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PETITIONER: THE NEW PIECEGOODS BAZAR CO., LTD.,BOMBAY

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX,BOMBAY

DATE OF JUDGMENT: 26/05/1950

BENCH: MAHAJAN, MEHR CHAND BENCH: MAHAJAN, MEHR CHAND FAZAL ALI, SAIYID SASTRI, M. PATANJALI MUKHERJEA, B.K.

CITATION:  1950 AIR  165            1950 SCR  553

ACT:     Indian Income-tax Act (XI of 1922),s. 9 (1) (iv)--Income from property--Computation--Deduction--" Annual charge,  not being   capital   charge"--"Annual  charge"   and   ’capital charge", meanings of-- Charge for municipal property tax and urban immoveable property tax--Wheather deductible--City  of Bomabay  Municipal Act, 1888, s. 212-- Bombay  Finance  Act, 1932, s. 22.

HEADNOTE:     The charge created in respect of municipal property  tax by  s. 212 of the City of Bombay Municipal Act, 1888, is  an "annual charge not being a capital charge" within the  mean- ing  of s. 9 (1) (iv) of the Indian Income-tax  Act,  199.2, and  the amount of such charge should therefore be  deducted in computing the income from such property for the  purposes of s. 9 of the Indian Income-tax Act.     The charge  in respect of urban immoveable property  tax created  by  the Bombay Finance Act, 1939.,  is  similar  in character  and  the  amount of such  charge  should-also  be deducted.     The  expression "capital charge" in s.9(1) (iv) means  a charge  created for a capital sum,that is to say,  a  charge created to.’ secure the discharge of a liability of a  capi- tal nature; and an "annual charge" means a charge to secure an annual  liabili- ty. 554

JUDGMENT:     APPELLATE   JURISDICTION:   Civil  Appeal  No.  LXVI  of 1949.     Appeal from the High Court  of judicature, Bombay, in  a reference  under  section 66 of the Indian  Income-tax  Act, 1022.     K.M.  Munshi (N. P. Nathvani, with him), for the  appel- lant.                            ’     M.C.  Setalvad,   Attorney-General  for   India  (H.  J.

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Umrigar, with him), for the respondent.     1950.  May 26.  The judgment of the Court was  delivered by     MEHR  CHAND  MAHAJAN  J.--This is an  appeal  against  a judgment  of  the High Court of Judicature at Bombay  in  an income-tax matter and it raises the question whether munici- pal  property tax and urban immoveable property tax  payable under  the  relevant Bombay Acts  are  allowable  deductions under section 9 (1) (iv) of the Indian Income-tax Act.     The  assessee company is an investment company  deriving its  income from properties in the city of Bombay.  For  the assessment year 1940-41 the net income of the assessee under the  head "property" was computed by the Income-tax  Officer in the sum of Rs. 6,21,764 after deducting from gross  rents certain payments.  The company had paid during the  relevant year  Rs. 1,22,675 as municipal property tax and Rs.  32,760 as  urban  property tax.  Deduction of these  two  sums  was claimed under the provisions of section 9     the Act.   Out of  the first item a deduction in the sum of Rs. 48,572  was allowed  on the ground that this item  represented  tenants’ burdens paid by the assessee, otherwise the claim was disal- lowed.   The, appeals of the assessee to the  Appellate  As- sistant Commissioner and to the Income-tax Appellate  Tribu- nal  were  unsuccessful.  The Tribunal, however,  agreed  to refer  two questions of law to the High Court of  Judicature at Bombay, namely,-     (1)  Whether the municipal taxes paid by the  applicant- company are an allowable deduction under 555 the  provisions of section 9 (1) (iv) of the Indian  Income- tax Act;     (2) Whether the urban immoveable property taxes paid  by the  applicant-company  are  an  allowable  deduction  under section 9 (1) (iv) or under section 9 (1) (v) of the  Indian Income-tax Act.     A  supplementary  reference was made  covering  a  third question which was not raised before us and it is not there- fore necessary to refer to it.  The High Court answered  all the three questions in the negative and hence this appeal.     The question for our determination is whether the munic- ipal  property tax and urban immoveable property tax can  be deducted  as an allowance under clause (iv)  of  sub-section (1)  of  section 9 of the Act.  The decision  of  the  point depends firstly on the construction of the language employed in  sub-clause (iv) of sub-section (1) of section 9  of  the Act,  and secondly, on a finding as to the true  nature  and character  of the liability of the owner under the  relevant Bombay Acts for the payment of these taxes.     Section 9 along with the relevant clause runs thus:--       (1) The tax shall be payable by an assessee under  the head  ’  income from property’ in respect of the  bona  fide annual  value  of property consisting of  any  buildings  or lands    appurtenant   thereto   of   Which   he   is    the owner,   ........   subject  to  the  following  allowances, namely :-     (iv)  where  the property is subject to  a  mortgage  or other  capital  charge, the amount of any interest  on  such mortgage  or  charge; where the property is  subject  to  an annual  charge  not being a capital charge, the.  amount  of such charge; where the property is subject to a ground rent, the amount of such ground rent; and, where the property  has been  acquired,  constructed, repaired,  renewed  or  recon- structed  with borrowed capital, the amount of any  interest payable on such capital;  .............  "     It  will be seen that clause (iv) consists of four  sub-

