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TMI Blog2002 (4) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ued under the Part "B" States (Taxation Concessions) Order, 1950. The said palace was declared as the official residence of the ex-Ruler of Vadia. It was demolished in the previous year relevant to the income-tax assessment year 1973-74 and the scrap was partly sold and partly utilised for construction of a new building. The assessee claimed the capital loss of Rs. 56,518 in respect of the old palace. The value of the newly constructed building at the place where the palace earlier stood was shown as Rs. 1,57,280. The assessee claimed exemption under section 5(1)(iii) of the said Act in addition to the exemption claimed, in respect of his flat at Bombay under section 5(1)(iv) of the said Act. The Wealth-tax Officer, Rajkot, by the order dated March 13, 1982, held that since, in the instant case, the old palace was dismantled and a new building had been constructed in its place, the new building cannot be regarded as the palace mentioned in the notification, and therefore, the exemption under section 5(1)(iii) of the Act was not available to the assessee. The return for the assessment year 1978-79 was filed on June 30, 1978, by the assessee in the status of a "Hindu undivided famil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed. The Tribunal has, in the aforesaid background, referred the following questions for the opinion of this court under section 27 of the Wealth-tax Act, 1957, in Wealth-tax Reference No. 16 of 1987: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the assessee was entitled to exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, in respect of new building constructed by him in place of the old recognised palace? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the exemption was available to a building used as an official residence irrespective of the fact whether it was old or newly constructed?" In Wealth-tax Reference No. 47 of 1987 which relates to the assessment year 1980-81, in the same factual background, the Tribunal has referred the following question for the opinion of this court: "Whether, in law and on facts, the assessee is entitled to exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, in respect of the palace which was demolished and a new building has been constructed?" Learned standing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h v. Settlement Commission [2001] 247 ITR 586 was cited to point out that, where the assessee, an ex-Ruler of an Indian State, had opted to adopt the Umed Bhavan Palace as his house for the purposes of exemption under section 5(1)(iii) of the Wealth-tax Act, 1957, it was held that he could not seek exemption for another house, namely, the Sardar Samand Palace under clause (iv) of section 5. (d) A decision of the Supreme Court in H.H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India, AIR 1971 SC 530 was cited for the proposition that, in recognising or de-recognising a person as a Ruler, the President does not exercise any political power, but he exercises only an executive function. Learned counsel appearing for the assessee supported the decision of the Tribunal and contended that the assessee was entitled to the benefit of section 5(1)(iii) of the said Act, in respect of any building which was used as official residence. It was submitted that the emphasis was on providing residence to the ex-Ruler and his successors and, therefore merely because the earlier building which was dilapidated, had been pulled down and a new building was constructed at the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: "5. Exemption in respect of certain assets.--(1) Subject to the provisions of sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee-... (iii) any one building in the occupation of a Ruler, being a building which immediately before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, was his official residence by virtue of a declaration by the Central Government under paragraph 13 of the Merged States (Taxation Concessions) Order, 1949, or paragraph 15 of the Part 'B' States (Taxation Concessions) Order, 1950;..." Section 2(p) of the said Act defines "Ruler" so as to mean a Ruler as defined in clause (22) of article 366 of the Constitution. Under article 366(22) as per the definition of "Ruler" as substituted by the Constitution (Twenty-sixth Amendment) Act, 1971, "Ruler'" means 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Parliament enacted the Rulers of Indian States (Abolition of Privileges) Act, 1972, with a view to amend certain enactments, including the Wealth-tax Act. In the Wealth-tax Act, 1957, in clause (iii) of section 5 in sub-section (1) for the words "any one building in the occupation of a Ruler declared by the Central Government as his official residence", the words, brackets and figures "any one building in the occupation of a Ruler, being a building which immediately before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, was his official residence by virtue of a declaration by the Central Government", were substituted with effect from December 28, 1971. The said Act of 1972 also made an amendment in section 10(19A) of the Income-tax Act, 1961, which contains a similar exemption from income-tax. Thus, the overall effect of the Twenty-sixth Amendment on the definition of "Ruler" which has been adopted under section 2(p) of the Wealth-tax Act, 1957, and of the aforesaid amendment made by the Rulers of Indian States (Abolition of Privileges) Act in section 5(1)(iii) of the said Act, was that the exemption in respect of any one building could be given only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the levy of wealth-tax was referred (see the Gazette of India, Extraordinary, Part II, section 2, dated August 17, 1957 (No. 25A)). As per that report, new item (iii) was added in the Bill in clause 5(1) and the Committee's opinion reflected therein is reproduced hereunder from para. 16 of the Report: "2. New item (iii).--The Committee are of opinion that having regard to the covenants and agreements entered into by the Government of India with the former Indian Rulers, one building in their occupation should be exempt from wealth-tax." It will, thus, be seen that the emphasis even at the time when this exemption clause was enacted in the Act of 1957 was to provide exemption for one building which was in the occupation of the Ruler. The definition of the word "Ruler" has undergone change as noted above, and the benefit under section 5(1)(iii) of the said Act, would now be available, only as a transitional measure, to the ex-Ruler or his successor, who may have been recognised by the President prior to the date of commencement of the Constitution (Twenty sixth Amendment) Act, 1971, which came into force with effect from December 28, 1971. The validity of the Constitution (T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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