COMMISSIONER OF INCOME TAX Vs. BHARATCHANDRA BANJDEO

JUDGEMENT

(1.) THIS is a reference made by the Income-tax Appellate Tribunal at the instance of the Revenue for answering the following question :

(2.) THE facts stated by the Tribunal in the statement of the case are that this assessment pertains to an ex-Ruler of Bastar, a State which merged in the province of Central Provinces and Berar under the States Merger (Governor's Provinces) Order, 1949, and, according to Notification No. SRO 1620, dated May 14, 1954, in pursuance of para. 13 of the above Order of 1979 at item 39, the palace at Jagdalpur of the Ruler of Bastar had been declared as the official residence of the Ruler. It is stated that in the return of income, the income from house property was originally shown as Rs. 50,055 and Rs. 57,088 which was subsequently revised to Rs. 13,473 and Rs. 14,135 for the assessment years 1975-76 and 1976-77, respectively. In the course of the assessment proceedings, it was claimed that the palace at Jagdalpur is recognised as official residence and as such its rental value is exempted under the Act. THE ITO negatived the claim on the ground that the entire palace at Jagdalpur is rented out leaving a small portion used for residence and that only the annual letting value of the residential portion in occupation of the assessee is exempt. THE income from property has been assessed at Rs. 47,060 and Rs. 47,630 for the assessment years 1975-76 and 1976-77. THE assessee preferred an appeal before the AAC, who confirmed the ITO's findings, holding that the income from property has been correctly computed. On further appeal before the Tribunal, the Tribunal took the view that the entire income from the palace of the assessee who is the former Ruler of Bastar is exempt from tax. THE Tribunal took the view that if the palace is in occupation of the assessee and which is the official residence of the ex-Ruler, then it is exempt from tax as, according to the Tribunal, the law does not provide that if a portion only is occupied by the Ruler and the remaining is let out, the portion which is let out should be computed for purposes of income-tax. Dissatisfied with the order of the Tribunal, the Commissioner submitted an application for making a reference and the Tribunal has made this reference.

(3.) LEARNED counsel for the assessee, on the other hand, contended that under the Merged States (Taxation Concessions) Order, 1949, even more than one palace could be declared as official residence and once under that order they were declared as official residence, they were exempt from tax, but by the introduction of Section 10(19A) the Legislature limited this exemption only to one such palace which is in occupation and from the language of Sub-section (19A) of Section 10, it could not be contended that the Legislature further intended the splitting up of the rental value of one palace also in parts in respect of occupation and it was, therefore, contended that if it is one palace and is in occupation, further splitting up is not contemplated within the meaning of the language of Sub-section (19A) of Section 10.