Delhi High Court

K. Narendra vs Asstt. Cit on 23 April, 2001

Equivalent citations: (2002) 77 TTJ Del 76

ORDER

Keshaw Prasad, A.M.

The appeals for assessment year 1985-86 to 1987-88 filed by the assessed arise out of the Commissioner (Appeals)-17, New Delhi's order dated 25-2-1994 whereas the appeals for assessment years 1988-89 to 1990-91 arise out of the Commissioner (Appeals)'s order dated 28-9-1994. As in all the appeals common issue are involved, all the six appeals are being disposed of by a consolidated order.

2. The first issue which is common to all the appeals is disallowance of the deduction claimed by the assessed on account of damages payable to Land and Development Office (hereinafter referred to as L&DO).

3. Briefly the facts of the case are that vide agreement of lease dated 14-9-1961, the assessed was allotted a piece of land situated at Plot No. 5 in Hardings Bridge, New Delhi for construction of building for newspaper press along with reasonable number of residential quarters for staff. Clause-XIII of the agreement also provided that the said land cannot be used for any purpose other than mentioned in the agreement. Clause-XIX provides if the assessed commits any breach or makes default in the performance, the L&DO could retain the possession of such land. Clause-XX of the agreement also provided that L&DO may order re-entry of the assessed to the said piece of land on certain conditions. Subsequently, the L&DO came to know that the assessed had made certain extra construction not permitted by him. Further, the assessed has also given on rent, part of the premises which was not permitted under the agreement. L&DO, therefore, vide its letter dated 26-7-1984 asked the assessed to make the payment of Rs. 3,102.75 for unauthorised construction and a further sum of Rs. 2,46,641 for misuse of the premises for the relevant years. Though, the assessed objected to such levy when he filed return of income, he claimed it as deduction against the income from house-property from the said premises. However, the assessing officer denied the deduction claimed by the assessed as in his opinion such payment was not allowable deduction under any of the clauses of sections 23 and 24 of the Act. On appeal, the Commissioner (Appeals) considered submissions of the assessed and observed that the entire matter relating to settlement of damage charges for regularising the unauthorised construction/renting-out of the premises was still open as late as in 1991, as the said breach has not been regularised by the L&DO. He also observed that the assessed has not made the payment of the above sum and, therefore, the liability for payment of damages was yet to be ascertained finally. He, therefore, confirmed the disallowance made by the assessing officer. The assessed is before us against the findings of the Commissioner (Appeals).

4. It is argued by the learned counsel that as regards liability on account of illegal construction, no deduction has been claimed by him. As regards liability for misuse of the premises, one has to see whether the liability was in the nature of ground rent, whether the liability was ascertained and whether the assessed will be entitled to deduction even if the payment to L&DO has not been made. It was argued that section 24 of the Act allows deduction in respect of expenditure incurred on repairs, interest on borrowed funds for construction of property, annual charges, ground rent, vacancy allowance, etc., against the income from house property. Clause (v) of section 24(1) allows deduction for ground rent where the property is subject to a ground rent. Hon'ble Delhi High Court in the case of P.N. Sikand v. CIT (1981) 131 ITR 9 (Del) has explained as to what was the ground rent. In this case also, similar lease agreement was entered between the L&DO and P.N. Sikand and similar conditions were also imposed for the use of the premises. As P.N. Sikand rented out the part of the premises to be used for non-residential purposes, the L&DO was willing to regularise temporarily "the change of purpose on certain payment" made by the assessed. When the assessed agreed and paid the amount, the L&DO also regularised "change of purpose". The assessed claimed such payment as deduction against the income from house property. Hon'ble Delhi High Court held that such deduction was allowable under section 24(1)(v) of the Act being in the nature of ground rent. While doing so, the Hon'ble Court also referred to its earlier decision in the case of Gulab Singh & Sons (P) Ltd. v. CIT (1974) 94 ITR 537 (Del). As this is the findings of the jurisdictional High Court, this has to be followed by all the authorities falling under the jurisdiction of Hon'ble Delhi High Court.

5. Regarding ascertainment of liability, the learned counsel stated that the said liability related to different years including the assessment year 1981-82. At the time of wealth-tax assessment proceedings, the assessed claimed deduction for the same, which was denied by the assessing officer as well as Commissioner of Wealth Tax (Appeals) on the ground that the assessed has not admitted the liability. They also held that such liability was not ascertained liability. The assessed took up the issue in further appeal before the Tribunal. After considering the submissions of the assessed, the Delhi Bench of the Tribunal vide its order date 18-6-1996 in WTA No. 931/D/91 (para 4.2) has observed as under :

"The Commissioner (Appeals) observed that since the liability has not been admitted by the assessed and it is under challenge, the action of the assessing officer of disallowing the said deduction in respect of the said liability was perfectly justified. We do not agree with the view so taken by the Commissioner (Appeals). If the liability has already been created against the assessed by a statutory authority in accordance with the provisions of the relevant law, it is an accrued liability. Such a liability will cease to exist only if it is subsequently cancelled or reduced by the competent appellate authority."

