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MORE THAN 38 years later, the Supreme Court on Monday held as “bad” an order imposing tax on the “ruler” of Umaid Bhawan palace in Jodhpur for rent received by letting out a part of the palace to the Ministry of Defence.
A bench of Justices Ranjan Gogoi and Abhay M Sapre noted that the palace is declared exempt from payment of income tax under the States (Taxation Concessions) Order, 1950 by the Central government if it is used by a “ruler” as his residence.
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The 1950 Order provides that bona fide annual value of the residential palace of the Ruler of a State, which is situated within the State and is declared by the Central government as his inalienable ancestral , would be exempt from payment of income tax.
Relying on this rule, the bench held that even through the “ruler” had let out the portion of his residential palace, he would continue to enjoy the exception in respect of the entire palace because it is not possible to split the exemption in two parts — one in his occupation and the other in possession of the tenant. The court said that a “palace” cannot be split in different parts for the purpose of taxation once it has been held to be exempt under the relevant concession rules.
The court set aside an order passed by the Rajasthan High Court against the “ruler” of the palace and pointed out that the property in question has always been exempt in entirety for previous assessment years and that the Tax department should not have reopened the issue during its computation in 1978.