# COMMISSIONER OF INCOME-TAX, LUCKNOW v. MADHO PD. JATIA

- **Citation:** [1977] 1 S.C.R. 202
- **Court:** Supreme Court of India
- **Decided:** 1976-08-17
- **Case number:** CIVIL APPELLATE JURISDicnoN : Civil Appeal Nos. 150::f542 Of 1971
- **Bench:** H. R. Khanna, R. S. Sarkaria, Jaswant Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-lucknow-v-madho-pd-jatia-6904
- **Pages:** 5

## Headnote

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
rent in subsequent years subject to the condition that in no year the deduction
would exceed the amount of rent payable for a year.
[206 BJ
·
Section 9 of the Indian Income Tax Act, 1922 provides for computation of
income from property on a notional basis .. While computing the income from
the property the tax Authorities have to take into account its bona fide annual
value. The fact that the rent due from the tenant had become irrecoverable
would be known only in subsequent years.
Section 9 (1) of the Act does not
deal with deductions in respect of irrecoverable rent. Item 38 in Notification
No. 878F dated March 21, 19,22 exempt~ from payment of tax such part
of the income in respect of which tax is payable under the head 'property'
~s is equal to the amount of rent payable for a year but not paid by a tenant
of the assessee and so proved to be lost and irrecoverable. [205 B-D]
The underlying object of the exemption granted by item 38 is that the
Msessee shall be entitled to claim deduction under the head 'property' in
respect of the notional rental income which, it subsequently so transpires, was
never received by him but on which he had to pay tax. Although item 38
fixes the limit of deduction which is permissible in one year, there is nothing
in the language of that item to warrant the inference that the benefit of the
exemption can be claimed only once.
There is also nothing in the language
of that item to indicate that in respect of the balance of the irrecoverable
rent, no relief is permissible even though tax on that balance amount too bad
been paid by the a~sessee. [208 C-D]
'
Daljit Singh
v.
Co111111issio11er of Income-tax,. Delhi, 52 I.T.R. 933 not
approved.
CIVIL APPELLATE JURISDicnoN : Civil Appeal Nos. 150::f542 Of
1971.
(From the Judgment and Order dated 18-12-1969 of the Allahabad High Court in Income Tax Reference No. 328/64).
G. C. Sharma, P. L. Juneja and S. P. Nayar, for the Appellant
S. C. Manchanda, V. C. Prashar & Ujjal Singh, for the Respondent.
COMMR. OF INCOME TAX v. MADHO PD . .(Khanna, J.)
203

