COMMISSIONER OF INCOME TAX BOMBAY Vs. ABDUL HUSSEIN ESSAJI ARSIWALLA

JUDGEMENT

(1.) THE question raised on this reference under section 66 (1) of the Indian Income-tax Act, 1922, relates to an amount claimed by the assessee as allowance under section 9 (1) (iv) as ground rent to which the property was subject.

(2.) THE assessee is the owner of one half share in certain properties, which are assessed to tax under section 9 of the Indian Income-tax Act. The assessment year in question is 1958-59 for which the relevant previous year was the financial year ended on 31st March, 1958. The properties were constructed on land belonging to the former G. I. P. Railways and now forming part of the assets of the Central Railways. The land was taken on lease from the railways by the assessee and one other person and constructions were put up on the land by them. The last of the leases in favour of the assessee and the other co-owner expired on the 30th June, 1951. The ground rent payable under the lease was Rs. 254 per month. After the expiry of this lease, assessee and the co-owner continued in possession of the land. There was negotiations between the assessee and his co-owner on the one hand and the railway authorities on the other, for the renewal of the lease. The railway were agreeable to the renewal of the lease but wanted an enhancement of the ground rent. The assessee and the co-owner, on the other hand, were desirous of having the lease renewed of a period of 15 years at the original rent of Rs. 254 per month. These negotiations were finally concluded and a fresh lease agreement was entered into in 1957. Thereafter, on the 1st of November, 1957, the railway authorities made a demand on the assessee requiring him to pay the arrears of ground rent calculated at the difference between the former rent of Rs. 254 per month and the enhanced rent of Rs. 540 per month for the entire period from the 1st July, 1951, to the 30th September 1957, amounting to Rs. 21,487. 50 P. In the assessment for the assessment year 1958-59, the assessee claimed this amount as an allowance permissible to him under section 9 (1) (iv) of the Act. The assessee's claim was that, since the demand was made on the 1st November, 1957, and the liability had been quantified at that time, the amount thereof was liable to be allowed as a deduction under section 9 (1) (iv) in the assessment year 1958-59. The Appellate Assistant Commissioner took the view that the amount, which could be claimed as an allowance under section 9 (1) (iv) by the assessee as ground rent, to which the property was subject, would be the ground rent for the previous year and, consequently, the amount which could be properly allowed to the assessee under the said provisions would be an amount of Rs. 1,719 pertaining to the period April 1, 1957 to March 31, 1958, in respect of the assessee's half share of the property. In the further appeal to the Income-tax Appellate Tribunal, it took that view that the entire amount claimed by the assessee would be allowed to him. In the opinion of the Tribunal, there was nothing in the language of the provision of section 9 (1) (iv) which required that the amount to be allowed thereunder would only be with reference to the particular year for which the assessment was being made. According to the Tribunal, the assessee could not have claimed the amount in earlier year as, up to November 1, 1957, there was no knowledge on the part of the assessee that the railways authorities would make a claim at the revise rate which they had fixed in their letter. The assessee could not also claim it in later years because no liability would arise in those years for the said amount. According to the Tribunal, therefore, the assessee was entitled to claim the entire amount in the year of assessment. It accordingly allowed the assessee's appeal and directed the departmental authorities to allowed the said amount. Thereafter, on an application made by the department under section 66 (1) it referred the following question to this court as arising out of its order :

(3.) THE answer to the question will depend upon what is permissible as allowance as ground rent to which the property is subject in the computation of the income from property computed under section 9 of the Indian Income-tax Act.