The New Piece goods Bazar Co., Ltd.,
Bombay Vs. The Commissioner of Income-Tax, Bombay  INSC 18 (26 May 1950)
CHAND MAHAJAN, MEHR CHAND FAZAL ALI, SAIYID
SASTRI, M. PATANJALI MUKHERJEA, B.K.
CITATION: 1950 AIR 165 1950 SCR 553
Indian Income-tax Act (XI of 1922),s. 9 (1)
(iv)--Income from property--Computation--Deduction--" Annual charge, not
being capital charge"--"Annual charge" and 'capital
charge", meanings of-Charge for municipal property tax and urban
immoveable property tax--Whether deductible--City of Bombay Municipal Act,
1888, s. 212-Bombay Finance Act, 1932, s. 22.
The charge created in respect of municipal
property tax by s. 212 of the City of Bombay Municipal Act, 1888, is an
"annual charge not being a capital charge" within the meaning of s. 9
(1) (iv) of the Indian Income-tax Act, 199.2, and the amount of such charge
should therefore be deducted in computing the income from such property for the
purposes of s. 9 of the Indian Income-tax Act.
The charge in respect of urban immoveable
property tax created by the Bombay Finance Act, 1939., is similar in character
and the amount of such charge should-also be deducted.
The expression "capital charge" in
s.9(1) (iv) means a charge created for a capital sum,that is to say, a charge
created to.' secure the discharge of a liability of a capital nature; and an
"annual charge" means a charge to secure an annual liability.
APPELLATE JURISDICTION: Civil Appeal No. LXVI
Appeal from the High Court of judicature,
Bombay, in a reference under section 66 of the Indian Income-tax Act, 1022.
K.M. Munshi (N. P. Nathvani, with him), for
the appellant. ' M.C. Setalvad, Attorney-General for India (H. J.
Umrigar, with him), for the respondent.
1950. May 26. The judgment of the Court was
delivered by MEHR CHAND MAHAJAN J.--This is an appeal against a judgment of the
High Court of Judicature at Bombay in an income-tax matter and it raises the
question whether municipal property tax and urban immoveable property tax
payable under the relevant Bombay Acts are allowable deductions under section 9
(1) (iv) of the Indian Income-tax Act.
The assessee company is an investment company
deriving its income from properties in the city of Bombay. For the assessment
year 1940-41 the net income of the assessee under the head "property"
was computed by the Income-tax Officer in the sum of Rs. 6,21,764 after
deducting from gross rents certain payments. The company had paid during the
relevant year Rs. 1,22,675 as municipal property tax and Rs. 32,760 as urban
property tax. Deduction of these two sums was claimed under the provisions of
section 9 the Act. Out of the first item a deduction in the sum of Rs. 48,572
was allowed on the ground that this item represented tenants' burdens paid by
the assessee, otherwise the claim was disallowed. The, appeals of the assessee
to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal
were unsuccessful. The Tribunal, however, agreed to refer two questions of law
to the High Court of Judicature at Bombay, namely,(1) Whether the municipal
taxes paid by the applicant company are an allowable deduction under 555 the
provisions of section 9 (1) (iv) of the Indian Incometax Act;
(2) Whether the urban immoveable property
taxes paid by the applicant-company are an allowable deduction under section 9
(1) (iv) or under section 9 (1) (v) of the Indian Income-tax Act.
A supplementary reference was made covering a
third question which was not raised before us and it is not therefore necessary
to refer to it. The High Court answered all the three questions in the negative
and hence this appeal.
The question for our determination is whether
the municipal property tax and urban immoveable property tax can be deducted as
an allowance under clause (iv) of sub-section (1) of section 9 of the Act. The
decision of the point depends firstly on the construction of the language
employed in sub-clause (iv) of sub-section (1) of section 9 of the Act, and secondly,
on a finding as to the true nature and character of the liability of the owner
under the relevant Bombay Acts for the payment of these taxes.
Section 9 along with the relevant clause runs
thus:-(1) 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, ........
subject to the following allowances, namely :(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; .............