## Text

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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
rent in subsequent years subject to the condition that in no year the deduction
would exceed the amount of rent payable for a year.
[206 BJ
·
Section 9 of the Indian Income Tax Act, 1922 provides for computation of
income from property on a notional basis .. While computing the income from
the property the tax Authorities have to take into account its bona fide annual
value. The fact that the rent due from the tenant had become irrecoverable
would be known only in subsequent years.
Section 9 (1) of the Act does not
deal with deductions in respect of irrecoverable rent. Item 38 in Notification
No. 878F dated March 21, 19,22 exempt~ from payment of tax such part
of the income in respect of which tax is payable under the head 'property'
~s is equal to the amount of rent payable for a year but not paid by a tenant
of the assessee and so proved to be lost and irrecoverable. [205 B-D]
The underlying object of the exemption granted by item 38 is that the
Msessee shall be entitled to claim deduction under the head 'property' in
respect of the notional rental income which, it subsequently so transpires, was
never received by him but on which he had to pay tax. Although item 38
fixes the limit of deduction which is permissible in one year, there is nothing
in the language of that item to warrant the inference that the benefit of the
exemption can be claimed only once.
There is also nothing in the language
of that item to indicate that in respect of the balance of the irrecoverable
rent, no relief is permissible even though tax on that balance amount too bad
been paid by the a~sessee. [208 C-D]
'
Daljit Singh
v.
Co111111issio11er of Income-tax,. Delhi, 52 I.T.R. 933 not
approved.
CIVIL APPELLATE JURISDicnoN : Civil Appeal Nos. 150::f542 Of
1971.
(From the Judgment and Order dated 18-12-1969 of the Allahabad High Court in Income Tax Reference No. 328/64).
G. C. Sharma, P. L. Juneja and S. P. Nayar, for the Appellant
S. C. Manchanda, V. C. Prashar & Ujjal Singh, for the Respondent.
COMMR. OF INCOME TAX v. MADHO PD . .(Khanna, J.)
203
The Judgment of the Court was delivered by
KHANNA, J.-Tbese three appeals on certificate by the Commissioner of Income-ta.x are against the judgment of the Allahabad High
Court whereby the High Court answered the following question
referred to it iinder section 66(1) of the Indian! Income-tax Act, 1922
(hereinafter referred to as the Act) in favour of the assessee-respondent and against the revenue :
"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
irrecoverab!e
rent of the Grand Hotel property for one year which has not
been so excluded in the preceding assessments ?"
The matter relates to the assessment years 1957-58, 1958-59 and
1959-60.
The assessee is the owner of a building known as Grand
Hotel in Civil Lines Delhi.
The income from this building
was
assessed from year to year under section 9 of the Act a;; income from
property.
Subsequently there -was a dispute between the assessee and
her tenant.
Protracted litigation followed and ultimately a compromise was reached between the assessee and the tenant as per compromise deeds dated December 8, 1954 and July 9, 1955.
According to the ussessee,. a total amount of Rs. 1,85,892 representing rent
due on account of Grand Hotel became irrecoverable from the tenant.
At the tiine of the assessment year 1956-57 the as~essee was able to
secure deduction under item No. 38 of the Government of
India
notification No. 877F dated .March 21, 1922 as regards unrealised rent
in previous years.
The assessee made similar claims for deduction
at the time of the assessment for the years 1957-58, 1958-59 and
1959-60.
The claim was not sepecifically made before the Jncometax Officer but was made in appeal before the Appellate Assistant
Commissioner.
Th:e Appellate Assistant Commissioner declined to
entertain the claim made,at such a ]ate stage.
When the matter went
up before the Tribunal in further appeal, the Tribunal permitted the
asses~ee to raise that point before it.
It was then urged on. behalf
of the department that in view of the deduction made for the assessment year J 956-57, no further de<luction could be claimed by the
assessee for the subsequent years.
This
contention advanced
on
behalf of the department was not accepted by the Tribunal.
The
Tribunal took the view that the claim could properly be made for
the deduction in the assessment for the three· years with which we a;e
concerned in spite of the fact that such claim had been allowed in
assessee's favour in the year 1956-57.
On this view the Tribunal
directed the Income-tax Officer to compute the tob! rent which had
become irr~coverable in respect of Grand Hotel property.. The Tribunal further directed that to the extent the irrecoverable rent had not
been exempted in the previous assessment for 1956-57 should
be
exempted during the year under appeal in so far as income. from
property \vas concerned.
Ort application filed by the Conu11issioner
of Income-tax the question rep'rOduced above was referred to the
High Court.
The High Court, as stated above, answered the question
in the affirmative in favour of the assessee.
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204
SUPREME COURT REPORTS
(1977] 1 S.C.R.
In appeal before us Mr. Sharma on behalf of the appellant has
assailed the judgment of the High Court.
As
against that,
J\Jr.
Manchanda on behalf of the assessee-respondent has canvassrd for
the correctness of the view taken by the High Comt.
Before dealing with the contentionS'-advanccd before us, it would
be appropriate to refer to the relevant provisions
on the subject.
Section 9 of the Act deals with tax payable un.:l~r the head "Income
from property".
Accordiag to that section, the tax shall be payable
by an asscsse.e under the head "Income from property" in respect of
the bo1U1 fide annual value of property consisting of any buildings < •r
lands nppL•1tenant thereto of which he is the owner, other than such
portions of such property as he may occupy for the purposes of any
business, profession or vocation carried on by him the profits d
which are assessable to tax, subject to certain allowances.
These
allowances have been specified in section 9, but for the purpose of
present appeals it is not necessary to refer to them. "Annual value"
of any property, for the purpose of section 9, shall, according to subseciion (2) of that section, be deemed to be the sum for which the
property might reasonably be expected to let from year to year.
Subsection (2) is followed by a number of provisos, but we are not concerned with them in ·these appeals.
Section 60 of thP, Act empowers
the Central Government to make exemptions. According to the section, the Central Government may, by notification in the Official
Gazette,, make an exemption, reduction in rate or other modification,
in respect of income-tax in favour of any class of income, or in regard
