Bombay High Court
Commissioner Of Income-Tax vs Smt. Sumatibai M. Dhanwatey on 20 January, 1992
Equivalent citations: [1995]212ITR492(BOM)
JUDGMENT V.A. Mohta, J.
1. At the behest of the Commissioner of Income-tax, Nagpur, the following four questions have been referred to this court under section 256(1) of the Income-tax Act, 1961 (for short "the I. T. Act").
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was not liable to be assessed in respect of the interest income on accrual basis ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was not liable to be assessed to income-tax in respect of the lease rent on accrual basis ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to deduction on account of share of compensation paid to Saiydina Saifuddin Memorial Trust ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to deduction on account of repair cess while computing the assessee's income ?"
2. The relevant assessment years are 1973-74 to 1976-77. The assessee had three and a half annas share in Plot No. 79 at Worli Seaface at Bombay, out of which she sold two annas share to six different persons who were close relatives. The entire consideration was not received immediately and the unpaid price carried interest as per agreement. The assessee showed a sum of Rs. 2,734 as interest received for the assessment year 1973-74. The Income-tax Officer taxed the interest on accrual basis for the years 1974-75, 1975-76 and 1976-77. The assessee was co-owner of the plot in Shivsagar Estate, Worli, Bombay, which was given on lease to Messrs. Poonam Hotel (P) Limited. The lessee has filed proceedings for fixation of standard rent under the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947, in the Small Causes Court, Bombay. No amount was actually received from the lessee. The Income-tax Officer added the lease amount in the income on accrual basis.
3. The assessee along with other co-owners had sold her share in the International Building to Saiyadina Saifuddin Memorial Trust, which had paid a part of the consideration even before the registration of the sale deed. She had paid compensation for the delay in transfer of the property to the trust as per the agreement. The assessee claimed deduction in respect of the said compensation under the head "Income from house property". It was not allowed by the Income-tax Officer.
4. For the assessment year 1973-74, the assessee claimed deduction of the amount of repair cess. It was not allowed by the Income-tax Officer.
5. The assessee earned income also from other sources. She did not maintain regular account books and did not follow the mercantile system of accounting.
6. The Commissioner dismissed the appeals of the assessee. The Tribunal, however, allowed the appeals, quashed the additions of lease money, interest on accrual basis and permitted the deduction in respect of the share of compensation paid to the trust and repair cess.
7. In Income-tax Reference No. 444 of 1981, decided by us on January 15, 1992, in the case of CIT v. Vimla D. Sonwane [1995] 212 ITR 489 (other co-owners), we have held under similar circumstances that the lease rent could not be taxed on accrual basis for the reasons that (i) the said income falls under the head "Other sources"; (ii) the assessee does not maintain regular accounts and does not follow the mercantile system of accounting; and (iii) the assessee could not be compelled to adopt a particular system of accounting.
8. In our view, for the same reasons the interest income also could not be taxed on accrual basis since it also falls under the head "Other sources".
9. The share of compensation paid to the trust for retention of part of consideration even before the registration of the sale deed was not deductible out of the income from house property as the liability was personal and did not create any superior title to a part of the rent in favour of the purchaser. In the case of other co-owners this court has, in the case of CIT v. Archana R. Dhanwatay [1982] 136 ITR 355, concluded the point accordingly.
10. Repairs cess for the assessment year 1973-74 was clearly deductible out of the income from house property. It is a tax payable to the State Government and, therefore, falls under section 24(1)(vii). It would be deductible even under section 23.
11. Under the circumstances, the questions are answered as follows :
Question No. 1 in the affirmative and in favour of the assessee, question No. 2 in the affirmative and in favour of the assessee, question No. 3 in the negative and in favour of the Revenue and question No. 4 in the affirmative and in favour of the assessee.
12. No order as to costs.