" It will be seen that clause (iv) consists of four sub clauses
corresponding to the four deductions allowed 556 under the clause. Before the
amending Act of 1939, clause (iv) contained only the first, third and fourth
sub clauses. Under the first sub-clause interest is deductible whether the
amount borrowed on the security of the property was spent on the property or
not. There is no question of any capital or other expenditure on the property.
The expression "capital charge" in the sub-clause cannot connote a
charge on the capital, that is, the property assessed.
That would be a redundancy as the opening
words themselves clearly indicate that the charge is on the property. We are
therefore of opinion that capital charge here could only mean a charge created
for a capital sum, i.e., a charge to secure the discharge of a liability of a
In 1933 the Privy Council decided the case of
Bijoy Singh. Dudhuria v. Commissioner of Income-tax, Calcutta (1 ). It was not
an assessment under section 9 but an assessment on the general income of an assessee
who was liable to pay maintenance for his step-mother which had been charged on
all his assets by a decree of Court. It was not a liability voluntarily
incurred by him but one cast on him by law. The Privy Council held that the
amount paid by him in discharge of that liability formed no part of his real
income and so should not be included in his assessment.
Though the decision proceeded on the
principle that the outgoings were not part of the assessee's income at all, the
framers of the amending Act of 1939 wanted, apparently, to extend the
principle, so far as the assessment of property was concerned, even to cases
where obligatory payments had to be made out of the assessee's income from the
property charged with such payments, and the second sub-clause, namely,
"where the property is subject to an annual charge not being a capital
charge, the amount of such charge" was added. It is this sub-clause which
the appellant invokes in support of its claim to deduction of the municipal and
urban, property taxes in the present case. In view of the opening words of the
newly added sub-clause, the expression "capital charge" also used
therein cannot have reference to a charge on the property, and we think it must
(1) I.L.R. 60 cal. 1029.
557 be understood in the same sense as in
sub-clause (1); that is to say, the first sub-clause having provided for deduction
of interest where a capital sum is charged on the property, this sub-clause
provides for a deduction of annual sums so charged, such sums not being capital
sums, the limiting words being intended to exclude cases where capital raised
on the security of the property is made repayable in installments.
In Commissioner of Income-tax, Bombay v.
Mahomedbhoy Rowji (1), a Bench of the Bombay High Court considered the meaning
of these words. As regards "annual charge," Beaumont C.J. observed as
follows :-"The words, I think, would cover a charge to secure an annual
liability." Kania J., as he then was, said as follows :-"I do not see
how a charge can be annual unless it means a charge in respect of a payment to
be made annually." This construction of the words has been followed in the
judgment under appeal.
In Gappumal Kanhaiya Lal v. Commissioner of
Income-tax (2) (the connected appeal before us), the Bench of the Allahabad
High Court agreed with the construction placed on these words in the Bombay
case, i.e., the words "annual charge" mean a charge to secure an
annual liability. It is therefore clear that there is no conflict of judicial
decisions as to the meaning of the phrase "annual charge" occurring
in section 3 (1) (iv) and the meaning given is the natural meaning of these
As to the phrase "capital charge",
Beaumont C.J. in the case above referred to took the view that the words mean a
charge on capital. Kania J., however, took a different view and observed that
he was not prepared to accept the suggestion that a document which provides for
a certain payment to be made monthly or annually and charged on immoveable
property or the estate of an individual becomes a capital charge. In the
Allahabad judgment under appeal these (1) I.L.R. 1943 Bom. 628. (2) I.L.R. 1944
558 words were considered as not meaning a
charge on capital.
It was said that if an annual charge means a
charge to secure the discharge of an annual liability, then, capital charge
means a charge to secure the discharge of a liability of a capital nature. We
think this construction is a natural construction of the section and is right.
The determination of the point whether the
taxes in dispute fall within the ambit of the phrase "annual charge not
being a capital charge" depends on the provisions of the statutes under
which they are levied. Section 143 of the City of Bombay Municipal Act, 1888,
authorises the levy of a general tax on all buildings and lands in the city.
The primary responsibility to pay this property tax is on the lessor (vide
section 146 of the Act). In order to assess the tax provision has been made for
the determination of the annual rateable value of the building in section 154.
