In an appeal filed by a former ruler of a princely state of Kota seeking tax exemption on the income generated through renting a portion of his residential palace, a bench of Supreme Court judges held that such earnings was not taxable under the IT Act.
The dispute arose when the erstwhile ruler, who owns extensive residential properties including City Palace and Umeed Bhavan, rented out a portion of Umeed Bhavan to the Defence Ministry. The plea was to seek reversal of the High Court’s ruling that inclined towards marking his income generated through rent, taxable.
While the Centre in 1950 had declared such residential palaces are liable to tax exemption, the HC it its 2014 judgement ruled that “so long as the ruler continues to remain in occupation of his official residential palace, he would be entitled to claim exemption available under the I.T. Act but when he is found to have rent out any part of his official residence, he is required to pay tax on the income derived by him from that portion.”
Overturning the HC order, the bench of Ranjan Gogai and Abhay Manohar Sapre said that,
“In Section 10(19A) of the I.T. Act, the Legislature has used the expression “palace” for considering the grant of exemption to the ruler.”
It further added, “We cannot ignore this distinction while interpreting Section 10(19A) which, in our view, is significant. In our considered opinion, if the Legislature intended to spilt the Palace in part(s), alike houses for taxing the subject, it would have said so by employing appropriate language in Section 10(19A) of the IT Act.”