A.V. Balasuhramanyam, Judicial Member
1. The short question in these appeals, by the assessee, is whether the compass of Section 23(1)(b) of the Income-tax Act, 1961 ('the Act'), covers the income from house property derived by virtue of a contract or licence.
2. A building called 'Whitehall' situated in Gowalia Tank Road, Bombay, built in 1965 and owned by the assessee, is fetching income. A major portion of the building is in the occupation of the posts and telegraphs department. The assessee has granted the user of the building to parties on licence basis in consideration of licence fee payable by them.
3. The impugned assessments span the accounting years 1976-77 to 1978-79. The primary authority (ITO) adopted the actual licence fee realised by the assessee as the norm for fixing the annual value for the purposes of assessing the income from house property under Section 22 of the Act in each of the years. The Commissioner (Appeals) set his seal of affirmance in the appeals by the assessee and refused to agree that the assessments made for earlier years afforded a guide inasmuch as in those assessments, following the order of the Tribunal, municipal valuation had been preferred in determining the annual value in view of the change in Section 23, effected by the Taxation Laws (Amendment) Act, 1975, operating from 1-4-1976. The unsuccessful assessee is on further appeal to the Tribunal.
4. The principal contention of Shri Palkhivala, the learned Counsel for the assessee, is that the municipal valuation alone should be the basis for fixing the annual value, as done in the earlier years and that the Commissioner (Appeals) fell into error in treating the licence fee as rent. The rejoinder on behalf of the revenue was that no such distinction could be adopted between rent and licence fee for the purpose of Section 23(1)(b) in its interpretation if the object of introducing Clause (b) by amendment was kept in mind. Before going to the merits of the rival submissions, we must refer to a few facts.
5. It is not in the region of controversy that all the parties in actual occupation of the house property in question are licensees. It appear that the posts and telegraphs department are occupying a very major portion of the building. Kemp & Co. was another licensee of the remaining portion, which is now occupied by the cloth and tailoring shop, La Tropical. The entire correspondence between the posts and telegraphs department and the assessee (particularly the consent letter dated 16-3-1965 addressed by that department), which ultimately culminated in written agreements in 1965 and 1966, and subsequent renewals is ample proof to hold that the assessee had entered into licence agreements for which it is getting 'licence fees'.
6. We may at this stage say that the earlier decisions of the Tribunal in the assessee's case are not of any particular usefulness, as they pertain to period prior to the amendment of Section 23(1) by insertion of Clause (b).
7. It would be pertinent to explain the background in which the change in law was effected. Income from house property is to be taxed on the basis of annual value vide Section 22. The mode of determining the annual value is provided in Section 23 ; Section 23(1), which as it stood prior to amendment in 1976, read :
(1) For the purposes of Section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year :
8. The content of Section 23(1) is now contained in the form of Section 23(1)(d) and Clause (b), which reads as follows, was inserted in between Clause (a) and the first proviso :
(b) where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in Clause (a), the amount so received or receivable :
9. The insertion of Clause (b) has a history. Many owners, who were realising fabulous rents by leasing out their buildings, were offering for taxation only a small portion basing their annual value upon the municipal valuation which, in a majority of cases, was disproportionately lower than the rent actually received, with the result that a large portion of income from house property was escaping tax. To prevent this and to net the entire rent, the mode of determining the annual value was altered by amendment--[as was done in England after the decision in Salisbury House Estate Ltd. v. Fry (Inspector of Taxes) 15 TC 266 (HL)].
10. If the building is self-occupied, estimation of the amount would be on the basis specified in Clause (a) of Section 23(1). If the building is leased to a tenant, then Section 23(1)(b) would come into play, if the agreed rent is higher than the estimation that could be made under Clause (a). Here again, there is a point. As Rankin, CJ. observes : "...The house may have been let cheap or dear, the lease may be 80 years old or a thing of yesterday ; personal relations or business relations may have led to exceptional terms as to rent.... " (p. 887)--Krishna Lal Seal, In re. AIR 1932 Cal. 886. So, if the agreed rent is less than the estimated return under Clause (a), then the higher has to be adopted, and to know this, it is necessary first to estimate under Clause (a) to see how it compares with the agreed rent and then to decide which of the two should be the basis, for Clause (b) can be applied only if the agreed rent 'is in excess of the sum referred to in Clause (a)'. So far no difficulty suggests itself.
11. The point in dispute is, whether the property given essentially on licence basis is to be straightaway valued under Clause (a) or whether Clause (b) is also attracted to see if the agreed consideration for licence is in excess of the estimated value under Clause (a), so that the higher of the two can be brought to tax. A proper construction to be put up upon Clause (b) should furnish an answer to this question. Shri Palkhivala contended that the word 'let' in Clause (b) in conjunction with the word 'rent' found in the same clause necessarily implied subsistence of a lease agreement for the application of Clause (b); that the assessee's property, which is not subject to lease, was outside the pale of the said clause. Enlarging his argument Shri Palkhivala said that the lease alone is treated differently from other agreements pertaining to grant of use or occupation of property in the Act itself as witness Section 30 of the Act in the matter of deductions on account of rent, rates, taxes, etc., and the same would be purport in Clauses (a) and (b) of Section 23(1) as the scheme of the Act is the same. This argument was countered on behalf of the revenue by pointing out that the word 'let' is used in Section 23(1) in contradistinction to 'lease' used in Section 30 and this implies the legislative intendment to widen the scope, so as to cover all the cases of occupation including leave and licence. In other words, the submission of Shri Palkhivala may be true of Section 30 but in regard to Section 23(1), the question is not one of an easy answer.
