TMI Blog1992 (8) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... After all, even a cine artiste needs a home. We, therefore, dismiss the related ground. 3. Common Issue No. 2---Disallowance of part of makeup material, car maintenance, travelling and conveyance, telephone charges, publicity, electricity, etc.---In both the assessment years the Assessing Officer has disallowed 25 per cent of the said expenses, because a similar disallowance has been made in the assessment for the assessment year 1983-84 on the ground that expenditure to that extent was not attributable to the assessee's profession. On her part, the first appellate authority restricted the disallowance to 20 per cent. On hearing the rival submissions, we decline to interfere in the matter. In the very nature of things, there is bound to be expenses which are of personal nature not connected with the assessee's profession. The related grounds are, therefore, dismissed. 4. We may now consider the other issues. A. Assessment year 1985-86 : In the assessment for the assessment year 1985-86 the assessee returned a loss of Rs. 6,70,126 under the head 'Film production and distribution'. During the relevant year of account the assessee had produced a picture at a total cost of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is common ground, was residing at the rented premises situate at No. 4, Paul Appasamy Street, T. Nagar, Madras. In the assessment proceedings for the assessment year 1986-87 the assessee claimed a loss of Rs. 66,969 in respect of the said house property. The said loss of Rs. 66,969 was computed as follows : " Property At No. 3, Paul Appasamy Street, T. Nagar, Madras-17 under self occupation Municipal annual value Rs. 12,000 Less: Municipal taxes Rs. 563 -------------------------- Rs. 11,437 Less: Relief for self occupation Rs. 3,600 -------------------------- Rs. Rs. 7,837 Less : One-sixth for repairs 1,306 Interest on loans 19,250 K.S. Parasunamba Mrs. C. Manjula 17,500 Mr. C. Sidhartha 17,500 Mr. C.N. Gowtham 19,250 Rs. 74,806 -------------------------- Rs. 66,969 (-) " -------------------------- Over and above the total aggregate interest of Rs. 73,500 which the assessee had taken into reckoning while computing the loss under the head 'Income from property' at Rs. 66,969, the assessee had paid interest of Rs. 40,300 on the amount borrowed by her from one V.G. Mardia. She claimed revenue deduction in respect of this sum also on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was in existence, its annual value would have to be computed in accordance with the provisions of the Act, and that consequently the loss of Rs. 66,969 computed by the assessee must be allowed. As respects the interest of Rs. 40,300 paid to Mardia, Shri Kalyanasundaram pointed out that the C.B.D.T. Circular No. 28 [F. No. 8/8/69-IT(AI)] dated 20-6-1969 makes it clear that in a situation such as the one under consideration the assessee is entitled to revenue deduction in respect of the interest paid. 8. On his part, Shri S. Bose, the learned Departmental Representative, strongly supported the impugned orders of the lower authorities on this issue. 9. We have looked into the facts of the case. We have considered the rival submissions. 10. Under the scheme of the Income-tax Act, 1961, all types of income are charged to tax, unless specifically exempted or excluded by the Act. 'Income from house property' is one of the heads of income listed under section 14 of the Act. Thus income-tax is exigible on 'Income from house property' which is the subject matter of taxation. 11. We then have section 22, which stipulates that the annual value of property consisting of any bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the said section in respect of residential house was, therefore, in pith and substance a tax on building failing under Entry 49 of the State List and not Entry 82 of the Union List. The said argument was rejected both by the High Court, and the Supreme Court. In this regard, the Supreme Court, inter alia, noticed the English case of Governors of the Rotunda Hospital v. Comman [1920] 7 TC 517, in which Lord Atkinson had observed : " If the owner of such properties as these should be himself in occupation of them, it by no means follows that he will in fact, derive from them an income equal to this annual valued, but, as he has the use and enjoyment of the properties, it is for the purposes of the statute, presumed that he does derive from them an income equal in amount to this annual value, and the tax is accordingly, under Schedule A, assessed upon this presumed income. " [Emphasis supplied] The Supreme Court then went on to hold : " Even in its ordinary economic sense, the expression 'income' includes not merely what is received or what comes in by exploiting the use of a property but also what one saves by using it oneself. That which can be converted into income can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property purchased by the assessee was "an old building with land measuring 3 grounds and 173 sq. ft.". The purchase was made sometime in April, 1984. Having regard to the real estate values prevailing then, as we see it, the stated consideration of Rs. 7 lakhs was attributable almost exclusively to the plot admeasuring slightly over three grounds. Only a fraction of the said consideration could be attributable to the old building. 