TMI Blog2002 (4) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ussion, we hold that the Tribunal was right in coming to the conclusion that the exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, was admissible even in respect of the new building constructed by the assessee in the place of the old recognised palace which was used as his official residence. - - - - - Dated:- 17-4-2002 - Judge(s) : R. K. ABICHANDANI., KUNDAN SINGH. JUDGMENT The judgment of the court was delivered by R.K. ABICHANDANI J.-These two references raise common questions in the case of the same assessee for different assessment years on the aspect as to whether the assessee was entitled to exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, in respect of the new building constructed in place of the old recognised palace. For the assessment year 1977-78, the assessee had declared the net wealth of Rs. 11,12,243 on July 1, 1977. The return was filed in the capacity of individual. During the proceedings, the assessment was made in the status of a "Hindu undivided family", as requested by the assessee. According to the assessee, he had succeeded to the Gaddi of the former State of Vadia on the death of his father. According to him, he was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee even when he demolished the dilapidated palace and constructed a new building at the same place. The addition of Rs. 1,57,280 made by the Wealth-tax Officer was, therefore, deleted. Similar orders were made by the appellate authority on the appeals filed for the assessment years 1978-79 and 1979-80 on July 3, 1984, and December 20, 1985, respectively. The matter was carried to the Appellate Tribunal by the Wealth-tax Officer in respect of these years and the Tribunal, taking note of the fact that, in para. 13 of the Merged States (Taxation Concessions) Order, 1949, exemption was granted from income-tax and super tax in respect of bona fide annual value of the residential palaces of a Ruler of an Indian State which was declared by the Central Government as the official residence of the Ruler and likewise para. 15 of the Part "B" States (Taxation Concessions) Order, 1950, also granted that exemption, held that, having regard to the expression "any one building in the occupation of the Ruler" occurring in section 5(1)(iii) of the said Act and to the fact that there was no dispute as to the building having been in the occupation of the ex-Ruler, there was no reason wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in which it was held in the context of the provisions of section 5(1)(iii) of the said Act that, under the said provisions, the Ruler of an Indian State was entitled to exemption from tax in respect of only one building which the Central Government has declared as his official residence under para. 13 of the Merged States (Taxation Concessions) Order, 1949. In that case, the Wealth-tax Officer had already granted exemption in regard to the Ramnagar palace as the official residence of the assessee and included the value of Nandeswar palace in his net wealth. It was held that the assessee was not entitled to exemption from tax in regard to the value of Nandeswar palace under any provision of the Wealth-tax Act. (b) A decision of the Supreme Court in Revathinnal Balagopala Varma v. His Highness Shri Padmanabha Dasa Bala Rama Varma [1993] Suppl. 1 SCC 233, was cited for the proposition that, one incidence of property held by a sovereign was that there was really no distinction between the public or State properties on the one hand and private properties of the sovereign on the other, and the other incidence was that no one could be a co-owner with the sovereign in the properties he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as exempted from income-tax with effect from December 28, 1971, and, therefore, the Tribunal was not justified in holding that the annual value of the palace was also taxable under clause (19A) of section 10 from April 1, 1971, to December 28, 1971, though the said clause was deemed to have been inserted with effect from December 28, 1971. The undisputed facts are that, the palace of the erstwhile Ruler of Vadia was notified at item 60 of the notification dated May 14, 1954, issued by the Government of India, Ministry of Finance (Revenue Division) and published in the Gazette of India, Part 11, section 3, dated May 14, 1954, pursuant to the provision of item (iii) of para. 15 of the Part "B" States (Taxation Concessions) Order, 1950, and declared as the official residence of the Ruler of the said former Indian State. The said Taxation Concessions Order, 1950, was issued under section 60A of the Indian Income-tax Act, 1922, and the exemptions from income-tax and super-tax enumerated in clause 15 included in sub-dause (iii), "the bona fide annual value of the residential palace of the Ruler of a State which is situate within the State and is declared by the Central Government as hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esident on December 28, 1971, and by that Act, articles 291 and 362 of the Constitution were omitted and a new article 363A was inserted. Under article 363A(a), notwithstanding anything in the Constitution or in any law for the time being in force, the Prince, Chief or other person who, at any time before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, was recognised by the President as the Ruler of an Indian State or any person who, at any time before such commencement was recognised by the President as the successor of such Ruler shall, on and from such commencement, cease to be recognised as such Ruler or the successor of such Ruler. Under article 362, which came to be omitted by the said Amendment, it was earlier provided that, in the exercise of powers of Parliament or of the Legislature of a State to make laws or in the exercise of the executive powers of the Union or of a State, due regard shall be had to the guarantee or assurance given under any such covenant or agreement as was referred to in article 291 with respect to the personal rights, privileges and dignifies of the Ruler of an Indian State. Consequent to derecognition of the Rulers of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee with a view to provide some relief to such recognised Ruler or successor, as a transitional provision to enable such person to adjust progressively to the changed circumstances as indicated in the preamble to the Rulers of Indian States (Abolition of Privileges) Act, 1972, by which section 5(1)(iii) of the said Act was amended. The grant of exemption to the palace from inclusion in the net wealth of the assessee, was not on the ground that it was some antique object but was intended to ensure that one building in the occupation of the recognised ex Ruler or the recognised successor of such ex-Ruler should be exempted from wealth-tax. It cannot be countenanced that the recognised Ruler or the recognised successor should be compelled to live in a dilapidated building declared as his official residence and would lose the benefit of exemption under section 5(1)(iii) of the said Act, if by reconstructing the building he makes it habitable. Moreover, such building recognised as an official residence may be raised to the ground due to natural calamity and it would lead to absurdity, if one has to construe the provision of section 5(1)(iii) so as to deny the benefit of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... successor of the ex-Ruler recognised by the President prior to the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, he was entitled to the benefit of section 5(1)(iii) of the said Act, by not including in the net wealth of the assessee the said building notwithstanding the fact that it was reconstructed after demolishing the dilapidated palace. Since the question as to whether the exemption claimed under section 5(1)(iii) of the Act could have been made by the assessee in the return filed by him in the status of a Hindu undivided family has not been referred and does not arise from the order of the Tribunal, we refrain from giving any opinion on that aspect of the matter. In view of the above discussion, we hold that the Tribunal was right in coming to the conclusion that the exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, was admissible even in respect of the new building constructed by the assessee in the place of the old recognised palace which was used as his official residence. The questions referred to us in both these references are accordingly answered in the affirmative, in favour of the assessee and against the Revenue. Both the refe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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