1. This is a reference under Section 66(1) of the Indian Income-tax Act and raises a short though important point with regard to the computation of the figure to he included in respect of, 'income from property,' under Section 9 of the taxation statute.
2. The matter originally came before my learned brother Kania and myself on September 22, 1944, and having regard to the general importance of the point raised, we sent the matter back to the Tribunal and asked them to frame a further question, in order to cover all the arguments which the assessee desired to raise.
3. The facts of this particular ease can be briefly stated. The assessee company's income from property during the relevant year, which is account year Samvat 1995, that is to say October 24, 1938, till November 11, 1939, was computed by the Income-tax Officer in the sum of Rs. 6,21,764. That sum was made up from the figure of Rs. 9,17,825, which was the gross rents realised as shown in the accounts, in respect of the assessee company's properties. From that were deducted certain payments which ought to have been made and are normally made by tenants, but which by agreement were made by the company, and certain further permissible deductions which reduced the gross rents to the figure I have first mentioned.
4. The questions originally formulated by the Tribunal were:-
(1) Whether the Municipal taxes amounting to Rs. 79,569-3-0 paid by the applicant-company are an allowable deduction under the provisions of Section 9(1)(iv) of the Indian Income-tax Act ?
(2) Whether the Urban Immoveable Property Taxes amounting to Rs. 32,760 paid by the applicant-company are an allowable deduction,
(a) under Section 9(1) (iv) of the said Act (b) under Section 9(1)(v) of the said Act ?
5. The further question which has now been submitted, and which can be conveniently called question No. 3, is:
Whether in arriving at the sum for which property might reasonably be expected to let from year to year the amounts of Rs. 79,569-3-0 and Rs. 32,760 paid by the assessee company respectively for Municipal Property Tax and Urban Immoveable Property Tax should be deducted.
6. That latter question, which it will be convenient to deal with first, means, should the Municipal taxes be deducted in computing the annual value, before any of the permissible allowances mentioned in Section 9 are considered. Section 9 is in these terms:
The tax shall be payable by an assessee under the head 'Income from Property' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner, other than such portions of such property as he may occupy' in the manner therein set out.
7. By Sub-section (2) 'annual value' is defined as being deemed to mean, the sum for which the property might reasonably be expected to let from year to year.' The two clauses which deal with allowances material to this reference are Clause (iv) and (v) of Sub-section (1):-
(iv) Where the property is subject to a mortgage, or other capital charge, the amount of any interest on such mortgage or charge; where the property is subject to an annual charge not being a capital charge, the amount of such charge; where the property is subject to a ground rent, the amount of such ground rent; and, where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.
(v) any sums paid on account of land revenue in respect of the property.
8. The third question submitted to us, therefore, lies within an extremely narrow compass, and is whether these Municipal taxes must be taken into account in finding what is the sum, within the definition of 'annual value,' for which the premises might reasonably be expected to let. In my opinion this does not mean any hypothetical letting, but must mean a letting, having regard to all the prevailing circumstances, such as the state of the property market, the supply and demand, and the cost of repairs which the landlord has to do, and also any other liabilities which the landlord must discharge in order to give quiet enjoyment of the premises to the tenant who is to pay a rent therefor, and amongst those liabilities are these two Municipal taxes. Accordingly on this question, in my opinion, the assessee must fail because the fact that the landlord will have to pay these taxes is undoubtedly a matter which he must take into account when fixing the amount for which the premises may be reasonably expected to let.
9. The next question is whether these Municipal taxes fall to be deducted as an allowance under Clause (iv) of Sub-section (1), and the argument submitted by Mr. M.V. Desai in favour of such a deduction turns exclusively on the words 'where the property is subject to an annual charge not being a capital charge,' and it is submitted that these Municipal taxes by virtue of their character are annual charges not being capital charges. For that proposition Section 212 of the City of Bombay Municipal Act, 1888, is relied upon, by which property taxes due under the Municipal Act in respect of any building or land shall, subject to the prior payment of land revenue, if any, due to the Provincial Government thereupon, be a first charge upon the said building or land and upon the goods and chattels, if any, found thereon. It is suggested by Mr. Desai, with considerable ingenuity, that, whether or not this is a charge, must be looked at from the creditor's point of view; that is to say, from the point of view of the assessee company, who has to pay these taxes, and it is said, that from this point of view, this is a charge in the nature of an income payment and therefore not excluded as being a capital charge.
10. Had this matter been free from authority I should have been of the opinion that that was clearly not so, because Section 212 of the Municipal Act unmistakably charges these taxes on the land and buildings themselves. That view is entirely consistent with a decision of a bench of this High Court in the case of Commissioner of Income-tax, Bombay v. Mahomedbhoy Rowji (1943) 45 Bom. L.R. 584. In that case, this very point was raised, and the learned Chief Justice Sir John Beaumont said (p. 587):
The question is whether that tax can be said to be 'an annual charge not being a captial charge'.
