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B.S. Randhawa Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1985)13ITD89(Kol.)
AppellantB.S. Randhawa
Respondentincome-tax Officer
Excerpt:
.....deduction of municipal taxes in relation to some earlier years. the ito noticed that during this year the assessee had claimed municipal taxes against his income from property to the tune of rs. 15,756 as against rs. 13,729, claimed in the earlier year. moreover, he had claimed a deduction for rs. 22,385 in respect of the arrears of municipal taxes in relation to the years 1971-72 to 1979-80. from the documents produced by the asssessee, it appeared that there was a dispute in respect of the enhanced municipal tax, which was ultimately finalised in this year and the assessee claimed deduction, accordingly. according to the ito, the municipal tax had to be deducted from the bona fide annual value in each year under section 23(1) of the income-tax act, 1961 ('the act'). there was no.....
Judgment:
1. The dispute in this appeal relates to the assessee's claim for deduction of municipal taxes in relation to some earlier years. The ITO noticed that during this year the assessee had claimed municipal taxes against his income from property to the tune of Rs. 15,756 as against Rs. 13,729, claimed in the earlier year. Moreover, he had claimed a deduction for Rs. 22,385 in respect of the arrears of municipal taxes in relation to the years 1971-72 to 1979-80. From the documents produced by the asssessee, it appeared that there was a dispute in respect of the enhanced municipal tax, which was ultimately finalised in this year and the assessee claimed deduction, accordingly. According to the ITO, the municipal tax had to be deducted from the bona fide annual value in each year under Section 23(1) of the Income-tax Act, 1961 ('the Act'). There was no scope for arriving at the annual value in respect of a particular year by allowing deduction in respect of arrears of municipal tax. He, therefore, disallowed the assessee's claim for the arrears amounting to Rs. 22,385. This decision has been confirmed by the AAC on appeal filed by the assessee. The assessee has come up in second appeal before us.

2. We have heard the representatives of the parties at length in this appeal. The assessee's representative produced for our perusal a copy of the bill issued by the Calcutta corporation showing that the claim in respect of the earlier years was made by the corporation from the assessee for the first time in this year and payment was made by him, accordingly. According to him, the excess municipal taxes were never claimed by him as a deduction, since they were not demanded by the corporation earlier. Reliance was placed by him upon a decision of the Madras High Court in CIT v. L. Kuppuswamy Chettiar [1981] 132 ITR 416.

In this case, some property tax relating to earlier years was demanded from the assessee. The enhanced demand had come to be made by the municipal authorities consequent on the revision of the annual value of some properties. The ITO had disallowed the claim on the ground that the property tax was paid in respect of the earlier years. On appeal, the AAC allowed the claim and the Tribunal also affirmed the decision.

The department sought for a reference and the High Court endorsed the decision of the Tribunal with the following observations: The language of the proviso to Section 23(1) of the Income-tax Act, 1961, shows that there must have been a levy by the local authority in respect of the property, which is in the occupation of a tenant and to the extent to which such a levy is borne by the owner, he would be eligible for the deduction envisaged by the proviso. The word 'levied' is a significant one in the construction of this provision. Its import cannot be ignored. Section 104 of the Madras City Municipal Act, 1919, also contemplates a 'levy'. The property tax is not automatic so as to require the property owner to pay the tax voluntarily. Hence, the liability to tax arises at the time of actual levy and the deduction under the proviso to Section 23(1) is justified only in the year in which the levy is made.

Another authority relied upon by the assessee was a decision of the Calcutta High Court in CIT v. Dalhousie Properties Ltd. [1979] 116 ITR 289. In this case, the assessee had claimed a sum of Rs. 1,78,784, which represented the tax levied by the corporation of Calcutta against its income from property. The ITO found that the assessee had raised a dispute as to the enhanced tax levied by the corporation and the taxes had not been paid by the assessee, who had debited Rs. 1,05,764 in the accounts and the actual municipal tax was only Rs. 86,686, which he allowed. The balance, i.e., the difference between Rs. 1,05,764 and Rs. 86,686, represented the arrears which could not be allowed. This order was upheld by the AAC. On a further appeal, the Tribunal found that the liability for municipal taxes in the assessment year in question was to the tune of Rs. 1,78,784 and under Section 23(1), taxes levied by local authority were to be allowed whether they were disputed or not. On a reference at the instance of the department, it was held that: ...under the proviso to Section 23(1) of the Income-tax Act, 1961 (as it stood at the relevant time), in determining the annual value of house property, it is only where a deduction was claimed by the owner for the tenant's liability to municipal taxes that the question of the same being 'borne' by the owner would arise. The liability to pay the taxes in this case was that of the assessee and not that of its tenants. The fact that the section lays down that the owner shall 'bear' a certain liability does not mean that the owner has already paid the same. Therefore, the full taxes of Rs. 1,78,784 levied by the corporation should be deducted under Section 23(1) of the Act in computing the total income derived from house property.

