B. JAMASJI MISTRY (P) LTD. v. INCOME TAX OFFICER
[Citation -1984-LL-1213]

Citation 1984-LL-1213
Appellant Name B. JAMASJI MISTRY (P) LTD.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 13/12/1984
Assessment Year 1976-77 TO 1978-79
Judgment View Judgment
Keyword Tags income from house property • immovable property • value of property • deduction of tax • lease agreement • value of house • rental income • standard rent • value of land • annual value • use of land • annual rent • licence fee
Bot Summary: The mode of determining the annual value is provided in section 23; section 23(1), which as it stood prior to amendment in 1976, read: For the purposes of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year: 8. The content of section 23(1) is now contained in the form of section 23(1)(a) and clause, which reads as follows, was inserted in between clause and the first proviso: where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause(a), the amount so received or receivable: 9. The word 'rent' had been used in conjunction with 'let' in section 5 in such a manner that the former, in the opinion of the Supreme Court, should receive a narrower meaning. The phrase 'reasonably be expected to let from year to year' occurs in section 127(a) of the Calcutta Municipal Act, 1923, which prescribes for ascertaining the annual value of land and building and this has been interpreted by the Supreme Court and this is what their Lordships have stated in regard to 'let' found in the provision: ...We shall first look at the provisions of the section to ascertain the meaning. Even in interpreting section 23(1), as it stood prior to the 1975 amendment, the Supreme Court has in all cases treated the word 'let' as 'lease', for the rule is that the statutory income for tax purposes under section 23(1) should correspond to standard rent recoverable under the relevant house rent regulation-Mrs. Sheila Kaushish v. CIT 1981 131 ITR 435 and Amolak Ram Khosla v. CIT 1981 131 ITR 589. The word 'let' has been used in conjunction with 'rent' and this further strengthens the view that a narrower meaning should be given to the terms, as pointed out by their Lordships of the Supreme Court, while interpreting section 5 of the Punjab State Act, 1949 and section 127 of the Calcutta Municipal Act, 1923, which provides for fixing the annual value of land and building. If the meaning of the words 'let' and 'rent' in section 23(1)(a) and is to be gathered upon the guidelines provided in British India Corpn.


short question in these appeals, by assessee, is whether compass of section 23(1)(b) of Income-tax Act, 1961 ('the Act'), covers income from house property derived by virtue of contract or licence. 2. building called 'Whitehall' situated in Gowalia Tank Road, Bombay, built in 1965 and owned by assessee, is fetching income. major portion of building is in occupation of posts and telegraphs department. assessee has granted user of building to parties on licence basis in consideration of licence fee payable by them. 3. impugned assessments span accounting years 1976-77 to 1978-79. primary authority (ITO) adopted actual licence fee realised by assessee as norm for fixing annual value for purposes of assessing income from house property under section 22 of Act in each of years. Commissioner (Appeals) set his seal of affirmance in appeals by assessee and refused to agree that assessments made for earlier years afforded guide inasmuch as in those assessments, following order of Tribunal, municipal valuation had been preferred in determining annual value in view of change in section 23, effected by Taxation Laws (Amendment) Act, 1975, operating from 1-4-1976. unsuccessful assessee is on further appeal to Tribunal. 4. principal contention of Shri Palkhivala, learned counsel for assessee, is that municipal valuation alone should be basis for fixing annual value, as done in earlier years and that Commissioner (Appeals) fell into error in treating licence fee as rent. rejoinder on behalf of revenue was that no such distinction could be adopted between rent and licence fee for purpose of section 23(1)(b) in its interpretation if object of introducing clause (b) by amendment was kept in mind. Before going to merits of rival submissions, we must refer to few facts. 5. It is not in region of controversy that all parties in actual occupation of house property in question are licensees. It appear that posts and telegraphs department are occupying very major portion of building. Kemp & Co. was another licensee of remaining portion, which is now occupied by cloth and tailoring shop, La Tropical. entire correspondence between posts and telegraphs department and assessee (particularly consent letter dated 16-3-1965 addressed by that department), which ultimately culminated in written agreements in 1965 and 1966, and subsequent renewals is ample proof to hold that assessee had entered into licence agreements for which it is getting 'licence fees.' 6. We may at this stage say that earlier decisions of Tribunal in assessee's case are not of any particular usefulness, as they pertain to period prior to amendment of section 23(1) by insertion of clause (b). 