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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

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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

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    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

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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