(1) The assessee derived income from certain house properties in Burma during the accounting year ending with 30-9-1959, relevant to the assessment year 1960-61. In respect of the gross income of Rs. 28,020 received under this head, the assessee had to pay municipal taxes of Rs. 3,019 and service taxes of Rs. 7,116. The assessee claimed to be entitled to deduct these amounts in computing his income under this head of income from property.
The Income-tax Officer, while accepting the position that the income under this head as per the Burma assessment order was only Rs. 17,275, refused to allow the deduction of the municipal tax, as no particulars regarding the claim were made available. On appeal, the Appellate Assistant Commissioner observed that the income from property situate in Burma has to be computed in accordance with S. 9 of the Indian Income-tax Act, and, in doing so, tax, cess, etc. levied by a local authority must be taken to mean tax, cess and levy made by the corresponding authority in Burma. He accordingly allowed the deduction claimed. The department took the matter in appeal to the Appellate Tribunal. The Appellate Tribunal rejected the contention that the local authority referred to in S. 9 of the Act could refer only to a local authority within the Indian Union. The section to its mind was perfectly clear that the taxes levied by any local authority in respect of property under S. 9(2), third proviso, could mean in the context only, such taxes levied by the Burma local authority, for that local authority alone could levy taxes in respect of the property. It also thought that it was the real income derived from the property that had to be computed and that could not be reached unless provision for all the taxes levied by the local authority was made. It also pointed out that in the definition of agricultural income, the legislature has specifically indicated assessment to land revenue in the taxable territories, while a similar expression does not find place in S. 9(2). It accordingly accepted the view of the Appellate Assistant Commissioner as correct and dismissed the appeal.
(2) On the application of the Department, the question that stands referred to us is:
'Whether, on the facts and in the circumstances of the case, the municipal taxes paid to a local authority in Burma could be allowed in computing income from house properties in Burma under S. 9 of the Income-tax Act.'
Section 9 of the Income-tax Act deals with the mode of computation of the income from property. Broadly stated, the tax in respect of such income shall be payable by an assessee 'in respect of the bona fide annual value of the property'. Certain allowances are indicated in the various sub-clauses of S. 9(1). Sub-clause (iv) further provides that where the property is subject to an annual charge not being a capital charge, the amount of such charge should be deducted. What an annual charge meant in the context was the subject of a difference of opinion among the several High Courts. The question was set at rest by the decision of the Supreme Court in New Piece Goods Bazar Co. Ltd., Bombay v. Commr. of Income-tax, Bombay : 18ITR516(SC) . It was decided therein that municipal taxes paid under the Bombay Municipal Act and the urban immoveable property tax paid under the Bombay Finance Act would come within the scope of the expression 'and annual charge not being a capital charge' and that the words 'annual charge' meant 'a charge to secure an annual liability'. As a result of this decision, the legislature amended S. 9 of the Income-tax Act and put in an explanation for the purpose of clause (iv) of the relevant sub-section. This explanation lays down that 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.
(3) Under sub-section (2) of S. 9, however, the legislature provided for the determination of the annual value of any property. The tax under sub-section (1) is exigible only in respect of the bona fide annual value of the property. By sub-section (2), third proviso, the legislature purported to grant an allowance in the following terms:
'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, and
(b) in determining the annual value of the property with reference to the rent payable by the tenant, a deduction shall be made equal to that part, if any, of the tenant's liability which is borne by the owner.'
Clearly then, this proviso permitted a deduction of certain amount equivalent to one half of the local tax in determining the annual value of the property. This section was further amended by Act 13 of 1960. Clause (a) of the third proviso extracted above was amended, thus:
'(a) in the case of property the construction of which was completed before the 1st day of April 1950, the total amount of such taxes, and in the case of any other property, 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.'
This amendment came into force on the 1st day of April 1960 and it is obviously applicable to the assessment year in question. Though the point was not expressly so stated, from the view taken by the authorities below, it seems clear that this amendment would apply, the property being one, the construction of which had been completed before the relevant date.
(4) Mr.V. Balasubramaniam, learned counsel for the department questions the correctness of the view taken by the Appellate Assistant Commissioner and the Tribunal that any part of the Municipal taxes paid in respect of this property to the local authority in Burma is deductible. His broad contention is that the local authority that is referred to in the third proviso to S. 9(2) must mean a local authority within the taxable territories. He refers to the use of the expression 'local authority' in the explanation to S. 9(1) of the Act, where the expression 'local authority' is used along with the expressions 'A State Government' or 'The Central Government '. Local authority is also not defined in the Income-tax Act, though it is one of the assessable entities under S. 3. He points out further that even the General Clauses Act, which can be resorted to in the absence of any specific definition in any particular enactment does not warrant the view that the expression 'local authority' as used in an Indian enactment, can conceivably mean a local authority situated outside the territory of the Union. He further claims that the foreign revenue laws must be ignored in applying any local law. In that view also, the fact that a foreign revenue law imposes any tax such as the municipal tax cannot be a relevant factor for determining a tax liability under the Indian Income-tax Act.