7. It would be pertinent to explain background in which change in law was effected. Income from house property is to be taxed on basis of annual value vide section 22. mode of determining annual value is provided in section 23; section 23(1), which as it stood prior to amendment in 1976, read: "(1) For purposes of section 22, annual value of any property shall be deemed to be sum for which property might reasonably be expected to let from year to year:" 8. content of section 23(1) is now contained in form of section 23(1)(a) and clause (b), which reads as follows, was inserted in between clause (a) and first proviso: "(b) where property is let and annual rent received or receivable by owner in respect thereof is in excess of sum referred to in clause(a), amount so received or receivable:" 9. insertion of clause(b) has history. Many owners, who were realising fabulous rents by leasing out their buildings, were offering for taxation only small portion basing their annual value upon municipal valuation which, in majority of cases, was disproportionately lower than rent actually received, with result that large portion of income from house property was escaping tax. To prevent this and to net entire rent, mode of determining annual value was altered by amendment-[as was done in England after decision in Salisbury House Estate Ltd. v. Fry (Inspector of Taxes) 15 TC 266 (HL)]. 10. If building is self-occupied, estimation of amount would be on basis specified in clause (a) of section 23(1). If building is leased to tenant, then section 23(1)(b) would come into play, if agreed rent is higher than estimation that could be made under clause(a). Here again, there is point. As Rankin, CJ. observes: "...The house may have been let cheap or dear, lease may be 80 years old or thing of yesterday, personal relations or business relations may have led to exceptional terms as to rent..." (p. 887)- Krishna Lal Seal, In re. AIR 1932 Cal. 886. So, if agreed rent is less than estimated return under clause(a), then higher has to be adopted, and to know this, it is necessary first to estimate under clause(a) to see how it compares with agreed rent and then to decide which of two should be basis, for clause(b) can be applied only if agreed rent 'is in excess of sum referred to in clause(a)'. So far no difficulty suggests itself. 11. point in dispute is, whether property given essentially on licence basis is top be straightway valued under clause(a) or whether clause(b) is also attracted to see if agreed consideration for licences is in excess of estimated value under clause(a), so that higher of two can be brought to tax. proper construction to be put up upon clause(b) should furnish answer to this question. Shri Palkhivala contended that word 'let' in clause(b) in conjunction with word 'rent' found in same clause necessarily implied subsistence of lease agreement for application of clause(b); that assessee's property, which is not subject to lease, was outside pale of said clause. Enlarging his argument, Shri Palkhivala said that lease alone is treated differently from other agreements pertaining to grant of use or occupation of property in Act itself as witness section 30 of Act in matter of deductions on account of rent, rates, taxes, etc., and same would be purport in clause(a) and (b) of section 23(1) as scheme of Act is same. This argument was countered on behalf of revenue by pointing out that word 'let' is used in section 23(1) in contradiction of 'lease' used in section 30 and this implies in legislative intendment to widen scope, so as to cover all case of occupation including leave and licence. In other words, submission of case of occupation including leave and licence. In other words, submission of Shri Palkhivala may be true of section 30 but in regard of section 23(1), question is not one of any easy answer. 12. To know amplitude of clause(b), whether word 'let' there in has been used as equivalent of lease and word 'rent' as recompense only in n agreement of lease or whether these terminologies ('let' and 'rent') are employed in wider generic sense, become moot questions. It can be reasonably inferred that 'let' must have been used in same sense both in clause(a) and (b) and there is nothing to indicate to contrary. 