COMMISSIONER OF INCOME TAX Vs. KUPPUSWAMY CHETTIAR L

JUDGEMENT

(1.) THIS is a reference under S. 256(1) of the IT Act at the instance of the CIT, and the Tribunal has referred the following question :

(2.) SEC . 23(4) of the IT Act provides for the determination of the annual value for the purpose of levying tax on the income from the house property. The annual value of any property is to be deemed to be the sum for which the property might reasonably be expected to be let from year to year; or where the property is let and the annual rent received or receivable by the owner in respect thereof is in excess of what might be reasonably expected from it, the actual rent is to be taken as the basis for taxation. There is a proviso, which states that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted in determining the annual value of the property. Under the proviso, there is a straight deduction from the annual value or the letting value of the property of the taxes levied by any local authority. The contention of the Revenue in the present case, is that this provision would justify allowance only of the amount relating to the relevant year even though the assessee may have received a demand and may have actually paid certain amounts for the earlier years. The language of the provision shows that there must have been a levy by a local authority in respect of the property, which is in the occupation of a tenant and to the extent to which such a levy is borne by the owner, he would be eligible for the deduction envisaged by the proviso. The word "levied" is a significant one in the construction of this provision. Its import cannot be ignored. Sec. 24 deals with certain other deductions which has to be effected from the gross income from the house property. Sec. 24, wherever it contemplates the actual amount paid as deduction, uses the appropriate expressions therefor, and wherever it restricts the allowance to the amount relating to the particular year, uses language appropriate for that purpose. For instance where the property is subject to an annual charge, the amount of such charge is liable to be allowed as deduction under cl.(iv)(i)(b) of Sub -S. (1) of S. 24. The annual charge, irrespective of its discharge or payment, would represent the deduction. The amount of annual charge in such a case could only be that amount relatable to the particular year. There is no question of levy or deemed levy in such a case. Similarly, the deduction of ground rent is provided under cl. (v) and it provides that the amount of such ground rent is to be allowed as deduction. The actual payment of such ground rent to its levy is not the criterion. Whether the assessee pays the amount or not, he would be eligible for allowance of the amount of ground rent. Consequently, the implication in cl. (v) is that the amount relating to the particular year would alone be allowable as deduction. Clause (vi) provides for the deduction of interest payable on capital borrowed for acquisition, construction, repair, renewal or reconstruction of the building. The word "payable" used in the provision shows that it need not have been paid and it could only relate to that particular year. Clause (vii), however, contemplates the actual payment of land revenue to the State Govt. before it could be allowed as deduction and the same clause envisages the deduction being granted in respect of other taxes levied by the State Govt. in respect of the property. Thus, the several clauses in S. 24 use appropriate expressions to demonstrate the basis of deduction.

(3.) THE learned counsel for the CIT brought to our notice S. 104 of the Madras City Municipal Act, 1919. That provision stated that the property tax shall be levied every half year and shall, save as otherwise expressly provided in Schedule IV, be paid by the owner of the assessed premises within fifteen days after the commencement of the half year. Schedule IV to the said Act contains what are called "taxation rule" and cl. I.A. deal with the assessment of the property tax. Broadly stated, the scheme is to continue the same rate of property tax until it is altered as a result to a quinquennial revision for which purpose the relevant procedure prescribed by the rules have to be gone into. There are also provisions for an assessee to contest the revision of the property tax by way of appeal, etc. As S. 104 contemplates a levy it is clear that the liability to tax arises at the time of the actual levy. The property tax is not an automatic levy so as to require the property owner to go and pay tax voluntarily and without any levy, followed by a notice of demand from the Departmental authorities. Thus, the scheme of the City Municipal Act is in no way different from the scheme of the Tamil Nadu Urban Land Tax Act, 1966, which was the subject of consideration in the case already cited.