The learned counsel, therefore, argued that the assessing officer/Commissioner (Appeals) were not justified in holding that the liability to make payment to L&DO has not accrued. It was further argued that section 24(1)(v) never prescribed that deduction will be allowable only if the same was paid. It only says that income from house property shall be computed after making the following deduction namely :

"(v) where the property is subject to a ground rent, the amount of such ground rent".

6. While relying on the decision of Honble Supreme Court in the case of CIT v. Dalhousie Property (1984) 149 ITR 708 (SC) and the decision in the case of Gulab Singh & Co. (P) Ltd. (supra) at page 543, the learned counsel argued that the payment of ground rent was immaterial for deduction under section 24(1)(v) of the Act.

7. It was further argued that the "ground rent" was not covered under section 43B of the Act, so no disallowance even under this section was warranted. On the other hand, the learned Departmental Representative argued that the demand raised by the L&DO was not in the nature of ground rent. Such amount has also not been deposited with L&DO as the assessed has challenged the levy of such a demand. It was, therefore, unascertained liability. The learned Departmental Representative further argued that utmost it could be termed as "contingent liability". While relying on the deductions reported in Dy. CIT v. Esquire Video Film Service (P) Ltd. (2000) 74 ITR 57 (Bom), CIT v. Phalton Sugar Works Ltd. (1986) 162 ITR 622 (Bom), the learned counsel supported the order of the Commissioner (Appeals).

8. We have considered the rival submissions. The facts of the case have been mentioned above. Similar issue was considered by the Delhi High Court in the case of P.N. Sikand (supra). In that case also, the agreement with the L&DO was similar to that of assessed. Similar breach of misuse of the premises was noticed by the L&DO for which he asked the assessed to make certain payments for regularisation. The only difference between the case of P.N. Sikand and the assessed was that in the case of P.N. Sikand, the assessed made the payment to L&DO who also regularised it. In the case of the assessed such levy has been challenged and as the payment of L&DO has not been made, it has not regularised it. But we are concerned with the nature of amount where such amount payable by the assessed was allowable deduction against the income from house property. The Honble Delhi High Court in the case of P.N. Sikand (supra) had held that the nature of amount payable to L&DO for regularising unauthorised use of the premises was in the nature of ground rent and allowable under section 24(1)(v) of the Act. Assuming that the assessed did not challenge the levy of the amount and had paid this amount, following the decision of Hon'ble Delhi High Court in the instant case such amount should have been allowed deduction under section 24(1)(v) of the Act. Merely because the assessed has not accepted the levy of amount and has not made the payment to L&DO, it will not change the nature of liability. If the amount would have been paid, it will be in the nature of ground rent and even if the same has not been paid, it will continue to be in the nature of ground rent. We, therefore, respectfully following the decision of the jurisdictional High Court, hold that in the case of the assessed, the amount demanded by L&DO for the misuse of the premises was in the nature of the ground rent and was allowable deduction under section 24(1)(v) of the Act.

9. We have also perused the order of the Tribunal in the wealth-tax case of the assessed for assessment year 1981-82. The Tribunal had clearly held that even if the assessed has not accepted the levy of regularisation of the amount, the liability still existed and as such the liability has to be treated as ascertained liability. We have also perused various deductions which are available to the assessed against the income from house property. Clause (i) of section 24(1) allows deduction for repairs and collection of rent even if the assessed has not incurred any expenditure. But clause (ii) provides for deduction in respect of any premium to insure the property against the risk of damage or destruction which has actually been paid by the assessed. The other deductions mentioned in clauses (iv), (v) and (vi) are available even if they have not been paid by the assessed. But again, clause (vii) of section 24(1) allows deduction on account of land revenue or any tax levied by the State Government only if such amount was paid. The statute has, therefore, made it clear as to which deduction are allowable on payment basis and which deductions were allowable on due basis. Ground rent falling under clause (v) to section 24(1) was, therefore, allowable on due basis even if the same has not been actually paid.

10. We have also perused the provisions of section 43B of the Act. Under section 43B the Act, certain deductions are allowable only if the sums have been actually paid. Such items are mentioned in clauses (a) to (e) of this section. Ground rent does not come under any of the items mentioned in various clauses of section 43B of the Act. So, no disallowance on account of damages demanded by L&DO for misuse of the premises could be made even under section 43B of the Act. Considering the facts as a whole, we hold that the assessed is entitled to deduction of amount payable to L&DO for misuse of the premises under section 24(1)(v) of the Act. The assessing officer is, therefore, directed to allow the same in all the six appeals. Thus, this ground of appeal is allowed for all the six years.

11. Next issue in the assessment year 1985-86 relates to the disallowance of legal charges. As the same has not been pressed during the course of hearing, this issue raised by the assessed is dismissed.

12. In other years, the other issues relate to the disallowance of depreciation on car and legal expenses. As these issues have not been pressed before us during the course of hearing, the grounds relating to these issues are dismissed.

13. In the result, all the six appeals are partly allowed.