12. To know the amplitude of Clause (b), whether the word 'let' therein has been used as an equivalent of lease and the word 'rent' as a recompence only in an agreement of lease or whether these terminologies ('let' and 'rent') are employed in a wider generic sense, become the moot questions. It can be reasonably inferred that 'let' must have been used in the same sense both in Clauses (a) and (b) and there is nothing to indicate to the contrary.
13. The word 'rent' has two shades of meaning : As pointed out in the State of Punjab v. British India Corpn. Ltd. AIR 1963 SC 1459 :
The word 'rent' in its wider sense means any payment made for the use of land or buildings and thus includes the payment by a licensee in respect of the use and occupation of any land or building. In its narrower sense it means payment made by a tenant to landlord for property demised to him....
14. The word 'let' in generic sense means 'to rent, to lease, to demise, to permit, to enter, to remain, pass or leave'. As Collins M.R States in Warr v. London County Council  1 KB 719, the word 'let' may be used so as only to give a licence. But in legal domain, it has a narrower width. As stated in Stroud's Judicial Dictionary (Fourth edn., p. 1523), the word 'let' is synonymous with 'demise' as an operative word in a lease. Biswas's Encylopaedic Law Dictionary at p. 434 reads that "in legal phraseology, the term 'let' ordinarily implies a tenancy", see also Venkataramaiya's Law Lexicon and Legal Maxims (Second edn., p. 1235) and Corporation of Calcutta v. Anil Prokash Basu AIR 1958 Cal. 423.
15. It is plain that as a legal term, 'let' should normally be taken as an equivalent of 'lease'. In ascertaining in what sense this word could have been used in Clauses (a) and (b), British India Corpn. Ltd's case (supra) is a helpful precedent to illumine the field and, therefore, it is necessary to go into certain details of this case. Under the Punjab Urban Immovable Property Tax Act, 1940, buildings were liable to tax under the State Law, but exemptions were, however, provided to a few classes under Rule 18(1) and (2) of the Punjab Urban Immovable Property Tax Rules, 1941, framed thereunder. The British India Corporation claimed exemption in respect of their certain properties which they had given on licence basis, for which rent was being collected. One condition, inter alia, was that no rent should have been charged from the building, in respect of which exemption was sought vide Rule 18(4)(ii), which reads as under ;
(4) The exemptions provided by Sub-rules (1) and (2) shall not extend to--
(ii) godowns, shops, quarters or other buildings, whether situated within or without the factory compound, for which rent is charged either from employees of the factory or from other persons ; and
The meaning of the word 'rent' in Rule 18(4)(ii) was important to granting exemption and in their Lordships' opinion, it was necessary to know whether the term 'rent' had been used in a wider sense or in its narrower sense. To resolve this, their Lordships examined the use of the word 'rent' in another section of that Act and the important portion of the discussion reads as under :
...In seeking an answer to this question it is legitimate to examine the use of the word 'rent' in the Act for which these rules were made. At the time the rules were first made in 1941 the Act used the word 'rent' only in two sections. First, in Section 5, where in providing how the annual value of land or building shall be ascertained the Legislature said that it shall be ascertained 'by estimating the gross annual rent at which such land or building...might reasonably be expected to let from year to year'. It is absolutely clear that here the word 'rent' is used in its strict and narrower sense of payment by tenant to landlord for demised property....
It can be seen that Section 5 of the Punjab Urban Immovable Property Tax Act, which provides for fixation of annual value of property, contains almost the same language as in Section 23(1) (a) of the 1961 Act. The word 'rent' had been used in conjunction with 'let' in Section 5 in such a manner that the former, in the opinion of the Supreme Court, should receive a narrower meaning. On that analogy, 'rent' in Clause (a) of Section 23(1) should be construed in a narrow sense, in which even 'let' naturally, could only be 'lease'.
16. Another sure index is to be found in Corporation of Calcutta v. Smt. Padma Debi AIR 1962 SC 151. The phrase 'reasonably be expected to let from year to year' occurs in Section 127(a) of the Calcutta Municipal Act, 1923, which prescribes for ascertaining the annual value of land and building and this has been interpreted by the Supreme Court and this is what their Lordships have stated in regard to 'let' found in the provision :
...We shall first look at the provisions of the section to ascertain the meaning. The crucial words are 'gross annual rent at which the land or building might at the time of assessment reasonably be expected to let from year to year'. The dictionary meaning of the words 'to let' is 'grant use of for rent or hire'. It implies that the rent which the landlord might realise if the house was let is the basis for fixing the annual value of the building. The criterion, therefore, is the rent realisable by the landlord and not the value of the holding in the hands of the tenant. This aspect has been emphasised by the Judicial Committee in B.N. Ry. Co. Ltd. v. Corporation of Calcutta 74 Ind. App. 1 (AIR 1947 PC 50)....