13. word 'rent' has two shades of meaning: As pointed out in State of Punjab v. British India Corpn. Ltd. AIR 1963 SC 1459: "The word 'rent' in its wider sense means any payment made for use of land or buildings and thus includes payment by licensee in respect of use and occupation of any land or building. In its narrower sense it means payment made by tenant to landlord for property demised to him..." (p. 1460) 14. word 'let' in generic sense means 'to rent, to lease, to demise, to permit, to enter, to remain, pass or leave'. As Collins M.R. States in Warr v. London County Council [1904] 1 KB 719, word 'let' may be used so as only to give licence. But in legal domain, it has narrower width. As stated in Stroud's Judicial Dictionary (Fourth edn., p. 1523), word 'let' is synonymous with 'demise' as operative word in lease. Biswas's Encylopaedic Law Dictionary at p. 434 reads that "in legal phraseology, term 'let' ordinarily implies tenancy", see also Venkataramaiya's Law Lexicon and Legal Maxims (Second edn., p. 1235) and Corporation of Calcutta v. Anil Prakash Basu AIR 1958 Cal. 423. 15. It is plain that as legal term, 'let' should normally be taken as equivalent of 'lease'. In ascertaining in what sense this word could have been used in clauses(a) and (b), British India Corpn. Ltd.'s case (supra) is helpful precedent to illumine field and, therefore, it is necessary to go into certain details of this case. Under Punjab Urban Immovable Property Tax Act, 1940, buildings were liable to tax under State Law, but exemptions were, however, provided to few classes under rule 18(1) and (2) of Punjab Urban Immovable Property Tax Rules, 1941, framed thereunder. British India Corporation claimed exemption in respect of their certain properties which they had given on licence basis, for which rent was being collected. One condition, inter alia, was that no rent should have been charged from building, in respect of which exemption was sought vide rule 18(4)(ii), which reads as under: "(4) exemptions provided by sub-rules (1) and (2) shall not extend to- ** ** ** (ii) godowns, shops, quarters or other buildings, whether situated within or without factory compound, for which rent is charged either from employees of factory or from other persons; and" meaning of word 'rent' in rule 18(4)(ii) was important to granting exemption and in their Lordships' opinion, it was necessary to know whether term 'rent' had been used in wider sense or in its narrower sense. To resolve this, their Lordships examined use of word 'rent' in another section of that Act and important portion of discussion reads as under: "...In seeking answer to this question it is legitimate to examine use of word 'rent' in Act for which these rules were made. At time rules were first made in 1941 Act used word 'rent' only in two sections. First, in section 5, where in providing how annual value of land or building shall be ascertained Legislature said that it shall be ascertained 'by estimating gross annual rent at which such land or building...might reasonably be expected to let from year to year'. It is absolutely clear that here word 'rent' is used in its strict and narrower sense of payment by tenant to landlord for demised property..." [Emphasis supplied] (p. 1463) It can be seen that section 5 of Punjab Urban Immovable Property Tax Act, which provides for fixation of annual value of property, contains almost same language as in section 23(1)(a) of 1961 Act. word 'rent' had been used in conjunction with 'let' in section 5 in such manner that former, in opinion of Supreme Court, should receive narrower meaning. On that analogy, 'rent' in clause(a) of section 23(1) should be construed in narrow sense, in which even 'let' naturally, could only be 'lease'. 16. Another sure index is to be found in Corporation of Calcutta v. Smt. Padma Debi AIR 1962 SC 151. phrase 'reasonably be expected to let from year to year' occurs in section 127(a) of Calcutta Municipal Act, 1923, which prescribes for ascertaining annual value of land and building and this has been interpreted by Supreme Court and this is what their Lordships have stated in regard to 'let' found in provision: "...We shall first look at provisions of section to ascertain meaning. crucial words are 'gross annual rent at which land or building might at time of assessment reasonably be expected to let from year to year. dictionary meaning of words 'to let' is 'grant use of for rent or hire'. It implies that rent which landlord might realise if house was let is basis for fixing annual value of building. criterion, therefore, is rent realisable by landlord and not value of holding in hands of tenant. This aspect has been emphasised by Judicial Committee in B.N. Ry. Co. Ltd. v. Corporation of Calcutta 74 Ind. App. 1 (AIR 1947 PC 50)..." [Emphasis supplied] (p. 152) 17. Even in interpreting section 23(1), as it stood prior to 1975 amendment, Supreme Court has in all cases treated word 'let' as 'lease', for rule is that statutory income for tax purposes under section 23(1) should correspond to standard rent recoverable under relevant house rent regulation-Mrs. Sheila Kaushish v. CIT [1981] 131 ITR 435 (SC) and Amolak Ram Khosla v. CIT [1981] 131 ITR 589 (SC). With this interpretation placed on word 'let' found in section 23(1), it can be reasonably inferred that it has been used in same way in clause (a) while amending provision in 1975. 