High Court Of Calcutta
Magma Leasing Ltd. vs. CIT
Section 24(1)(i)(a)
Asst. Year 1990-91
D.K. Seth & R.N. Sinha, JJ.
IT Appeal No. 93 of 1999
16th January, 2003
Counsel Appeared
J.P. Khaitan & S. Singhvi, for the Appellant : M.P. Agarwal, for the Respondent
JUDGMENT
D.K. Seth, J. :
The appeal was admitted on the following grounds : “(i) Whether, on a proper construction of the lease agreement dt. 7th Jan., 1983, and s. 24(1)(i) (a) the Tribunal was justified in law in holding that all the responsibilities of repair lay with the tenant or that the assessee had not undertaken to bear the cost of repairs or was not entitled to the deduction under the said provision ? (ii) Whether the Tribunal misdirected itself in law in upholding the order of the CIT under s. 263 withdrawing the deduction under s. 24(1)(i)(a) of Rs. 15,23,905 ?”
2. The moot question that falls for our consideration is whether having regard to the terms of the deed of lease, the assessee is entitled to the benefit under cl. (a) or the case falls under cl. (b) of s. 24(1)(i) of the IT Act, 1961. Initially in the earlier year, such benefit was allowed to the assessee under the said provision. But subsequently, in exercise of power conferred under s. 263 of the 1961 Act, the appellate authority had reopened the case and reversed the finding and held that cl. (a) is not applicable in this case in respect of the assessment for the asst. yr. 1990-91. The Tribunal had affirmed the said order out of which this present appeal arises. The question is to be determined on the basis of the interpretation of the deed of lease. Therefore, we need to refer to the different clauses of the lease as appears at p. 57 of the paper book. The lease was granted (p. 59 of the paper book) in respect of the portion of the ground floor, 1st to 8th floors and some portion of the basement area to the lessee. In cl. 2.2 (p. 62 of the paper book) it is provided that the lessor shall not be liable to provide electrical wiring and fittings and shall not do any whitewashing and painting inside the demised premises. However, the lessor undertook the painting of the common areas, doors and windows and the exterior walls of the said building at its own cost. Under sub-cl. (k) of cl. 11 (p. 75 of the paper book), the lessor has a right to enter, if necessary, for repair of the demised premises. Clause 12 (p. 77 of the paper book) has been relied upon by the learned counsel for the respondent. This clause provides that the lessee is liable to keep the interior of the demised premises in good repair, particularly the sanitary, electrical fixtures and fittings. The lessee is to carry out all repairs in the interior at its own cost. Much reliance has been placed on this clause to show that it is the responsibility of the lessee to undertake repair in terms of sub-cl. (b) of s. 24(1)(i). It appears from cl. 15(iv) (p. 80 of the paper book) that the lessor is responsible for continuous supply of filtered tubewell water by means of electrical pumps and overhead tanks for the use of the lessee in the demised premises and to operate and maintain water pump in proper repair and condition and also to pay electricity and other charges for operating the said water pump. Sub-cl. (v) thereof (p. 81 of the paper book) provides that the lessor has to keep the demised premises wind and water-tight and maintain in proper repair and condition the electric, sanitary and water fitting equipments and appliances, pipelines, drains and sewage and common parts of the said building and execute all repairs of the demised premises as and when required and also execute white-washing and colour-washing of the exterior of the demised premises and also to paint the doors and windows in the demised premises with good paint. Under cl. 19(i) (p. 83 of the paper book) the lessee is entitled to recover the amount of repair if it carries out any such repair which is not its own liability to do so under the covenant together with interest @ 2 per cent above the Reserve Bank of India rate subject to a minimum rate of 16.5 per cent in case the lessor fails to keep the demised premises wind and water-tight. If we read this clause together, then it appears that the lessor has the responsibility to repair the interior to a limited extent and whole of the exterior and maintain the essential services in good repair. This shows that the lessor has the liability to repair the demised premises substantially. There cannot be any other interpretation of the said deed of lease as rightly pointed out by Mr. Khaitan. The contention of the learned counsel for the respondent, relying on cl. 12 (p. 77 of the paper book) relates to the interior and virtually is in the nature of maintenance. Be that as it may, the liability to repair substantially by the lessor cannot be ruled out altogether. At the best, it can be treated to be a joint liability. On a comparison of the liability of the lessor and the lessee, as pointed out by Mr. Khaitan the liability of the lessor is substantial. If the lessor is liable for substantial repair in that event it has to be considered whether he is entitled to the benefit of cl. (a) or (b) of s. 24(1)(i).
