ORDER
Abdul Razack, Judicial Member
1. The Asstt. Commissioner of Income-tax has filed this appeal against the order of the Appellate Commissioner dated 14-8-1989.
2. The brief facts of case are as under:
2.1 The assessment year involved is 1986-87 for which the previous year ended on 31-12-1985. The Assessing Officer added a sum of Rs. 23,156 being property tax due and payable to the Ahmedabad Municipal Corporation (AMC). The addition was made by invoking the provisions of Section 43B of the Income-tax Act, 1961. The assessee was not satisfied with this addition on the ground that the property tax payable to the AMC was not a tax but a fee and fee was not covered by the provisions of Section 43B, which have been inserted for and from the assessment year 1984-85 pursuant to Finance Act, 1983. First appeal was preferred before the Appellate Commissioner, who agreed with the contentions raised before him and took a view that according to the provisions of Section 129 of the Municipality Act, property tax comprises of three components, namely:-
(a) Water tax which is being charged for supply of water to the residents of the city,
(b) Conservancy tax for providing some basic amenities to the city-dwellers, and
(c) A general tax.
According to the Appellate Commissioner, the water tax and conservancy tax were fee and not tax, but the third component namely, the general tax was a tax. A direction was, therefore, given by him to the Assessing Officer to restrict the addition/disallowance under Section 43B to the extent of Rs. 8,793 representing general tax being one of the components of property tax levied by the AMC.
3. The Assessing Officer not being convinced with the decision arrived at by the Appellate Commissioner, has preferred the present appeal before us.
3.1 The D.R. appearing for the Assessing Officer submitted that the property tax levied by the AMC was not a fee but a tax and, therefore, since the assessee failed to pay the tax during the previous year relevant to the assessment year under appeal, the provisions of Section 43B clearly got attracted and the addition was very justifiably made by the Assessing Officer. The Appellate Commissioner following earlier order dated 10-2-1986 passed by his predecessor in the appeal of another assessee clearly erred in taking the view that water tax and conservancy tax, which were the components of the property tax, were in the nature of fee and not tax and, therefore, directing deletion in respect of the two amounts forming part of the property tax. The D.R. also relied on the reasons given by the Assessing Officer in his order.
3.2 Shri K.C. Patel, learned Counsel for the assessee while relying on the reasonings and conclusion of the Appellate Commissioner given in the impugned order further submitted that water tax and conservancy tax which form part of the property tax levied by the AMC was fee and not tax; whereas the general tax which was also a component of the property tax was tax and the Appellate Commissioner, therefore, correctly appreciated the true facts and the legal position in this regard and the direction given by him requires to be upheld in this appeal. To support his case, the assessee’s counsel relied on the speech of the Finance Minister as well as the explanatory notes issued in relation to the provisions of Section 43B which found place in the statute book from 1-4-1984 by virtue of Finance Act, 1983. In order to support his case, the assessee’s counsel also relied on the orders passed by Ahmedabad Bench of this Tribunal in the cases of ITO v. Tlmkersi Babubhai & Co. [1986] 18 ITD 593 (Ahd.) and ITO v. Texprint Engineers (P.) Ltd. [IT Appeal No. 1422 (Ahd.) of 1986]. According to the assessee’s counsel though the words water tax and conservancy tax are used in Section 129 of the Municipality Act which form the components of the property tax levied by the AMC, yet it is the substance which has to be considered and not the words used. He, therefore, at the end pleaded that the revenue’s appeal is wholly misconceived and requires to be dismissed.
4. We have heard the rival contentions made before us, in the light of the material available in the appeal record. There is no dispute about the applicability of Section 43B which has been inserted in the Income-tax Act w.e.f. 1-4-1984 (Assessement year 1984-85 onwards) pursuant to Finance Act, 1983 where any tax or duty remaining unpaid during the previous year relevant to a particular assessment year commencing from the assessment year 1984-85 onwards has to be disallowed. Now the question to be decided is whether the property tax levied by the AMC which contains three components namely, (i) water tax, (ii) conservancy tax, and (iii) general tax is a tax or a fee? If it is a tax, then the revenue’s appeal has to be allowed, otherwise we have to agree with the Appellate Commissioner.
