Thursday, May 22, 2014

No I-T exemption on let out portion of palace as it won’t be deemed to be in occupation of Ruler under sec. 10(19A)


As long as the Ruler continues to occupy the palace, whether by actually utilizing it or by keeping it vacant, it shall be for the purpose of section 10(19A) deemed to be in his occupation. He, however, would disentitle himself to the exemption from tax on the annual value of that part of the palace which is let out to a tenant

Facts:
The issue before the High Court was:

Whether the rental income received by a Ruler from part of the palace, which was declared as his official residence, would be exempt from tax under section 10(19A) of income-tax Act (the Act')?

The High Court held in favour of revenue as under:

1)Section 10(19A) of the Act clearly provides that the annual value of any one palace which is in the occupation of a ruler would be exempt from tax.

2)The Apex Court in case of Mohammad Ali Khan v. Commissioner of Wealth-tax [1997] 92 Taxmann 52 (SC) had ruled (in the context of wealth tax Act) that if any portion of a building was let out to a tenant, it couldn't be said to be in the occupation of the Ruler. Hence, to claim exemption under Wealth Tax Act, the Ruler should have occupation over the building.

3)There is substantial similarity in the language of section 5(1)(iii) of the Wealth Tax Act and section 10(19A) of the Act on all relevant aspects, except that the word "building" has been substituted by "Palace" in the latter Act;

4)Therefore, the ratio of Mohammad Ali Khan (supra) 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 the Ruler"

5)Thus, so long as Ruler continues to occupy the palace, whether by actually utilizing it or by keeping it vacant, it shall be, for the purpose of section 10(19A) of the Act, deemed to be in his occupation. He, however, would disentitle himself to 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 the tenant.- CIT V. MAHARAO BHIM SINGH OF KOTA [2014] 45 taxmann.com 350 (Rajasthan)
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