5. The question of reopening of the assessment has not be mooted before this Court by Mr. Khaitan. Therefore, we need not deal with s. 263 of the 1961 Act. We are primarily concerned with s. 24, which provides in sub-s. (1) that an assessee is entitled to deduction while computing his income from house property. Such deduction, as it stood prior to the Finance Act, 1992, which came into effect on 1st April, 1993, relevant for our purpose, provides as follows: “24. (1) Income chargeable under the head “Income from house property” shall, subject to the provisions of sub-s. (2), be computed after making the following deductions, namely : (i) in respect of repairs, (a) where the property is in the occupation of the owner, or where the property is let to a tenant and the owner has undertaken to bear the cost of repairs, a sum equal to one-sixth of the annual value; (b) where the property is in the occupation of a tenant who has undertaken to bear the cost of repairs, (i) the excess of the annual value over the amount of rent payable for a year by the tenant; or (ii) a sum equal to one-sixth of the annual value, whichever is less :” A plain reading of the said provision shows that if the lessor is liable for repair, in that event, he is entitled to deduction of one-sixth of the annual value. If the tenant is responsible for repair, in that event, the assessee shall be entitled to deduction of an amount being the difference between the annual value exceeding the annual rent or one-sixth of the annual value, whichever is less. This section does not provide for joint liability. Neither it provides for any apportionment on account of such joint liability. Therefore, as soon cl. (a) states that if the lessor undertakes to bear the cost of repairs of the property occupied by the lessee then the lessor would be entitled to a deduction equivalent to one-sixth of the annual value. When the statute is silent, it has to be interpreted in a manner beneficial to the assessee. If the liability of the assessee cannot be denied, when he undertakes the liability of substantial repair, may be it relates to the exterior or the common areas, he cannot be deprived of the benefit of cl. (a) simply because the lessee has undertaken the liability to repair the interior of the portion in his occupation. The intention was to determine the question on the basis of undertaking of the liability to bear the cost without making any distinction with regard to joint liability. Therefore, as soon it appears that the liability of substantial repair is undertaken by the landlord, cl. (a) is attracted. The expression “cost of repair”, therefore, has to be interpreted to mean substantial repair. In this case, the liability to repair the exterior is upon the lessor together with the maintenance of the supply lines of electricity, water and sewerage and other essential services in the demised premises, which are integral parts of the demise, as well as of the interior other than those undertaken by the lessee. The liability is, therefore, a substantial one.
This question came into consideration by this Court in the case of CIT vs. Parbutty Churn Law (1965) 57 ITR 609 (Cal). The said case related to s. 9(1)(i) of the 1922 Act. Mr. Khaitan pointed out that the substance of the said section is pari materia same with that of s. 24(1)(i) of 1961 Act. In the said case when there was a joint liability and the lessor was liable to bear the cost of substantial part of repair the benefit of s. 9(1)(i) was made available to him. Though in a different context, on a different point, similar question arose before the Supreme Court in Sir Sadilal & Sons vs. CIT (1988) 67 CTR (SC) 1 : (1988) 169 ITR 510 (SC), where Parbutty Churn Law (supra) was considered and it was held that in the said case cl. (b) was applicable and not cl. (a). But the principle laid down in Parbutty Churn Law (supra) was not deviated from. On facts in the said case, it was found that the landlord was not liable for carrying out any substantial repair. The only repair that the landlord was liable to carry out was in case of collapsing of the building. This was held not to be a liability to undertake substantial repair. This was a contingent liability that would arise only if the building collapses and not otherwise. The learned counsel for the respondent had relied on this decision and sought to contend that it has overruled Parbutty Churn Law (supra) by implication. Therefore, in this present case, cl. (b) would be applicable. We are unable to persuade ourselves to agree with the said contention. Inasmuch as, the apex Court in Sadilal & Sons (supra) was concerned with the distinction between repair and replacement, it was held that repair may include replacement or even a renewal but the converse may not be true. In respect of a building, reconstruction of the entirety was held not to be a repair, though restoration of stability or safety of a subordinate or subsidiary part of it or any portion of it can be considered as repair. The facts of the said case seem to be distinguishable from the present one. The ratio decidendi in Parbutty Churn Law (supra) was considered and it seems that the principle was affirmed through expressed observations made in the said judgment. There is no question of implied overruling of the said decision.
9. In the circumstances, we are of the view that in this case, the assessee is entitled to get the benefit of s. 24)(i)(a) of the IT Act. The order appealed against is hereby set aside. The appeal is allowed. There will, however, no order as to costs.
[Citation : 260 ITR 36]