Section 156 provides for the maintenance of
an assessment book in which entries have to be made every official year of all
buildings in the city, their rateable value, the names of persons primarily
liable for payment of the property tax on such buildings and of the amount for
which each building has been assessed. Section 167 lays down that the assessment
book need not be prepared every official year but public notices shall be given
in accordance with sections 160 to 162 every year and the provisions o+ the
said sections and of sections 163 and 167 shall be applicable each year. These
sections lay down a procedure for hearing objections and complaints against
entries in the assessment book. From these provisions it is clear' that the
liability for the tax is determined at the beginning of each official year and
the tax is an annual one. It recurs from year to year. Sections 143to 168
concern themselves with the imposition, liability and assessment of the tax for
the year. The amount of the tax for the year and the liability for its payment
having been determined, the Act then prescribes for its collection in the
chapter "The collection of taxes." Section 197 provides that each of
the property taxes shall be payable in 559 advance in half yearly installments
on each first day of April and each first day of October. The provision as to
half yearly installment necessarily connotes an annual liability. In other
words, it means that the annual liability can be discharged by half yearly
payments. Procedure has also been prescribed for recovery of the installments
by presentment of a bill, a notice of demand and then distress, and sale.
Finally section 212 provides as follows :-"Property taxes due under this
Act in respect of any building or land shall, subject to the prior payment of
the land revenue, if any, due to the provincial ,Government thereupon, be a
first charge ........ upon the said building or land .... " It creates a
statutory charge on the building. Urban immoveable property tax is leviable
under section 22 of Part VI of the Bombay Finance Act, 1932,on the annual
letting value of the property. The duty to collect the tax is laid on the
municipality and it does so in the same manner as in the case of the municipal
property tax. Section 24 (2) (b) is in terms similar to section 212 of the
Bombay Municipal Act.
It makes the land or the building security
for the payment of this tax also. For the purposes of section 9 of the Indian
Income-tax Act both these taxes, namely, the municipal property tax as well as
the urban immoveable property tax are of the same character and stand on the
Mr. Munshi, the learned counsel for the
appellant contended that both the taxes are assessed on the annual value of the
land or the building and are annual taxes, although it may be that they are
collected at intervals of six months for the sake of convenience, that the
income-tax itself is assessed on an annual basis, that in allowing deductions
all payments made or all liabilities incurred during the previous year of
assessment should be allowed and that the taxes in question fell clearly within
the language of section 9 (1) (iv). The learned Attorney-General, on the other
hand, argued that although the taxes are assessed for the year the liability to
pay them arises at the beginning 560 of each half year and unless a notice of
demand is issued and a bill presented there is no liability to pay them and
that till then no charge under section 212 of the Act could possibly arise and
that the liability to pay being half yearly in advance, the charge is not an
annual charge. It was also suggested that the taxes were a capital charge in
the sense of the property being security for the payment.
We are satisfied that the contentions raised
by the learned Attorney-General are not sound. It is apparent from the whole
tenor of the two Bombay Acts that the taxes are in the nature of an annual levy
on the property' and are assessed on the annual value of the property each
year. The annual liability can be discharged by half yearly installments. The
liability being an annual one and the property having been subjected to it, the
provisions of clause (iv) of sub-section (1) of section 9 are immediately
attracted. Great emphasis was laid on the word" due" used in section
212 of the Municipal Act and it was said that as the taxes do not become due
under the Act unless the time for the payment arrives, no charge comes into
existence till then and that the charge is not an annual charge. We do not
think that this is a correct construction of section 212. The words
"property taxes due under this Act" mean property taxes for which a
person is liable under the Act. Taxes payable during the year have been made a
charge on the property.
The liability and the charge both co-exist
and are co-extensive. The provisions of the Act affording facilities for the
discharge of the liability do not in any way affect their true nature and
character. If the annual liability is not discharged in the manner laid down by
section 197, can it be said that the property cannot be sold for recovery of
the whole amount due for the year ? The answer to this query can only be in the
affirmative, i.e., that the property is liable to sale.