(5) Even following the above line of argument advanced by the learned counsel for the department it seems to us that the expression 'local authority' appearing in the third proviso to S. 9(2) must be interpreted in the context in which it appears. The fact that that expression is not defined in the Income-tax Act can only mean that there can be no rigid restraint in interpreting that expression. When we turn to the General Clauses Act we find that the definitions contained therein are applicable only in the absence of anything repugnant in the context. Now, the context in which the provision appears provides for the deduction of a tax paid to a local authority and it seems to us to make it clear that in so far as this provision of law attempts to determine the annual value of the property for the purpose of imposing tax, it does not make a distinction between properties situate within the taxable territory and properties situate without the taxable territory. That the property if situate within the taxable territory, and if subject to any taxes levied by any local authority would, in the computation of its annual value, be entitled to a deduction of the tax paid is not disputed. When the very same annual value of the property has to be determined in the case of properties situate outside the taxable territory, we are unable to see why the expression 'local authority' used herein should be limited to mean a local authority situate within the taxable territory. We must necessarily have regard to the fact that the property in respect of which the annual value is being determined is property situate outside the taxable territory. If the expression 'property' used herein can connote property situate outside the taxable territory, it is obvious that no local authority within the taxable territory could impose any tax thereon, and when in the other part of the same provision, the taxes levied by 'any local authority' is referred to, it must mean that local authority which can exercise the power of levying tax in respect of that property. In the context, therefore, we are at a loss to see how a restricted interpretation, as contended for by the learned counsel for the department can be placed upon the expression.
(6) We are not convinced that any assistance can be derived from the explanation to S. 9(1) wherein the words 'local authority' are also used. We may point out that this explanation is intended to apply only to clause (iv) of sub-section (1) of S. 9 and whatever inferences may be drawn from the use of that expression in the context in which it appears therein, cannot be utilised for the purpose of interpreting the third proviso to S. 9(2).
(7) Mr. Balasubramaniam urges that it is a fundamental principle of law that no State takes any notice of foreign revenue law and applying that principle he seeks to establish that when reference in the third proviso is made to taxes levied by any local authority, the legislature cannot have intended to refer to a foreign municipal authority levying a tax. He relies upon Govt. of India v. Taylor 1955 27 ITR 356. We are not satisfied that this decision has any real application. That was a case where a company which was registered in the United Kingdom, but which was trading in India, was in arrears in respect of the Indian income-tax and other taxes. The company went into voluntray liquidation and the Government of India sought to prove in liquidation proceedings a claim for arrears of taxes. The House of Lords held that claims on behalf of a foreign State to recover taxes due under its laws are unenforceable in English Courts and that there was no reason to depart from that principle even in cases of States which belong to the Commonwealth. They further observed that in winding up proceedings, the liabilities which a liquidator is required to provide for could not possibly include claims which were unenforceable in the English Courts, and accordingly held that the claim of the Government of India was not such a liability. We are unable to understand this decision as laying down anything more than the principle that in English Courts a claim to recover arrears of Indian income-tax cannot be enforced. That is far different from saying that a legislature cannot take into account the liability of an assessee to pay other taxes in foreign States in respect of property or transactions which result in the accrual of income from outside the taxable territory. If the Indian Legislature taxes such income, there is nothing to prevent it from making due provision for such liabilities as may attach to that income in the places wherefrom such income has been derived. The authority is no guide to the interpretation of the proviso which we are examining. Another decision relied upon by the learned counsel is Chockalingam Chettiar v. Commissioner of Income-tax, Madras : 13ITR122(Mad) . That was a case where an assessee purported to claim that agricultural income from lands in Burma was excluded from the purview of the Indian Income-tax Act. A Bench of this Court had to determine whether the agricultural income in question came within the scope of S. 2(1)(a) of the Income-tax Act. This provision, as it stood then, defined agricultural income to mean 'any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in British India or subject to a local rate assessed and collected by officers of the Crown as such'. The Bench declined to accept the contention that though officers of the Burma Government are officers of the Crown, they can be regarded as officers of the Crown, within the meaning of the Indian Income-tax Act. Learned counsel argues that equally when the expression 'local authority' is used in the third proviso, it must mean a local authority within the Indian territory. We are unable to accept this decision as compelling any such inference. In our opinion this expression must be understood in the context in which it appears, and we have no hesitation in holding that in the instant case, the wording of the section is broad enough to cover such local authority which, in respect of the property in question levied the tax. It would follow that both the Appellate Assistant Commissioner and the Tribunal were correct in their view.
(8) The question is answered in the affirmative and against the department. The assessee will be entitled to his cost. Counsel's fee Rs. 250.
(10) Reference answered.