PETITIONER:
COMMISSIONER OF INCOME-TAX CALCUTTA
Vs.
RESPONDENT:
DALHOUSIE PROPERTIES LTD.
DATE OF JUDGMENT23/08/1984
BENCH:
VENKATARAMIAH, E.S. (J)
BENCH:
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.
808; 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
dis-
614
puted 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]
JUDGMENT:
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 be. fore the local authorities concerned. A mere
expection of success in the proceedings in which the asessee
has disputed such levy does not disentitle him to the
statuory 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.
618