The exemption under section 10(19A) of the Income-tax Act, 1961, applies only to the annual value of the portion of the palace that is in the occupation of the Ruler.

1. - At the instance of the assessee the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur ("the Tribunal" herein), has referred the following question of law arising out of its order dated July 21, 1978 :

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the rental income of part of Udaivilas Palace of the appellant, claimed as exempt under clause (19A) of section 10 of the Income-tax Act, 1961, is taxable under the Income-tax Act, 1961 ?

2. The assessee is an individual. The assessment year involved is 1975-76. The previous year relevant to the assessment year 1975-76 ended on September 30, 1974. The return for the previous year in question was filed on August 16, 1975, declaring a total income of Rs. 17,328. During the assessment proceedings, it was noticed by the Income-tax Officer that the assessee has rented out quarters, garage and godowns on rent at the rate of Rs. 9,322 per annum. The assessee disclosed this income. In view of section 10(19A) of the Income-tax Act, 1961 (No. XLIII of 1961) (for short "the Act"), the annual value of any one palace of the Ruler was exempt. The Income-tax Officer, vide order (annexure A) dated October 31, 1977, did not accept the contention of the assessee holding that in the previous year in question, the entire palace was not occupied by the assessee and, as such, the value of that portion of the palace, which was not in occupation of the Ruler, was not exempt. He, therefore, made an addition of Rs. 9,322.

3. An appeal was filed by the assessee. Before the Appellate Assistant Commissioner a contention was raised on behalf of the assessee that under section 10(19A) of the Act, even if some portion of the palace was let out, there was blanket exemption under the aforesaid provision and, therefore, no part of the annual value could be taxed. It was submitted that the addition of the rental value made by the Income-tax Officer was not justified. The Appellate Assistant Commissioner concurred with the finding of the Income-tax Officer in his order dated April 6, 1978. A further appeal was taken to the Tribunal by the assessee: The appeal was dismissed on July 21, 1978. It will be useful to excerpt the following from the order of the Tribunal:

"In my opinion, the contention of the assessee could hardly be accepted. It is not correct to say that even when the quarters, godowns and garage were let out to tenants, the assessee could be deemed to be in possession of the said portion. The said portions were let out to tenants. The tenants have acquired a legal right to remain in possession of the portions which were let out to them. They have right to remain in possession so long they were not evicted in due course of law. So, the tenants were in occupation of the quarters, godowns and garage in the previous year relevant to the assessment year under consideration. It may be stated here that clause (19A) was inserted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, with effect from December 28, 1971. So, at the relevant time, the portion of the palace was not in the occupation of the Ruler and, as such, the annual value of the palace, which is not in occupation of the assessee, could not be exempt from tax in view of section 10(19A) of the Income-tax Act, 1961. Thus, in my opinion, the finding of the learned Appellate Assistant Commissioner is quite correct and no interference is called for."

4. An application under section 256(1) of the Act was filed by the assessee and the Tribunal has referred the aforesaid question for our opinion.

5. Having heard the learned counsel for the assessee and the learned counsel for the Revenue, we have reached the conclusion that the order dated July 21, 1978, of the Tribunal rendered in the appeal is correct.

6. The entire palace of the assessee consisted of a main building, garage, quarters, godowns, etc. The assessee has let out the garage, godowns and quarters