to the whole or any part of the income of any class of persons.
In
exercise of the powers conferred by the above secticn, the Central
Government issued notification No. 878F
dated Marrh 21,
1922.
Item 38 of that notification reads as under :
"The following classes of income shall be exempt from
the tax payable under the said Act :
(38) Such part of the income in respect of which the
said tax is payable under the head 'property' as is elJual to
the amount of rent payable for a year but not paid by a
tenant of the assessee
and so proved toi be !osr and irrecoverable, where-
(a) the tenancy is bona fide;
(b) the defaulting tenant has vacated or steps
have
been .
taken to compel him to vacate Lhe property;
( c) the defaulting tenant is not in occupation of any other
property of the assessee;
(d) the assessee has taken all reasonable steps to substitute legal proceedings, for the recovery of the unpaid
rent or satisfies the Income-tax Officer that
legal
proceedings would be useless; and
COM.fy1R. OF INCOMJ;: TAX v. MADHO PD. (Khanna, J.)
205
( e) the annuaf value of the property to which the unpaid
·A
rent relates has been .included in the assessee's income of the year during which that rent was due and
income tax has been duly paid on such
assessed
income."
Section 9 of the Act makes provision for computation of income
from property on a notional basis. According to this
section,
the
. B
income shall be taken to be the bona fide annual value of the property.
Jn making the computation, certain ;:llowanccs which are
mentioned in section 9 would have to be deducted.
In case
the
property in question was in occupation of a tenant, the taxing authorities have, while computing the income from that property, to take
into account its bona fide annual value.
The q ucstion as to whether
the tenant who was in ocq~pation of the property has,. in fact, paid
C
the rent 01 not would not enter intq'.considcr::ition at that stage, unkss
it be found that the rent due from the tenant has become irrecoverable. The fact that the rent due from the tenant has become irrecoverable would in a majority of cases be known only in !Subsequent years
and not in the year during which the• tenant has remained in occupation.
None of the clauses dealing with allowances which are permissible under section 9 ( 1) of the Act deal with rent due from a
D
tenant which remains irrecoverable. It was to meet such an eventuality
that exemption was granted as per item No.
38
in notification
No. 878F dated March 21, 1922. Item 38 exempts from payment of
tax such part of the income in respect of which tax is payable under
thei head 'property' a1s is equal to the amount of rent payable for a
year but not paid by a tenant of the assessee and so proved to be lost
and irrecoverable. In order to claim the benefit of the above exemption,
E
the assessee has also to show that the requirements of clause (a) to
(e) of item 38 have been satisfied.
It was not disputed before the
High Court that conditions mentioned in clauses (a) to ( e) of item
No. 38 had been fulfilled in the instant case.
The dispute between
the parties centres on the point as to whether in the event of the
amount of the irrecoverable rent being more than the amount of rent
payable for a year, the assessee ean gJ).im the deduction only in one
F
year equal to the a·mount of rent 'payable for a year, or whether the
assessee can claim deductions for the balance of the irreaoverable rent
in subsequent years also.
In other words, the question is whether
in the event of the amount of irrecoverable rent being more than the
amount of the rent payable for a year of the property, the assessec
can claim the benefit of the exemption mentioned in item 38 only
once or whether the assessee can claim the benefit of that exemption
G
in successive years also till such time as the assessec gets relief in
respect of the whole of thei amount of irrecoverable rent.
Both the
Tribunal and the High Court took the view that it would be permissible to claim the benefit of the exemption in successive years.
After
hearing the learned counsel for the parties, we find no cogent ground
to take a different view.
The language of item 38 which has been reproduced above shows
that if other conditions. are satified, thei deduction
which can be
claimed by the assessee at an assessment cannot exceed the amount of
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206
SUPREME ·COURT REPORTS
[1977] 1 s.c.R.
rent payable for a year.
The item thus places a limit in respect of
the deduction which is permissible in an assessment ~or one year.
In case, however, the amount of irrecoverable rent exceeds the amount
of rerrt payable for a year, the right of the assessee to claim the benefit
of the above exemption does not, in our opinion, get exhausted by his
having claimed exemption in one year.
We find no cogent reason
as to why :.he assessee should become disentitlcd to claim the benefit
of the above. exemption in respect of the balance of the irrecoverable
rent in subsequent years subject to the condition that in no year the
deduction would exceed the amount of rent payabl·;: for a year.
The
assessee, it has to be borne in mind, seeks exemption in respt<ct of
the notional rental income which he, in fact, never received but on
which he had in terms of section 9 of the Act to pay tax. The underlying object of the exemption granted by item 38 is that the assessee
shall be entitled to claim deduction under the head
'property' in
respect of the notional rental income
which, it
subsequently
so
transpires, was never received by him but on which he had to pay
tax. Although item 38 fixes the limit of, deduction which is permilisible in one year, there is nothing in the language of that item to
warrant the inference that the benefit of the exemption can be claimed
only once.
There is also nothing in the language of that item to
indicate that in respect of the balance of the irrecoverable rent, no
relief is permissible even though tax on that balance amount too has
been paid by the assessee. It is well settled that there is no equity
about tax. If the provisions of a taxing statute are clear and unambiguous, full effect must be given to them irrespective of any consideration of equity.
Where however the provisions are couched in
language which is not free from ambiguity and admits of two interpretations, a view which is favourable to
the subject
should
be
adopted.
The fact that such an interpretation is also in consonance
with ordinary notions of equity would further fortify the court
in
adopting such a course.
Mr. Sharma has invited our
attention to the
judgment of the
Punjab High Court in the case of Daljit Singh v Commissioner of
Income-tax Delhi(') wherein the Punjab High Court took a different
view.
For the reasons stated above,. we prefer the view taken by
the Allahabad High Court in the judgment under appeal to that of
the Punjab High Court in Daljit Singh's case.
The appeal consequently fails and is dismissed with costs.
One
hearing fee.
P.B.R.
Appeal dismissed.
l) 52 J. T. R. 9 33.