In Commissioner of Income-tax, Bombay v.
Mahomedbhoy Rowji(1) Beaumont C.J., while rejecting the claim for the deduction
of the taxes, placed reliance on (1) I.L.R. 1943 Bom. 628.
561 section 9 (1) (v) which allows a
deduction in respect of any sums paid on account of land revenue. It was
observed that land revenue stands on the same footing as municipal taxes and
that as the legislature made a special provision for deduction of sums payable
in regard to land revenue but not in respect of sums paid on account of
municipal taxes that circumstance indicated that the deduction was not
For the same purpose reference was also made
to the provisions of section 10 which deal with business allowances and wherein
deduction of any sum paid on account of land revenue, local rates or municipal
taxes has been allowed. In the concluding part of his judgment the learned
Chief Justice said that it was not necessary for him to consider what the exact
meaning of the words was and that it was sufficient for him to say that it did
not cover municipal taxes which are made a charge on the property under section
212 of the Bombay Municipal Act. Without determining the exact meaning of the
words used by the statute it seems to us it was not possible to arrive at the
conclusion that the taxes were not within the ambit of the clause. It is
elementary that the primary duty of a Court is to give effect to the intention
of the legislature as expressed in the words used by it and no outside
consideration can be called in aid tO find that intention. Again reference to
clause (v) of the section is not very helpful because land revenue is a charge
of a paramount nature on all buildings and lands and that being so, a deduction
in respect of the amount was mentioned in express terms. Municipal taxes, on
the other hand, do not stand on the same footing as land revenue. The law as to
them varies from province to province and they may not be necessarily a charge
on property in all cases. The legislature seems to have thought that so far as
municipal taxes on property are concerned, if they fall within the ambit of
clause (iv), deduction will be claimable in respect of them but not otherwise.
The deductions allowed in section 10 under the head "Income from
business" proceed on a different footing and a construction of section 9
with the aid of section 10 is apt to mislead.
562 Kania J. in the above case in arriving at
his conclusion was influenced by the consideration that these taxes were of a
variable character, i.e., liable to be increased or reduced under the various
provisions of the Municipal Act and that the charge was in the nature of a
With great respect, it may be pointed out
that all charges in a way may be or are of a variable and contingent nature. If
no default is made, no charge is ever enforceable and whenever there is a
charge, it can be increased or reduced during the year either by payment or by
In Moss Empires Ltd. v. Inland Revenue
Commissioners (1) it was held by the House of Lords that the fact that certain
payments were contingent and variable in amount did not affect their character
of being annual payments and that the word, "annual" must be taken to
have the quality of being recurrent or being capable of recurrence.
In Cunard's Trustees v. Inland Revenue
Commissioners (2) it was held that the payments were capable of being recurrent
and were therefore annual payments within the meaning of schedule D, case III,
rule 1 (1), even though they were not necessarily recurrent year by year and
the fact that they varied in amount was immaterial. The learned
Attorney-General in view of these decisions did not support the view expressed
by Kania J.
Reliance was placed on a decision of the High
Court of Madras in Mamad Keyi v. Commissioner of Income-tax, Madras(3), in
which moneys paid as urban immoveable property tax under the Bombay Finance Act
were disallowed as inadmissible under section 9 (1) (iv) or 9 (1) (v) of the
Indian Income-tax Act. 'This decision merely followed the view expressed in
Commissioner of income-tax, Bombay v. Mahomedbhoy Rowji (4)and was not arrived
at on any independent or fresh reasoning and is not of much assistance in the
decision of the case. The Allahabad High Court (1)  A.C. 785. (2) 
(3) I.L.R. 1944 Mad. 399. (4) I.L.R. 1943
563 in Gappumal Kanhaiya Lal v. Commissioner
of Incometax (1) (the connected appeal) took a correct view of this matter and
the reasoning given therein has our approval.
The result is that this appeal is allowed and
the two questions which were referred to the High Court by the Income-tax
Tribunal and cited above are answered in the affirmative. The appellants will
have their costs in the appeal.
Agent for the appellants: M.S. Krishnamoorthi
Agent for the respondent: P.A. Mehta.