Abhay Manohar Sapre JUDGMENT
Abhay Manohar Sapre, J.
1. This appeal is filed against the final order dated 26.03.2014 passed by the High Court of Rajasthan at Jaipur in D.B. Income Tax Reference No. 64 of 1986 relating to the Assessment Year 1978-79 whereby the Full Bench of the High Court answered the question of law referred to it against the Appellant herein.
2. In order to appreciate the issue involved in the appeal, it is necessary to state the relevant facts in brief infra.
3. The Appellant was the Ruler of the princely State of Kota, now a part of State of Rajasthan. He owned extensive properties which, inter alia, included his two residential palaces known as "Umed Bhawan Palace" and "City Palace". The Appellant is using Umed Bhawan Palace for his residence. So far as this appeal is concerned, the issue involved herein centers around "Umed Bhawan Palace".
4. In exercise of the powers conferred by Section 60A of the Indian Income Tax Act, 1922 (XI of 1922), the Central Government issued an order called "The Part B States (Taxation Concessions) Order, 1950" (hereinafter referred to as "The Order"). It was issued essentially to grant exemptions, reductions in rate of tax and the modifications in relation to specified kinds of income earned by the persons (Ruler and his family members) from various sources as specified therein. The Order was published in the Gazette of India, extraordinary, on 02.12.1950.
5. Paragraph 15 of the Order deals with various kinds of exemptions. Item (iii) of Paragraph 15, which is relevant for this appeal, provides that 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 his inalienable ancestral property would be exempt from payment of Income-tax.
6. In pursuance of the powers conferred under item (iii) of Paragraph 15 of the Order, the Central Government, Ministry of Finance (Revenue Division) issued a notification bearing No. S.R.O. 1619 dated 14.05.1954 declaring the Appellant's aforementioned two palaces, viz., Umed Bhawan and City Palace as his official residences (Serial No. 21 of the Table).
7. On 20.09.1976, the Ministry of Defence requisitioned portion of the Umed Bhawan Palace (918.26 Acres of the land including houses and other construction standing on the land) for their own use and realized Rs. 80,000/- as rent by invoking the provisions of Requisition and Exhibition of Immovable Property Act, 1952. According to the Appellant, the period for which the land was requisitioned expired in 1993 though the land still continues to remain in the occupation of the Ministry of Defence.
8. With the aforementioned factual background, the question arose in the Appellant's income-tax assessment proceedings regarding taxability of the income derived by the Appellant (Assessee) from the part of the property requisitioned by the Defence Ministry, which was a portion of the Appellant's official residence (Umed Bhawan Palace). The question was whether the rental income received by the Appellant from the requisitioned property by way of rent is taxable in hi........