This decision was challenged by the department before the Hon'ble Supreme Court, which confirmed the same vide its order in CIT v.Dalhousie Properties Ltd. [1984] 149 ITR 708. The representative of the department, who incidentally was the AAC deciding this appeal, contended that the only contention of the department in this case was that under Section 23, the annual value had to be determined after deduction of the taxes levied to the extent to which they were borne by the owner and unless the taxes were paid, they could not be said to have been borne. Hence, this decision was no authority for the proposition that taxes levied during the year for earlier years could be allowed as a deduction. According to him, a decision on points not considered could not be any authority for the conclusion. It was contended that the scheme of the Act made it clear that the annual letting value of a property ought to be uniform. For this purpose, he drew our attention to the following observations of the Hon'ble Supreme Court: ...It is reasonable to treat the annual value of a house property as remaining more or less constant during the entire period covered by any given previous year except perhaps where the tax liability itself is modified by the local authority concerned. It cannot keep on changing as and when some payment towards the tax liability imposed by the local authority is made by the assessee during the year. In order to ensure that there is no unwarranted fluctuation in the annual value during the year in question, such actual payment should be eliminated from consideration but only the tax liability imposed by the local authority which the assessee is liable to pay as contemplated by the proviso to Section 23(1) of the Act should be allowed to be deducted under the said proviso. It is not, therefore, necessary that the assessee should have actually paid the amount of tax in question before such deduction is claimed. The position is not also different even where the assessee has disputed the correctness of the levy before the local authorities concerned. A mere expectation of success in the proceedings in which the assessee has disputed such levy does not disentitle him to the statutory deduction on the basis of the levy which is in force.

According to the departmental representative, while it was true that in completing the assessment, the assessee might loose the right to claim the taxes levied in a subsequent year, such consequence would be immaterial in the matter of interpreting a taxing statute. The proper course for the assessee would be a petition under Section 264 of the Act. As regards the Madras High Court decision in Kuppuswamy Chettiar (supra), he argued that the Tribunal was at liberty to take a contrary view on the subject even if there was no other contrary decision of any High Court in view of the decision of the Tribunal, Delhi Bench 'D' in WTO v. Sunil Lamba [1982] 1 ITD 916.

3. After carefully considering all the facts and circumstances of the case, we are inclined to accept the assessee's contention. The decision of the Madras High Court may be in relation to the property tax within the meaning of Section 24(1)(vii) of the Act, but it is upon an interpretation of the first proviso to Section 23(1). If the High Court has proceeded on to come to that conclusion by referring to some other provisions of law, with which they were not directly concerned, it should be presumed that their Lordships were fully alive to the true question involved. Atleast one thing that emerges out of the decision in Dalhousie Properties Ltd.'s case (supra) is that arrears of taxes paid by the assessee were held to be allowable as a deduction by the High Court as well as by the Supreme Court. The reasons given therein may not be exactly fitting or applicable to the facts of this case, but no contrary authority of any High Court is there and the departmental representative himself conceded that the consequence of taking an interpretation in the manner in which he wants us to do, would be that the assessee would loose the right to claim the taxes levied in a subsequent year. According to him, such a situation could be remedied by a petition under Section 264. But to our mind, when the interpretation sought to be placed by the revenue itself would result in a rather anomalous situation, the proper course for us would be to follow an interpretation already placed by a High Court, which would result in advancing justice and as such could be said to be in conformity with the true intention of the Legislature. In this behalf, it may be pointed out that the framers of the Act were alive to the situation that in some cases, the amounts deductible for a particular year may be very heavy. Therefore, they enacted in Sub-section (2) of Section 24 that the total amount deductible under Sub-section (1) thereof in respect of property of the nature referred to in Sub-section (3) of Section 23 shall not exceed the annual value of the property as determined under that section. So far as the observation of the Hon'ble Supreme Court regarding the scheme of the Act are concerned, the argument of the departmental representative appears to be quite plausible but since that question was not actually decided by their Lordships, we are afraid we are not in a position to ignore the clear cut decision of the High Courts on that score alone.

4. In view of the proposition of law as explained above, we direct that subject to the verification that the arrears in question have not been claimed as a deduction in any earlier year, the claim in the present year shall be allowed.


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