17. Further, it is a matter of record that the assessee reconstructed the building at a total cost of Rs. 10,33,170 and for that purpose engaged the services of an architect and entrusted the task of reconstruction to Shiv Narain Constructions, a firm of builders. When regard is had to the totality of the circumstances, we have no hesitation in holding that the old property was reconstructed in a big way. For a fact, the construction plan in question was produced before us at our instance, and we found therefrom that not only substantial area was added in the ground floor but also that substantial structures were put up on the first floor also. The fact that reconstruction was undertaken in a big way is evidenced by the fact that the stated expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased by her as her address for purposes of issue of ration card. 22. Similarly, the fact that the assessee paid electricity bills relating to the connection given by the M.E.S. to the old property purchased by her is neither here nor there. The property purchased by her did have an electric connection and during the reconstruction of the old building, electricity was naturally used for various purposes such as operating a motor pump, polishing floors, etc. The assessee paid electricity charges because she has consumed electricity. The said factor, however, is irrelevant for deciding the legal question whether, during the period of reconstruction of old building, the assessee could have derived any benefit at all as and by way of income, actual or notional. 23. The first two considerations listed above may conveniently be dealt with together. At the first blush, they appear to be attractive. But the question is : " Are they valid ? " The answer to this question lies in the relevant provisions of the Constitution of India. 24. Now, the Indian Constitution, basically federal in form, is marked by the existence, side by side, of a Central polity (the Union at the Centre) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng tax entries in particular. The guidelines for interpreting such apparently conflicting entries have been laid down by the Privy Council as far as back as 1945 in the case of Governor General in Council v. Madras 1945 SCR 179. To quote from H.M. Seervai's Constitutional Law of India (Vol. II, Third Edition, pp. 1889 and 1890) : " The Privy Council held, first, that though a tax in List I (e.g. a duty of excise) and a tax in List II (e.g. a tax on the sale of goods) of the G.I. Act, 35, may overlap in fact there would be no overlapping in law, if the taxes were separate and distinct imposts: secondly, that the machinery of tax collection did not affect the real nature of a tax. Another principle for reconciling apparently conflicting tax entries follows from the fact that a tax two elements: the person, thing or activity on which the tax is imposed, and the amount of the tax. The amount may be measured in many ways; but decided cases establish a clear distinction between the subject matter of a tax and the standard by which the amount of tax is measured. These two elements are described as the subject of a tax and the measure of a tax. " 25. Of relevance to the purpose on hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid ruling of the Bombay High Court was approved by the Federal Court in the case of Ralla Ram v. Province of East Punjab AIR 1949 FC 81. In that case, to quote Seervai again: " The Federal Court observed that the real distinction between the Income-tax Act and the impugned Punjab Urban Immovable Property Tax Act, 1940, was that whereas the Income-tax Act tried to get at the true income, there was no such pretence in the impugned Act which used the annual value merely for the purpose of determining the importance or the value of the property to be taxed. The annual letting value was a rough (sic) property was not the subject of the tax, as in the Income-tax Act. Again, a tax on lands and buildings, based on their capital value as a measure of tax, would not make it a tax on the capital value of assets, because such a tax would make it necessary to ascertain that the subject of the tax was an 'asset', for, if lands or buildings were mortgaged, the tax would be on the equity of redemption, whereas the existence of a mortgage would be irrelevant for taking lands or buildings ". 29. The basic principle that emerges from the foregoing analysis is that a tax levied by the Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. No doubt, the building was not demolished. It was, therefore, that the Madras Corporation levied property tax. In other words, property tax became exigible because the old building was left intact. Here we are not concerned with the question whether the relevant rules of the Madras Corporation contained any provision for non-levy of property tax during the period when an old property is in the process of being reconstructed extensively. Nor are we concerned with the question whether the assessee moved the Madras Corporation for allowing relief on that count. The assessee had to pay property tax because the old building was not demolished. The tax was calculated on the basis of the old annual value of the building perhaps because during the relevant year of account quinquennial revision of annual value was not due; or even because the process of re-construction was not over. As we have already demonstrated, these considerations are irrelevant for purposes of deciding the question whether during the period of extensive reconstruction of the old building, the assessee could be said to have derived any benefit in the form of income ----- actual or notional ----- and our view is that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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