COMMISSIONER OF INCOME-TAX, LUCKNOW versus MADHO PD. JATIA

Citation: [1977] 1 S.C.R. 202 · Decided: 17-08-1976 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Dismissed

Judgment (excerpt)

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COMMISSIONER OF INCOME-TAX, LUCKNOW 
v. 
MADHO PD. JATIA 
August 17, 1976 
(H. R. KHANNA, R. S. SARKARIA AND JASWANT SINGH, JJ.) 
Indian Income Tax Act, 1922-S. 9-lrrecoverable 
rent-If 
could 
be 
deducted from income from property of only one year-Exemption-If could be 
f;ivm only once. 
While assessing the income of the assessee under the head 'property' the 
Income Tax Authorities allowed for one year, deduction of a part of a large 
sum of unrealised rent but rejected the claim for exclusion of the remainder 
during the three subsequent assessment years. Before the Tribunal the authorities 
contended that no. deduction could be claimed by the assessee for more than 
one assessment year. The Tribunal held that to the extent the irrecoverable 
rent had not been exempted in the previous assessment ye~·r, should be exempted 
in the subsequent years from the income from property of the assessee. 
The 
High Court answered the reference in favour of the assessee. 
Dismissing the appeal to this Court, 
HELD : There is no reason why the assessee should become disentitlecl to 
claim the· benefit of the exemption in respect of the balance of the irrecoverable 
rent in subsequent years subject to the condition that in no year the deduction 
would exceed the amount of rent payable for a year. 
[206 BJ 
· 
Section 9 of the Indian Income Tax Act, 1922 provides for computation of 
income from property on a notional basis .. While computing the income from 
the property the tax Authorities have to take into account its bona fide annual 
value. The fact that the rent due from the tenant had become irrecoverable 
would be known only in subsequent years. 
Section 9 (1) of the Act does not 
deal with deductions in respect of irrecoverable rent. Item 38 in Notification 
No. 878F dated March 21, 19,22 exempt~ from payment of tax such part 
of the income in respect of which tax is payable under the head 'property' 
~s is equal to the amount of rent payable for a year but not paid by a tenant 
of the assessee and so proved to be lost and irrecoverable. [205 B-D] 
The underlying object of the exemption granted by item 38 is that the 
Msessee shall be entitled to claim deduction under the head 'property' in 
respect of the notional rental income which, it subsequently so transpires, was 
never received by him but on which he had to pay tax. Although item 38 
fixes the limit of deduction which is permissible in one year, there is nothing 
in the language of that item to warrant the inference that the benefit of the 
exemption can be claimed only once. 
There is also nothing in the language 
of that item to indicate that in respect of the balance of the irrecoverable 
rent, no relief is permissible even though tax on that balance amount too bad 
been paid by the a~sessee. [208 C-D] 
' 
Daljit Singh 
v. 
Co111111issio11er of Income-tax,. Delhi, 52 I.T.R. 933 not 
approved. 
CIVIL APPELLATE JURISDicnoN : Civil Appeal Nos. 150::f542 Of 
1971. 
(From the Judgment and Order dated 18-12-1969 of the Allaha-
bad High Court in Income Tax Reference No. 328/64). 
G. C. Sharma, P. L. Juneja and S. P. Nayar, for the Appellant 
S. C. Manchanda, V. C. Prashar & Ujjal Singh, for the Respon-
dent. 
COMMR. OF INCOME TAX v. MADHO PD . .(Khanna, J.) 
203 
The Judgment of the Court was delivered by 
KHANNA, J.-Tbese three appeals on certificate by the Commis-
sioner of Income-ta.x are against the judgment of the Allahabad High 
Court whereby the High Court answered the following question 
referred to it iinder section 66(1) of the Indian! Income-tax Act, 1922 
(hereinafter referred to as the Act) in favour of the assessee-respon-
dent and against the revenue : 
"Whether in the 
facts 
and 
circumstances 
of 
the 
case, the assessee is entitled for each of the years under 
consideration to the exclusion from the income under the 
head 'property' of an 
amount equal to the 
irrecoverab!e 
rent of the Grand Hotel property for one year which has not 
been so excluded in the preceding assessments ?" 
The matter relates to the assessment years 1957-58, 1958-59 and 
1959-60. 
The assessee is the owner of a building known as Grand 
Hotel in Civil Lines Delhi. 
The income from this building 
was 
assessed from year to year under section 9 of the Act a;; income from 
property. 
Subsequently there -was a dispute between the assessee and 
her tenant. 
Protracted litigation followed and ultimately a compro-
mise was reached between the assessee 

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