruler being in occupation of such palace. The phrase “annual value” under Section 2(2) of the IT Act has been defined to mean its “annual value” as determined under Section 23. Now Section 23 relates to Section 22 of the Act, which deals with the income from house property. Section 23 provides as to how the annual value for the purpose of Section 22 shall be determined. The Ruler is therefore exempt from income tax as per Section 10(19A) on annual value of the income of the palace declared as his official residence only if he is in occupation of such palace and not otherwise;
++ contention that since exemption even otherwise is available to the assessee in respect of house under Section 23 of the Act, the legislature could never have intended to give any restricted meaning to the word 'palace' so as to limit the exemption to only such part of it which is in his actual possession, cannot be countenanced for the simple reason that a 'palace' cannot be taken as synonymous of the 'house'. A house is house and palace is palace. A house is a compact building whereas a palace may consist of number of buildings. In order to interpret a provision introduced by the legislature by way of amendment, it has to be seen what was the mischief, it wanted to remedy. Since prior to insertion of aforesaid sub-section (19A) of Section 10 of the IT Act, even multiple number of palaces were entitled to exemption. At the time when privileges were withdrawn, privy purses discontinued and titles derecognized, Articles 291 and 362 were omitted and Article 363-A was newly inserted. While, the Parliament restricted the exemption in respect of annual value of only one palace, yet in recognition of the status of the Rulers, the palace occupied by such Ruler was treated as his official residence, which can not be compared with exemption granted to annual letting value of an ordinary tax payer. This argument is therefore liable to be rejected;
++ in Ram Das Vs. Devindar – (2004) 3 SCC 684, the Supreme Court while dealing with meaning and distinction of the words “possession” and “occupation” held that they in common parlance may be used interchangeably but in law, the “possession” over a property may amount to holding it as an owner, but to occupy it is to keep possession of by being present in it. In Bimla Devi Vs. First Additional District Judge and Others – (1984) 2 SCC 582, the Supreme Court, was dealing with interpretation of Section 21(1)(b) of the Uttar Pradesh Urban Buildings (Regulation of Letting, Rent and Eviction) Act, 1972, which provided that the building must have been in occupation of the landlord for residential purposes which alone would be a conclusive proof of personal necessity. It was contended that the landlord was not in actual occupation of the premises, therefore, explanation (iv) to Section 21(1)(b) of the said Act would not be attracted. Explanation (iv) provided the fact that the building under tenancy is a part of a building, the remaining part thereof is in the occupation of the landlord for residential purposes, shall be conclusive to prove that the building is bonafidely required by the landlord. In that context, the Supreme Court held that word 'possession' or 'occupation' may take various forms. A landlord may be serving outside while retaining his possession over a property or a part of the property by either leaving it in-charge of a servant or by putting his household effects or things locked up in the premises. Such an occupation also would be full and complete possession in the eye of law. Even if a house is not let out to anybody but is locked up, it cannot be said that the owner, who is not living there but has kept his household effects, would not be deemed to be in occupation of the same;
++ the Supreme Court in Cantonment Board, Ambala Vs. Dipak Parkash – AIR 1963 SC 963, while interpreting the phraseology “in the occupation of the Central or any State Government" in Section 99 (2) of the Cantonment Act held that the word "occupation" without anything more, should ordinarily be interpreted as actual occupation. It is difficult to agree that when a person, entitled to actual occupation by reason of his lease permits another to occupy it, then it ceases to be in the actual occupation of the person so permitting. Where the Central or the State Government after obtaining the lease under Section 7 leases it out to any person, it is itself not entitled to actual occupation but has to put the sub-lessee into occupation. In such a case it may be reasonably said that the government has ceased to be in occupation. The Supreme court in a recently delivered judgment in Dunlap India Limited vs. A.A. Rahna and Another – (2011) 5 SCC 778, while interpreting Section 11 (4) (v) of the Kerala Buildings (Lease and Rent Control) Act, 1965, which provided cessation of occupation for more than six months on the ground of eviction held that mere possession of tenanted premise by tenant in lock and key, is sufficient to prove his occupation. The word “occupy” used in Section 11(4)(v) is not synonymous with legal possession in technical sense. It means actual possession of the tenanted building or use thereof for the purpose for which it is let out. If the building is let out for residential purpose and the tenant is shown to be continuously absent from the building for six months, the Court may presume that he has ceased to occupy the building or abandoned it;
