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2003 Supreme(Cal) 16
High Court Of Calcutta
D. K. SETH, RAJENDRA NATH SINHA
MAGMA LEASING LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
ITA 93 Of 1999
Decided On : 01/16/2003
J.P.KHAITAN, M.P.AGRAWAL, S.SINGHVI
The expression 'cost of repairs' in Section 24(1)(i)(a) of the Income Tax Act, 1961, should be interpreted to mean 'substantial repairs'. Where the landlord undertakes the liability for substantial repairs of the demised premises, the landlord is entitled to the deduction under Section 24(1)(i)(a) even though the tenant has undertaken to bear the cost of repairs to the interior of the demised premises.
Headnote:
{'KEYWORD': 'INCOME TAX ACT, 1961', 'SUBJECT': "Deduction for repairs under Section 24(1)(i) - Interpretation of 'cost of repairs' - Joint liability for repairs between landlord and tenant", 'ACT SECTION LIST': 'Section 24(1)(i)(a), Section 24(1)(i)(b), Section 263'}
Fact of the Case:
The assessee, a landlord, entered into a lease agreement with the lessee, a tenant. The lease agreement contained various clauses regarding the responsibilities of the landlord and the tenant for repairs and maintenance of the demised premises. The assessee claimed a deduction under Section 24(1)(i)(a) of the Income Tax Act, 1961, for repairs carried out by the lessee. The Commissioner of Income Tax, however, disallowed the deduction under Section 263 of the Act, holding that the assessee was not entitled to the deduction under Section 24(1)(i)(a) as the lessee had undertaken to bear the cost of repairs.
Finding of the Court:
The Tribunal upheld the order of the Commissioner of Income Tax. On appeal to the High Court, the assessee contended that the Tribunal erred in holding that the assessee was not entitled to the deduction under Section 24(1)(i)(a) and that the Tribunal misdirected itself in law in upholding the order of the Commissioner of Income Tax.
Issues: 1. Whether the assessee was entitled to the deduction under Section 24(1)(i)(a) of the Income Tax Act, 1961, for repairs carried out by the lessee. 2. Whether the Tribunal erred in holding that the assessee was not entitled to the deduction under Section 24(1)(i)(a) and that the Tribunal misdirected itself in law in upholding the order of the Commissioner of Income Tax.
Ratio Decidendi: The High Court held that the assessee was entitled to the deduction under Section 24(1)(i)(a) of the Income Tax Act, 1961, for repairs carried out by the lessee. The Court interpreted the expression 'cost of repairs' in Section 24(1)(i)(a) to mean 'substantial repairs'. The Court held that the assessee had undertaken the liability for substantial repairs of the demised premises, including the exterior, common areas, and essential services, while the lessee was responsible for repairs to the interior of the portion in his occupation. The Court further held that the assessee was entitled to the deduction under Section 24(1)(i)(a) even though the lessee had undertaken to bear the cost of repairs to the interior of the demised premises.
Final Decision: The High Court allowed the appeal and set aside the order of the Tribunal. The Court held that the assessee was entitled to the deduction under Section 24(1)(i)(a) of the Income Tax Act, 1961, for repairs carried out by the lessee.
( 1 ) THE appeal was admitted on the following grounds :" (i) Whether on a proper construction of the lease agreement dated January 7, 1983, and Section 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 Commissioner of Income-tax under Section 263 withdrawing the deduction under Section 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 Clause (a) or the case falls under Clause (b) of Section 24 (1) (i) of the Income-tax Act, 1961. Initially, in the earlier order, such benefit was allowed to the assessee under the said provision. But subsequently, in exercise of power conferred under Section 263 of the 1961 Act, the appellate authority had re-opened the case and reversed the finding and held that Clause (a) is not applicable in this case in respect of the assessment for the assessment year 1990-91. The Tribunal had affirmed the said order out of which this present appeal arises.
( 3 ) 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 page 57 of the paper book. The lease was granted (page 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 Clause 2. 2 (page 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-clause (k) of Clause 11 (page 75 of the paper book), the lessor has a right to enter, if necessary, for repair of the demised premises. Clause 12 (page 77 of the paper book) has been relied upon by 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 repairs in terms of Sub-clause (b) of Section 24 (1) (i ). It appears from Clause 15 (iv) (page 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-clause (v) thereof (page 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 fittings, equipment 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 whitewashing 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 Clause 19 (i) (page 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 at 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 t
