COMMISSIONER OF INCOME TAX Vs. P J IRANI

JUDGEMENT

(1.) AT the instance of the Revenue the following question of law has been referred to this court by the Income -tax Appellate Tribunal, Madras, under the provisions of s. 256(1) of the I.T. Act, 1961.

(2.) THE dispute in this case relates to the computation of income from property jointly held by the assessee and certain others for the assessment year 1971 -72, corresponding to the accounting year ended on March 31, 1971. The assessee has 24 per cent. interest in the joint property, which has been let on rent to others. The assessee computed the income to be assessed from house property in the assessment year 1971 -72 by deducting two amounts, (1) Rs. 16, 130.52, being the urban land tax paid for the period July 1, 1963, to June 30, 1970, and (2) Rs. 1, 728.27, being the urban land tax paid for the period July 1, 1970, to June 30, 1971. The ITO, however, felt that in the computation of the income from house property for the assessment year 1971 -72, only the urban land tax paid in relation to that assessment year could be deducted. In this view he recomputed the assessee's income and arrived at the share of the assessee's income from house property at Rs. 3, 973. Aggrieved by the order of the ITO, the assessee filed an appeal before the AAC who, however, concurred with the ITO and held that for the computation of income from house property the deduction under s. 24 can be only the tax relatable to the assessment year and that any extra amount paid in respect of such taxes for the previous year is not allowable even though such arrears were paid during the previous yearThe assessee took the matter in appeal to the Income -tax Appellate Tribunal. The Tribunal has held that the amount of Rs. 16, 130.52 paid during the assessment year 1971 -72 for the period from July 1, 1963, to June 30, 1970, was an admissible deduction and on this basis the Tribunal set aside the computation of income made by the ITO and remitted the matter to him with a direction to recompute afresh the total income of the assessee from house property and other sources. Aggrieved by the order of the Tribunal, the Revenue has come up before us.

(3.) ACCORDING to the Tribunal since urban land tax is payable in respect of the land and not in respect of the property which is the theatre building, in computing the rental income from the theatre building the urban land tax is not deductible and only a deduction relatable to the theatre building alone can be allowed and, therefore, the income from that property will have to be computed as income from the house property without giving any allowance for the urban land tax. However, the rental income from Andhra Scientific. Company building, let on rent, of which the assessee is not the owner but only a lessee, has to be classified as income from other sources and is to be computed in accordance with s. 57 of the I.T. Act, 1961. In the computation of such an income the sum of Rs. 16, 130.52, being the urban land tax paid, will be an appropriate admissible deduction as it is an amount of expenditure not being in the nature of capital expenditure laid out or expended wholly and exclusively for the purpose of making or earning the income from other sources, which is the rental income from Andhra Scientific Company. The question is whether the decision of the Tribunal classifying the rental income into two categories, (1) income from house properties, and (2) income from other sources, and allowing the deduction of urban land tax paid for the period prior to the assessment year from the income from other sources, is correctIt is not in dispute that under the lease arrangement as between the assessee and the lessor the assessee has to bear the burden relating to urban land tax. For the period from July 1, 1963, to June 30, 1970, the demand for urban land tax was made on the lessees on July 30, 1970, and it was paid during the accounting year 1970 -71. Though the ITO and the AAC took the view that the deduction can be claimed only in relation to the urban land tax relatable to the assessment year and that deduction cannot be claimed in respect of the payment of urban land tax relatable to the earlier previous years, the Tribunal has taken the view that so far, as the urban land tax is concerned, the liability to pay the same arises only on a demand being made, and that the demand in this case having been made for payment of Rs. 16, 130.52 only on July 30, 1970, within the year of assessment, the said amount can he claimed as deduction during the accounting year in question. On this aspect of the case, we are inclined to agree with the view of the Tribunal that the dates of demand and payment of the urban land tax alone are material for the purpose of claiming deduction and not the period for which the urban land tax has been paid. This is clear from a reading of the provisions of the Urban Land Tax Act, apart from the decision of this court in CIT v. M. Ct. .Muthiah. In that case the assessee paid for the assessment year 1970 -71, a sum of Rs. 8, 564 representing the urban land tax relating to earlier years claimed from him during that year. He claimed deduction of the amount under s. 24(1)(vii) of the I.T. Act, 1961, in computing his income from property. This was negatived by the ITO as well as by the AAC but upheld by the Tribunal.