Erstwhile rulers need not pay tax on the income earned by letting out a portion of their residential palace, the Supreme Court held recently.
A bench of justice Ranjan Gogoi and justice AM Sapre gave the ruling, bringing down the curtains on a 38-year-old dispute between the legal heirs of Maharao Bhim Singh of Kota and the Income Tax department.
The royal family, owners of the Umaid Bhawan Palace in Rajasthan, moved the top court against a full bench decision of the Rajasthan high court.
Two differing views by separate benches led to the constitution of a larger bench in the HC.
The family challenged the HC decision that held it was not entitled to exemption under the Income Tax Act because part of the palace was let out to the ministry of defence.
It placed reliance on a 1950 order and said the palace was declared inalienable ancestral property, not to be subjected to any taxes.
It was in possession of the legal heirs of the maharaja and was in use for residence.
Accepting the proposition, the SC declared the royal family was entitled to exemption under the 1950 rule.
It noted that it was not possible to split the property in different parts for the purpose of taxation once it was held to be exempt under the relevant concession rules. Hence, the owner would continue to enjoy the exemption in respect of the entire property.
The Supreme Court noted that the property was in the exception category until 1978 when the department opened the issue, which the court said should not have been done.