18. When ordinarily word 'let' in legal sphere should be taken as synonymous of 'lease', it would be reasonable to think that word must have been used in same sense in clauses (a) and (b) of section 23(1) in absence of any pointer to contrary. word 'let' has been used in conjunction with 'rent' and this further strengthens view that narrower meaning should be given to terms, as pointed out by their Lordships of Supreme Court, while interpreting section 5 of Punjab State Act, 1949 and section 127 of Calcutta Municipal Act, 1923, which provides for fixing annual value of land and building. Both these are fiscal enactments. In case of British India Corpn Ltd. (supra), persons in possession were also licensees. If meaning of words 'let' and 'rent' in section 23(1)(a) and (b) is to be gathered upon guidelines provided in British India Corpn. Ltd.'s case (supra) and Smt. Padma Devi's case (supra), it has to be concluded that word 'let' must have been used in sense of 'lease' and word 'rent' must have been used in narrower sense. 19. 'Lease' and 'licence' are terms defined in other status and are distinctively different. lessee or tenant is different from licensee. owner is free to give his property on licence or lease and, in this case, as has been said in para 5 above, assessee has given his property on licence basis. Now, there is something of significance in first proviso to section 23(1), which provides for deduction of tax levied on tenant-occupied premises if, as per agreement, burden is borne by owner is distinct from case of licensee-occupied property where licenser undertakes to pay taxes. If intendment of Parliament is to keep lease and licence at par for purposes of clause(b) of section 23(1), then it would not have expressly excluded tenant-occupied premises from all other cases for deduction of tax if paid by owner. This is indication that for purpose of section 23(1)(b), lease alone is singled out from all other cases of grant of property for use and occupation to another. 20. It could be argued with gravity that introduction of clause(b) to section 23(1) was for removal of mischief and by nicety of distinguishing lease from licence for purpose of clause (b), very object of amendment would be defeated. Lord Parker, CJ. questions in Smith v. Hughes [1960] 1 WLR 830, "I approach matter by considering what is mischief aimed at by this Act". Gravemen of revenue was that part of rental income received by landlords (owners was escaping tax and to prevent this, amendment t o section 23 was proposed by clause (8) in Taxation Laws (Amendment) Bill, 1973, and in Statement of Objects and Reasons, following was stated in regard to clause (8): stated in regard to clause (8): "(8) This clause seeks to make following amendments to section 23 of Act which provides for determination of annual value of house property: (1) Where any property is in occupation of tenant and rent paid or payable by him is in excess of annual value determined under sub-section (1), annual value is to be taken on basis of rent." [Emphasis supplied]-[1973] 89 ITR (St.) 109. 21. From above, it is clear that Legislature had only tenant- occupied building in mind. It appears that licensee-occupied property was not in contemplation of Legislature. Else, word 'tenant' would not have been used in Statement of objects and reasons (quoted above). If amendment was brought about to avoid that mischief only, then case of lease alone is covered by clause(b) and that answers question as to what was mischief sought to be remedied. 22. In our view, this is not even case where door is left ajar in view of meaning consistently given by Supreme Court while interpreting fiscal statutes containing language almost similar to section 23(1). It is difficult to extract forced meaning from word 'let', so as to include case of licence also. To quote words of Hidayatullah J. (as he then was): "...If words of taxing statute fail, then so must tax. Courts cannot, except rarely and in clear cases, help draftsman by favorable construction....(p. 1020) ** ** ** .....It is for Legislature to avoid anomalies which, according to us, spring not from our interpretation but from language employed."-CIT v. Elphinstone Spg. & Wvg. Mills Co. Ltd. AIR 1960 SC 1016, 1022. 23. For foregoing, we conclude that case of assessee is not covered by clause (b) of section 23(1). It follows that annual value of licensee occupied property has to be determined under clause(a) of section 23(1). As authorities below have not proceeded in that direction, we direct that assessments be made fixing annual value applying principles applicable to section 23(1)(a). 24. In result, orders passed by authorities below are set aside and cases are remitted back to ITO to redo assessments in light of conclusion in earlier paragraph. 25. appeals are allowed. *** B. JAMASJI MISTRY (P) LTD. v. INCOME TAX OFFICER
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