I do not find it very easy to say what is the meaning of 'an annual charge.' The words in their most natural significance would mean a charge arising annually. But charges as a rule do not arise annually. The words, I think, would cover a charge to secure an annual liability, and in that sense it is argued that this tax is an annual charge. It is to be noticed that the charge only comes into existence when default is made in payment of tax, and naturally ceases as soon as the payment is made. So that the charge is unlikely to enure for a year, since the liability is unlikely to exist for a year. Whether it can be said that this is an annual charge may be doubtful, but it seems to me plain that it cannot be described as 'annual charge not being a capital charge.' I do not know what meaning can be assigned to the expression in the Sub-section 'a capital charge,' except a charge on capital, though it is not necessary to consider the meaning of the expression except in relation to the charge arising under Section 212 of the Municipal Act, To my mind, such a charge is unquestionably a charge on capital, and, in my view, therefore, one cannot say that the general tax falls within the expression 'an annual charge not being a capital charge,' which has been added to Section 9(1)(iv).
And with that judgment Mr. Justice Kania concurred.
11. Our attention has been drawn by Mr, Desai to a later case in the Allahabad High Court, Gappumal Kanhaiyalal v. Commissioner of Income-tax  All. 780 That case raises this same point, and Mr. Justice Allsop, who delivered the judgment of the bench after referring to the decision of this High Court in Commissioner of Income-tax v. Mahomedbhoy Rowjee, dissented from it for this reason (p. 788):
If an annual charge means a charge to secure the discharge of an annual liability, I have no doubt that a capital charge means a charge to secure the discharge of a liability of a capital nature and as I consider that a payment of house-tax or water-tax would not appear in a capital account, I have no hesitation in holding that a charge to secure such payment would not be a capital charge.
12. And accordingly the learned Judges of that High Court dissented from the earlier decision of this High Court and held that these Municipal taxes were a permissible deduction under Clause (iv).
13. With the greatest respect to the Allahabad High Court, it is my opinion that that decision is not good law, and that we must not only follow, but express entire approval with, the previous decision of this High Court.
14. The remaining question is whether this is a permissible deduction under Clause (v), and whilst not abandoning that point Mr. Desai has not pressed it and has addressed no argument upon it.
15. In the result, in my opinion, all the questions must be answered in the negative. The assessee must pay the costs of the Commissioner.
16. I agree. One of the heads of income which is chargeable to income-tax is 'Income from property,' and that head is dealt with under Section 9 of the Indian Income-tax Act. The scheme of Section 9 is this: that income from property is charged in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto, subject to the allowances mentioned in the following seven Sub-clauses; and 'annual value' is defined and explained in Section 9, Sub-section (2), to mean the sum for which the property might reasonably be expected to let from year to year. Now, in my opinion, no better method of finding out what the property might reasonably be expected to let from year to year can be devised than the actual rent which is received for that property, and that is the test which the Tribunal applied in this case in order to find out what the annual value of the property in this case was. The Tribunal accepted the very figures given by the assessees of the rents received by them and came to the conclusion that that was the bona fide annual value of the property.
17. Now Mr. M.V. Desai's grievance is this: he says that he has in fact not received all the income which he has shown under that head on income from property. He says he has paid the Municipal Property Tax and the Urban Immoveable Property Tax and, therefore, he should be permitted to deduct the amount paid for the Municipal Property Tax and the amount paid for the Urban Immoveable Property Tax before arriving at the figure of the bona fide annual value of the property. Now that contention is clearly based on a fallacy, because income on property is not based on what the landlord actually receives. It is based on the bona tide annual value of the property. If a landlord claims any deductions, he must come under one or other of the heads which are contained in the sub-sections to Section 9 of the Income-tax Act and which are considered to be allowances which can be made to a landlord in taxing his income to income-tax. In fixing the rent a landlord takes into consideration all his outgoings and fixes a reasonable rent, and one of the outgoings in this case happens to be the Municipal Property Tax and the Urban Immoveable Property Tax. It would be entirely erroneous to suggest that a landlord is allowed to deduct from the rent which he receives all the outgoings before the bona fide annual value of the property is arrived at. The bona fide annual value of the property is the rent which the landlord receives. The outgoings are matters for allowances, and if a particular outgoing is a permissible allowance under Section 9, then the Income-tax authorities could grant that allowance to the landlord.
18. With regard to the second point, whether this particular payment falls under Section 9(1)(iv) of the Indian Income-tax Act, I find it very difficult to understand how the payment of Municipal Property Tax and the Urban Immoveable Property Tax is in respect of an annual charge when Section 212 of the City of Bombay Municipal Act makes it clear that the charge only arises when the property-taxes become due nor can I understand how this is not a capital charge when again Section 212 in express terms provides that the charge is on the property, not on the income of the property but on the property itself. Mr. Desai has very strenuously urged that we should overrule the decision of a Divisional Bench of this Court. I have carefully considered his arguments and I have also given the careful attention which a decision of a sister High Court deserves, namely, the decision of the Allahabad High Court to which the learned Chief Justice has referred, and even at the risk of being accused of partiality for a decision of this Court, I remain entirely unconvinced that the decision given by Sir John Beaumont, Chief Justice, and Mr. Justice Kania in Commissioner of Income-tax, Bombay, v. Mahomedbhoy Rowji ( : AIR1943Bom311 was not a correct decision.
19. As regards the question whether this island revenue and, therefore, en titled to an allowance under Section 9(1)(v), as the learned Chief Justice has pointed out, Mr. Desai has not seriously pressed that point.
20. I, therefore, agree that the question should be answered in the manner suggested by the learned Chief Justice.
21. I agree with the reasons and conclusions arrived at by my lord the Chief Justice and by my learned brother Mr. Justice Chagla and I have nothing further to add.