++ it is trite that benefit of exemption in a notification or circular or a statutory provision or a rule and incentive thereunder has to be granted on strict construction thereof and if such benefit is admissible on fulfillment of certain condition, it would not be granted unless that condition is satisfied. A provision or notification granting concession/incentive has to be in the first stage interpeted strictly. If on such construction, the subject falls within its scope, then full play has to be given to the same so as to extend the intended benefit. In case of any ambiguity or doubt regarding interpretation of ordinary tax statute, the relevant provision has to be construed in favour of assess. If however, there be any doubt about interpretation of any provision or notification granting exemption/ incentive, the benefit thereof has to go to the Revenue. A constitution bench of the Supreme Court in Commissioner of Central Excise Vs. Hari Chand Shri Gopal – 2010-TIOL-95-SC-CX-CB, while revisiting previous judgments on the subject, held that a provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the setting on which the provision has been placed in the Statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. That decision has been followed in a recent judgment of the Supreme Court in Indian Oil Corporation Limited Vs. Commissioner of Central Excise, Vadodara – (2012) 5 SCC 574, holding that exemption notification relied therein, required that for availing such exemptions two conditions must be satisfied. Unless both the conditions stipulated in the notification are complied with, the appellant was not entitled to exemption. In Novopan India Limited, Hyderabad Vs. Collector of Central Excise and Customs, Hyderabad – 2002-TIOL-89-SC-CX-LB, the Supreme Court held that in case of ambiguity, a taxing statute should be construed in favour of the assessee -assuming that the said principle is good and sound -does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the Revenue;
++ following the judgment in Novopan India Limited, the Supreme Court recently in State of Gujarat and Others Vs. Essar Oil Limited and Another – 2012-TIOL-05-SC-CT, held that general principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee, does not apply to the construction of an exception or an exempting provision, as the same have to be construed strictly and that in construing the exemption notification, question of equity does not arise. The exception or exemption provision must be construed strictly. Give it or does not give it at all. An exemption is a standalone process. Even in Mohammad Ali Khan, referred to above, the Supreme Court observed that in case of taxing statute, one must have regard to the strict letter of the law and if the Revenue satisfies the Court that the case falls strictly in the provisions of law, the subject can be taxed. Such being the position of law, the Ruler cannot be held entitled to exemption of annual value of that part of the palace, which he has let out and has parted with possession thereof in favour of a third party. So long as he continues to occupy the palace, whether by actually utilizing it or by keeping it vacant but retaining its control, it shall be for the purpose of Section 10(19A), deemed to be in his occupation. He shall however disentitle himself of the exemption from income-tax on the annual value of such part of the palace, possession and/or control of which he has parted with in favour of tenant;

++ in our considered opinion, earlier Division Bench judgment in Maharawal Laxman Singh Vs. C.I.T. (1986) 160 ITR 103 (Raj.), in which it was held that under Section 10(19A), the annual value of any one palace in the occupation of a Ruler is exempt from tax in computing his total income, lays down correct law and the latter Division Bench judgmnet in C.I.T. Vs. H.H. Maharao Bhim Singhji - 2003-TIOL-502-HC-RAJ-IT, having not been correctly decided, does not lay down good law. We therefore answer the reference accordingly. Let this matter be placed before the appropriate bench for hearing.

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Taxation of Intangible assets acquired through business restructuring.

1.     Background    1.1        When a company aims to acquire another company's business through amalgamation or demerger, assets or ...