Commissioner of Income-Tax Calcutta Vs.
Dalhousie Properties Ltd. [1984] INSC 153 (23 August 1984)
VENKATARAMIAH, E.S. (J) VENKATARAMIAH, E.S.
(J) ERADI, V. BALAKRISHNA (J)
CITATION: 1987 AIR 1867 1985 SCR (1) 613 1984
SCC (4) 388 1984 SCALE (2)215
ACT:
Income-tax Act, 1961-Proviso to section 23
(1) it as stood in the assessment year 1966-67-For determining annual value of
property assessee entitled to claim deduction of total liability of municipal
taxes whether actually paid or not.
Words and phrases-Expression 'borne'-Scope
of.
HEADNOTE:
While determining the annual value of the
property which was liable to income-tax for the assessment year 1966- 67 under
the head "Income from house property" under section 22 of the
Income-tax Act, 1961, the respondent-assessee claimed that the total liability
for municipal taxes levied by the corporation, whether actually paid or not and
whether the extent of liability questioned or not, was deductible under the
priviso to section 23 (1) of the Act. The department rejected the claim. The
Income-tax Appellate Tribunal allowed the claim. On a reference being made the
High Court held in favour of the assessee. Therefore the department filed this
petition for special leave to appeal.
Dismissing the petition,
HELD: The only point is whether the
expression 'borne by the owner' which appeared in the proviso to section 23 (1)
as it stood in the year 1966-67 would refer to the amount of tax which the
owner was liable to pay or amount of tax which he had actually paid in discharge
of the liability. It is true that the expression 'borne' may refer to either
the liability which a person is liable to discharge or the actual sum paid by
him in discharge of that liability. But we agree with the High Court that in
the present context it should be construed as referring to the former namely,
the amount of tax which the owner is liable to discharge as stated in the
proviso to section 23 (1) of the Act and not the latter one. The reason for
taking this view flows from the scheme of the Act itself. [616D-F] Bhagwan Dass
Jain v. Union of India, [1981] 2 S.C.R. referred to.
In the instant case 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. [617B-C]
CIVIL APPELLATE JURISDICTION: Special Leave
Petition (Civil) No. 3786 of 1982.
From the Judgement and Order dated the 21st
April, 1978 of the Calcutta High Court in Income Tax Reference No. 573 of 1971.
K.C. Dua and Miss A. Subhashini for the
Petitioner.
The Judgment of the Court was delivered by
VENKATARAMIAH, J. This Special Leave Petition is filed under Article 136 of the
Constitution by the Commissioner of Income-tax, West Bengal, Calcutta against
the decision of the High Court of Calcutta in Income-tax Reference No. 573 of
1971.
The respondent, Dalhousie Properties Limited
was an assessee under the Income-tax Act, 1961 (hereinafter referred to as 'the
Act') in the assessment year 1966-67, the relevant previous year being the year
ending March 31, 1966. It owned extensive properties and its income from rents
realised was substantial. In the assessment year in question, the assessee
claimed a deduction of Rs. 1,78,784 which represented the tax levied by the
Corporation of Calcutta as a deductible item while computing its income from
house property. It appears that the assessee had questioned the extent of
liability which had just then been enhanced before the Corporation and on that
account had not actually paid the whole of it. This led to a difference of
opinion between the department and the assessee.
In course of time the dispute regarding the
assessment of the liability of the assessee under the Act reached the
Income-tax Appellate Tribunal. The Tribunal held that the total liability for
municipal taxes which the assessee could claim by way of deduction under the
proviso to section 23 (1) of the Act in respect of the buildings during the
accounting year was Rs. 1,78,784 and that the said amount was to be allowed as
a deduction irrespective of the fact that the assessee had raised a dispute
about the extent of the liability before the Corporation and that the assessee
had not paid the whole of it to the Corporation of Calcutta.
Aggrieved by the 615 above decision of the
Tribunal, the Department got the following question referred to the High Court
under section 256 (1) of the Act:- "Whether on the facts and in the
circumstances of the case the Tribunal was right in holding that the full taxes
levied by the Corporation of Rs. 1,78,784 should be deducted under section 23
(1) of the Income-tax Act, 1961? The High Court answered the above question in
the affirmative and in favour of the assessee. This petition is filed against
the said decision of the High Court.
The material part of section 23, as it stood
in the assessment year 1966-67 read as follows:
"23. Annual value how determined.-(1)
For the purposes of section 22 the annual value of any property shall be deemed
to be the sum for which the property might reasonably be expected to let from
year to year:
Provided 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 deduction shall be
made equal to the part if any of the tenant's liability borne by the
corner.........." Under section 22 of the Act what is chargeable to income-tax
under the head 'Income from house property' is the annual value of property
consisting of any buildings or lands appurtenant thereto of which the assessee
is the owner other than such portions of such property as he may occupy for the
purpose of any business or profession carried on by him the profits of which
are chargeable to income-tax. As explained by this Court in Bhagwan Dass Jain
v. Union of India(1) income-tax is payable under this provision in respect of
the bona fide annual value of the property determined as provided in section 23
of the Act. Section 23 (1) laid down the principle according to which the
annual value of any property could be 616 nationally determined during the
relevant period.
First, the sum for which the property in question
might reasonably be expected to let from year to year had to be ascertained.
From that as per the proviso to section 23 (1) of the Act where the property
was in the occupation of a tenant, if taxes levied by a local authority in
respect of it were to be borne by the owner, they had to be deducted to the
extent mentioned therein and the balance should be deemed to be the annual
value which would be liable to tax subject to the other provisions of the Act.
The object of the proviso was that where the tenant of the property had
undertaken to bear any part of the taxes levied by the local authority, the
owner could not be allowed to claim deduction in respect of it. It may be
stated here that the proviso to section 23 (1) as it stood at the relevant time
had not been happily worded. It has been since suitably modified.
The only point canvassed before the High
Court and before us is whether the expression 'borne by the owner' would refer
to the amount of tax which the owner was liable to pay or the amount of tax
which he had actually paid in discharge of the said liability. It is true that
the expression 'borne' may refer to either the liability which a person is
liable to discharge or the actual sum paid by him in discharge of that
liability. But we agree with the High Court that in the present context it
should be construed as referring to the former namely, the amount of tax which
the owner is liable to discharge as stated in the proviso to section 23 (1) of
the Act and not the latter one. The reason for taking this view flows from the
scheme of the Act itself. As mentioned earlier, the expression 'annual value'
is a national figure and it does not refer to any actual receipt. It is arrived
at by deducting the taxes levied by a local authority for paying which the
owner has assumed the responsibility from the sum for which the property might
reasonably be expected to let from year to year. 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 617 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 asessee has disputed such levy does not disentitle him to the statutory
deduction on the basis of the levy which is in force.
The High Court was, therefore, right in
deciding the case in favour of the assessee.
The Special Leave Petition is therefore,
dismissed.
H.S.K. Petition dismissed.
Back
