1. This reference raises a short question of law. The question as formulated i : 'Whether the conservancy tax and the water rate are taxes levied in respect of property (payable wholly by the owner or partly by the owner and partly by the tenant) within the meaning of the words of the third proviso to section 9(2) of the Indian Income-tax Act ?'
2. Now, the assessee in this case is one Mr. M. G. Chitnavis, who owns several properties most of which are in the City of Nagpur, and the matter was dealt with by the Income-tax authorities and by the Tribunal on the footing that all properties were in Nagpur. The income from property was computed under section 9 of the Income-tax Act for the year of account ending with 31st May, 1950. The assessee's gross receipts amounted to Rs. 1,00,840. This sum included property tax Rs. 4,720, water rate Rs. 6,480 and conservancy tax Rs. 3,568 making a total of Rs. 14,769, which were separately credited in the books of account of the assessee. The Income-tax Officer, relying upon the third proviso to section 9, sub-section (2), computed the assessee's income from property by taking the annual letting value at Rs. 1,00,840 and deducting therefrom half of all the three taxes together. The assessee appealed to the Appellate Assistant Commissioner and contended that what should have been deducted was, so far as conservancy tax and water rate were concerned, the entire tax. This contention was not accepted by the Appellate Assistant Commissioner and the assessee appealed to the Tribunal, who accepted this contention and held that the water rate and the conservancy tax should have been deducted in full and they did not f all within the scope of the third proviso to section 9, sub-section (2). The question that is raised before us is whether the Tribunal was right in coming to that conclusion.
3. Turning to section 9, sub-section (1) provides that the tax shall be payable by the assessee under the head 'Income from Property' in respect of the bona fide annual value of property. Sub-clause (iv) of sub-section (1) provides for an allowance in respect of an annual charge. Then an explanation at the end of sub-section (1) enact :
'For the purposes of clause (iv) of this sub-section the expression 'annual charge' does not include any tax in respect of property or income from property levied by a local authority or a State Government or the Central Government.'
Then sub-section (2) provide :
'For the purposes of this section, the annual value of any property shall be deemed to be sum for which the property might reasonably be expected to let from year to year.'
And the third proviso to this sub-section read :
'Provided further that where the property is in the occupation of a tenant and the taxes levied by any local authority in respect of the property are, under the law authorising such levy, payable wholly by the owner or partly by the owner and partly by the tenant -
(a) one-half of the total amount of such taxes shall, notwithstanding anything contained in such law, be deemed to be the tenant's liability for such taxes.'
4. Therefore, reading these relevant provisions of the law, it is quite clear that tax 'in respect of property' can be deducted from the annual value only to the extent provided in the third proviso to section 9, sub-section (2), and that is, to the extent of one-half of the total amount of such tax. This deduction can be made if the tax is payable wholly by the owner or partly by the owner and partly by the tenant; and it is to be made notwithstanding anything contained in the law imposing the tax. In this case, there is no dispute that these taxes were payable by the owner or partly by the owner and partly by the tenant; but the dispute centres upon whether the conservancy tax and the water were taxes levied 'in respect of the property.' The question, therefore, that has been referred to us does not truly bring out the dispute between the parties, and we propose to reframe the question as follow :
'Whether the conservancy tax and the water rate are taxes levied in respect of the property within the meaning of those words in the third proviso to section 9(2) of the Indian Income-tax Ac ?'
5. Now, on the one hand, Mr. Palkhiwala for the assessee has argued that the words 'in respect of the property' in the third proviso to section 9, sub-section (2), mean nothing more or less than a property tax and do not include within its scope any other tax in relation to property; on the other hand, Mr. Amin for the Income-tax Commissioner has attempted to argue that the words 'in respect of the property' include all taxes which have any relationship to the property at all. It appears to us that for the purposes of deciding this particular reference it will not be necessary for us to determine the exact scope of the words 'in respect of the property' used in the third proviso to section 9(2); but we are certainly not prepared to accept the very wide proposition canvassed for by Mr. Palkhiwala that the words do not mean anything more than a property tax. A property tax was well known and has been well known in this country for very many years; and merely as a matter of legislative history the proviso was put in order to get over a judicial decision that a property tax had to be deducted from the annual values. Therefore in using the words 'tax in respect of the property' instead of the words 'property tax,' the Legislature could not have intended that any tax other than a property tax was necessarily outside the scope of the proviso. But it appears to us that where it can be shown that the tax is not attracted merely by reason of the fact that the property exists, and, further, that the tax is really in exchange for services rendered, then, in any event, it is not a tax 'in respect of the property'; and this appears to be the case in respect both of the conservancy tax and the water rate.
6. Now, these taxes are levied under the City of Nagpur Corporation Act, 1948. Section 114, sub-section (1), of that Act authorities the Corporation to impose '(b) a latrine or conservancy tax payable by the occupier or owner upon private latrines, privies or cesspools or upon premises or compounds cleansed by Corporation agency;' and '(d) a water-rate, where water is supplied by the Corporation.' It will be seen, therefore, that the Act which authorities the imposition also provides that two conditions shall be fulfilled before a conservancy tax is payabl : (1) that the occupier or owner must have private latrines, privies or cesspools or other premises or compounds; and (2) that such latrines, privies or cesspools or premises or compounds are cleansed by Corporation agency. Therefore, it is clear that the power to impose this tax itself provides for a direct service to be rendered by the Corporation in exchange for the tax and the tax is not levied merely by reason of the fact that a building exists. With regard to the water rate, the words in the Act are 'where water is supplied' and, therefore, if the Corporation does not supply water, there can be no water rate. Here again, there is a service directly rendered and it is for that service that the rate is imposed. Then turning to the rules made for the purpose of imposing these taxes which are the rules which were made under the Central Provinces and Berar Municipalities Act, 1922, which was repealed by the City of Nagpur Corporation Act, 1948, but the rules made under which have been preserved in force by section 3(2) of the City of Nagpur Corporation Act, rule 2(ii) provides for the imposition of a conservancy tax 'on every building or land to which a private latrine, privy or cesspool is attached, or any resident whereof uses a private latrine, privy or cesspool, which is either cleansed by municipal agency or is connected with the municipal underground sewer, or the premises or compounds of which are cleansed by municipal agency.' Here again, the rule specifically gives effect to the conditions imposed on the power of the Corporation to levy the tax, which bring in directly a service rendered by the Corporation to the owner or occupier of the property. Then the rules relating to the imposition of the water rate, which are also rules made under the Central Provinces and Berar Municipal Act, 1922, and which have continued in force, provide in rule 1, sub-rule (1)(a), that 'there shall be imposed on every building or land which has a private supply of water from Municipal service pipes or any resident whereof uses water from such supply, water rate leviable from the owner or occupier...... according to the following scale......' Therefore, an essential pre-requisite for the collection of a water rate is that the building should either have a private supply from the municipal main or a resident of the building should have water from municipal mains. Here again, the rate is imposed directly in exchange for services rendered to the owner or occupier of the building, and in both cases, therefore, it cannot be said that the conservancy tax or the water rate became payable by reason of the mere fact that the property existed and, in addition, that it was payable in exchange for service rendered. In our opinion, therefore, in respect of these two taxes it cannot be said that they are taxes 'in respect of the property' within the meaning of the third proviso to section 9, sub-section (2), and the Tribunal came to a correct conclusion on this issue.
7. Our answer, therefore, to the amended question shall be in the negative.
8. The income-tax Commissioner to pay costs.
9. Question answered in the negative.