17. Even in interpreting Section 23(1), as it stood prior to the 1975 amendment, the Supreme Court has in all cases treated the word 'let' as 'lease', for the rule is that the statutory income for tax purposes under Section 23(1) should correspond to standard rent recoverable under the relevant house rent regulation--Mrs. Sheila Kaushish v. CIT  131 ITR 435 (SC) and Amolak Ram Khosla v. CIT  131 ITR 589 (SC). With this interpretation placed on the word 'let' found in Section 23(1), it can be reasonably inferred that it has been used in the same way in Clause (a) while amending the provision in 1975.
18. When ordinarily the word 'let' in legal sphere should be taken as synonymous of 'lease', it would be reasonable to think that the word must have been used in the same sense in Clauses (a) and (b) of Section 23(1) in the absence of any pointer to the contrary. The word 'let' has been used in conjunction with 'rent' and this further strengthens the view that a narrower meaning should be given to the terms, as pointed out by their Lordships of the Supreme Court, while interpreting Section 5 of the Punjab State Act, 1949 and Section 127 of the Calcutta Municipal Act, 1923, which provides for fixing the annual value of land and building. Both these are fiscal enactments. In the case of British India Corpn. Ltd. (supra), the persons in possession were also licensees. If the meaning of the words 'let' and 'rent' in Section 23(1)(a) and (b) is to be gathered upon the guidelines provided in British India Corpn. Ltd.'s case (supra) and Smt. Padma Devi's case (supra), it has to be concluded that the word 'let' must have been used in the sense of 'lease' and the word 'rent' must have been used in a narrower sense.
19. 'Lease' and 'licence' are terms defined in other status and are distinctively different. A lessee or a tenant is different from a licensee. The owner is free to give his property on licence or lease and, in this case, as has been said in para 5 above, the assessee has given his property on licence basis. Now, there is something of significance in the first proviso to Section 23(1), which provides for deduction of the tax levied on a tenant-occupied premises if, as per the agreement, the burden is borne by the owner as distinct from a case of a licensee-occupied property where the licenser undertakes to pay the taxes. If the intendment of the Parliament is to keep the lease and licence at par for the purposes of Clause (b) of Section 23(1), then it would not have expressly excluded tenant-occupied premises from all other cases for deduction of tax if paid by the owner. This is an indication that for the purpose of Section 23(1)(b), lease alone is singled out from all other cases of grant of property for use and occupation to another.
20. It could be argued with gravity that introduction of Clause (b) to Section 23(1) was for removal of a mischief and by the nicety of distinguishing lease from licence for the purpose of Clause (b), the very object of the amendment would be defeated, Lord Parker, CJ. questions in Smith v. Hughes  1 WLR 830, "I approach the matter by considering what is the mischief aimed at by this Act", The Gravemen of the revenue was that part of the rental income received by the landlords (owners was escaping tax and to prevent this, the amendment to Section 23 was proposed by Clause (8) in the Taxation Laws (Amendment) Bill, 1973, and in the Statement of Objects and Reasons, the following was stated in regard to Clause (8) :
(8) This clause seeks to make the following amendments to Section 23 of the Act which provides for the determination of annual value of house property :
(1) Where any property is in the occupation of a tenant and the rent paid or payable by him is in excess of the annual value determined under Sub-section (1), the annual value is to be taken on the basis of the rent.
[Emphasis supplied]-- 89 ITR (St.) 109.
21. From the above, it is clear that the Legislature had only tenant-occupied building in mind. It appears that a licensee-occupied property was not in the contemplation of the Legislature. Else, the word 'tenant' would not have been used in the Statement of objects and reasons (quoted above). If the amendment was brought about to avoid that mischief only, then the case of lease alone is covered by Clause (b) and that answers the question as to what was the mischief sought to be remedied.
22. In our view, this is not even a case where the door is left ajar in view of the meaning consistently given by the Supreme Court while interpreting fiscal statutes containing the language almost similar to Section 23(1). It is difficult to extract a forced meaning from the word 'let', so as to include a case of licence also. To quote the words of Hidayatullah J. (as he then was) :
...If the words of a taxing statute fail, then so must the tax. The Courts cannot, except rarely and in clear cases, help the draftsmen by a favourable construction....
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...It is for the Legislature to avoid the anomalies which, according to us, spring not from our interpretation but from the language employed."-- CIT v. Elphinstone Spg. & Wvg. Mills Co. Ltd. AIR 1960 SC 1016, 1022.
23. For the foregoing, we conclude that the case of the assessee is not covered by Clause (b) of Section 23(1). It follows that the annual value of the licensee occupied property has to be determined under Clause (a) of Section 23(1). As the authorities below have not proceeded in that direction, we direct that the assessments be made fixing the annual value applying the principles applicable to Section 23(1)(a).
24. In the result, the orders passed by the authorities below are set aside and the cases are remitted back to the ITO to redo the assessments in the light of the conclusion in the earlier paragraph.
25. The appeals are allowed.