Maharajadhiraja of Darbhanga vs Commissioner of Income Tax

Courtney-Terrell, C.J.—Various points are raised by this Letter of Reference. As to some no decision is called for by us because the learned Assistant Government Advocate states that the department is prepared in future to accept a certain view of the law with which view the assessee is in agreement, and as to some a compromise has been effected and therefore we were not troubled to come to any decision. The remaining two points are of a very simple character.

The assessee is a wealthy nobleman of this province and he has in various parts of the country residential houses which he keeps open for his occupation and residence at any time he might choose. He is not in the habit of letting any of these residences to tenants but keeps them furnished so that if at any moment he may choose to enter into residence he is free to do so. As to some of the residences he has not resided in them during the year of assessment, nor has he used them for purposes of hospitality.

The first point arises by reason of the claim on behalf of the assessee u/s 9(1), para. (7) of the Act to make a deduction from the annual value of the particular houses of a sum in respect of the periods during which he did not use them for purposes of residence, and he claims that such periods should be included in the term "vacancies" in that paragraph. It is argued on his behalf that a house may well be occupied (and it is admitted that in this case the houses in question are and have been in his occupation) but that a house although it may be occupied may nevertheless be vacant. In my opinion the contrasting terms are "occupation" on the one hand and "nonuser" or "unused" on the other and a house, although it may be occupied, may in certain circumstances, be unused but it cannot be occupied by the owner and at the same time be vacant. In my opinion the provision in Section 9(1), para. (7) is intended to apply primarily only to those cases in which the house in question is not in the occupation of the owner but is habitually let to tenants and the vacancies referred to are vacancies between the different tenancies. It may also be applied to cases where a house though not let is dismantled and shut up by the owner but it has no application to the circumstances of the present case.

The first question put to us is:

Whether under the law allowances are to be given in respect of vacancies u/s 9 of the Act in fixing the annual value of houses not used by the assessee during the year.

I would answer this question in the negative.

The second question submitted to us is whether the assessee was entitled to deduct a sum from the annual value as collection charges under para. (6), Sub-section (1), Section 9. It is argued that inasmuch as Sub-section (2) of the Act defines the

annual value of the house as the sum for which the property might reasonably be expected to let from year to year

and that that is in the nature of notional income, the assessee should be entitled to deduct from such notional income measured by the value for letting purposes a sum which should represent the cost of collecting the rent if the house were so let. But the answer to this contention is, in my opinion, that even in the case of a house which is in fact let, the proper construction of para. (6) is that collection charges may not be deducted unless they have actually been incurred, and in that case the sum which may be deducted is limited to a sum "not exceeding the prescribed maximum." Analogy may be found for this reasoning from the construction of para. (3) which allows the deduction of any annual premium paid to insure the property against risk of damage or destruction. It is quite clear in this case that the premium could not be deducted unless it had been actually paid. Similarly in respect of para. (4) which allows the deduction of interest on mortgages or charges, the deduction may not be made unless either the interest on the mortgage or charge has actually bean made or unless the assessee is under a legal liability to pay the interest. I would therefore answer the question put to us

whether allowance of collection charges is to be made in respect of residential houses in fixing their annual value u/s 9 of the Act

in the negative.

These two points conclude all the matters with which we have had to deal in this reference.

We award Rs. 100 as costs to the opposite party.

Dhavle, J.

I agree.