5. Whether a particular levy is a tax or fee have been subject-matter of judicial interpretation and the matter has reached to the Apex Court in several cases. The concept of fee as distinct from that of a tax in the constitutional scheme has been considered in a series or pronouncements starting from the year 1954 in the case of Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt AIR 1954 SC 282 up to case of Sri Krishna Das v. Town Area Committee [1990] 183 ITR 401 (SC). What emerges from these pronouncements is that if the essential character of the impost is that some special service is intended or envisaged as a quid pro quo to the class of citizens which is intended to be benefited by the service and there is a broad and general correlation between the amount so raised and the expenses involved in providing the services, the impost would partake the character of a ‘fee’ notwithstanding the circumstance that the identity of the amount so raised is not always kept distinguished but is merged in the general revenues of the State and notwithstanding the fact that such special services, for which the amount is raised, are, as they very often do, incidentally or indirectly benefit the general public also. The test is the primary object of the levy and the essential purpose it is intended to achieve. The correlationship between the amount raised through the ‘fee’ and the expenses involved in providing the services need not be examined with a view to ascertaining any accurate, arithmetical equivalence or precision in the correlation; but it would be sufficient that there is a broad and general correlation. But a fee loses its character as such if it is intended to and does go to enrich the general revenues of the State to be applied for general purposes of Government. Conversely, from this latter element stems the sequential proposition that the object to be served by raising the fee should not include objects which are, otherwise, within the ambit of general Governmental obligations and activities. The concept of fee is not satisfied merely by showing that, the class of persons from whom the fee is collected also derives some benefit from those activities of Government. The benefit the class of payers of fee obtain in such a case is clearly not a benefit intended as special service to it but derived by it as part of the general public. Nor does the concept of a fee – and this is important – require for its sustenance the requirement that every member of the class on whom the fee is imposed, must receive a corresponding benefit or degree of benefit commensurate with or proportionate to the payment that he individually makes. It would be sufficient if the benefit of the special services is available to and received by the class as such. It is not necessary that every individual composing the class should be shown to have derived any direct benefit. A fee has also the element of a compulsory exaction which it shares in common with the concept of a tax as the class of persons intended to be benefited by the special services has no volition to decline the benefit of the services. A fee is, therefore, a charge for the special service rendered to a class of citizens by Government or Governmental agencies and is generally based on the expenses incurred in rendering the services. It will be advantageous to refer to the observations of the Hon’ble Supreme Court in the judgment rendered in the case of Sreenivasa General Traders v. Stale of Andhra Pradesh MR 1983 SC 1246 at page 1262:
It is, therefore, clear that, in order to establish a quid pro quo concept, it is not necessary to establish exactly that the amount collected is spent on the services rendered. The view that there must be actual quid pro quo for a fee has undergone a sea change in the subsequent decisions. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as part of a common burden, while a fee is for payment of a specific benefit or privilege although the special advantage is secondary to the primary motive of regulation in public interest. In regard to fees there is, and must always be, correlation between the fee collected and the service intended to be rendered. In determining whether a levy is a fee. the true test must be whether its primary and essential purpose is to render specific services to a specified area or class: it may be of no consequence that the State may ultimately and indirectly be benefited by it. The power of any Legislature to levy a fee is conditioned by the fact that it must be ‘by and large’ a quid pro quo for the services rendered. However, correlationship between the levy and the services rendered expected is one of the general character and not of mathematical exactitude. All that is necessary is that there should be a ‘reasonable relationship’ between the levy of the fee and the services rendered.
Therefore, there has been no quid pro quo given by the AMC to the assessee for the water tax and conservancy tax levied as part of the property tax. If the assessee fails to pay either the water tax or the conservancy tax or either of them to the AMC, then neither the assessee nor any member of the public at large would be denied or deprived of the services which are rendered by the AMC. We, therefore, find no substance or merit in the arguments of the assessee’s counsel nor in the reasoning of the Appellate Commissioner that the water tax and the conservancy tax as part of the property tax is not a tax but a fee. To hold or interpret that the water tax and the conservancy tax are fees would be against the legislative intent in enacting the provisions of Section 43B. In our view, the water tax and the conservancy tax which form part of the property tax levied by the AMC is tax and not fee, and, therefore, the assessee having failed to pay the same, the provisions of Section 43B were rightly invoked and correctly applied by the Assessing Officer. The decision of Ahmedabad Bench of the Tribunal in the case of Thakersi Babubhai & Co. (supra) has been examined and we find that the same is distinguishable as in that case, our learned brothers were not dealing with the controversy whether property tax is a tax or a fee. The legislative intent is also clear from the proviso to Section 23(1) and the provisions of Section 24(1)(vii) of the Income-tax Act, 1961 that tax payable to municipality which is a local authority is a tax and not a fee. Those two provisions allow deduction of property tax payable in arriving at the ALV from the house property. Tax payers are entitled to and are claiming deduction of property tax from ALV of house property only for the reasons that it is a tax and not a fee. Had property tax been a fee, then no deduction either under Section 23(1) or under Section 24 would be allowable to any assessee in computing the ALV from house property. The Hon’ble Supreme Court in the case of India Cement Ltd. v. State of Tamil Nadu [1991] 188 ITR 690 has held that royalty payable in respect of mining lease is a tax. When the Apex Court has taken as such enlarged and extended view even in respect of royalty payment, we are unable to persuade ourselves to take a view that the water tax and conservancy tax which are components of property tax is not a tax but a fee. We, therefore, reverse the finding and conclusion of the Appellate Commissioner in this regard and allow the revenue’s appeal.