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clauses corresponding to the four deductions allowed 556 under  the clause.  Before the amending Act of 1939,  clause (iv)  contained  only  the first, third  and  fourth    sub- clauses.  Under the first sub-clause interest is  deductible whether the amount borrowed on the security of the  property was  spent on the property or not.  There is no question  of any  capital  or  other expenditure on  the  property.   The expression "capital charge" in the sub-clause cannot connote a  charge  on the capital, that is, the  property  assessed. That  would be a redundancy as the opening words  themselves clearly indicate that the charge is on the property.  We are therefore  of  opinion that capital charge here  could  only mean  a charge created for a capital sum, i.e., a charge  to secure the discharge of a liability of a capital nature.    In  1933  the  Privy Council decided the  case  of  Bijoy Singh.  Dudhuria v. Commissioner of Income-tax, Calcutta  (1 ).  It was not an assessment under section 9 but an  assess- ment on the general income of an assessee who was liable  to pay  maintenance for his step-mother which had been  charged on  all his assets by a decree of Court.  It was not  a  li- ability  voluntarily incurred by him but one cast on him  by law.  The Privy Council held that the amount paid by him  in discharge  of  that  liability formed no part  of  his  real income  and  so should not be included  in  his  assessment. Though  the  decision proceeded on the  principle  that  the outgoings were not part of the assessee’s income at all, the framers  of the amending Act of 1939 wanted, apparently,  to extend  the principle, so far as the assessment of  property was  concerned, even to cases where obligatory payments  had to  be made out of the assessee’s income from  the  property charged  with  such  payments, and  the  second  sub-clause, namely, "where the property is   subject to an annual charge not  being a capital charge, the amount of such charge"  was added.  It is this sub-clause which the appellant invokes in support  of  its  claim to deduction of  the  municipal  and urban,  property taxes in the present case. In view  of  the opening words of the newly added sub-clause, the  expression "capital charge" also used therein cannot have reference  to a charge on the property, and we think it must (1) I.L.R. 60 cal. 1029. 557 be  understood in the same sense as in sub-clause (1);  that is  to say, the first sub-clause having provided for  deduc- tion  of  interest  where a capital sum is  charged  on  the property, this sub-clause provides for a deduction of annual sums  so  charged,  such sums not being  capital  sums,  the limiting words being intended to exclude cases where capital raised on the security of the property is made repayable  in instalments.     In  Commissioner  of Income-tax,  Bombay  v. Mahomedbhoy Rowji  (1), a Bench of the Bombay High Court considered  the meaning  of these words.  As regards "annual charge,"  Beau- mont C.J. observed as follows :--     "The  words, I think, would cover a charge to secure  an annual liability." Kania J., as he then was, said as follows :--     "I do not see how a charge can be annual unless it means a charge in respect of a payment to be made annually."     This construction of the words has been followed in  the judgment under appeal.     In  Gappumal Kanhaiya Lal v. Commissioner of  Income-tax (2)  (the  connected  appeal before us), the  Bench  of  the Allahabad High Court agreed with the construction placed  on these  words  in the Bombay case, i.e.,  the  words  "annual

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charge" mean a charge to secure an annual liability.  It  is therefore clear that there is no conflict of judicial  deci- sions as to the meaning of the phrase "annual charge" occur- ring  in  section 3 (1) (iv) and the meaning  given  is  the natural meaning of these words.     As to the phrase "capital charge", Beaumont C.J. in  the case  above referred to took the view that the words mean  a charge on capital.  Kania J., however, took a different view and observed that he was not prepared to accept the  sugges- tion that a document which provides for a certain payment to be  made  monthly  or annually  and  charged  on  immoveable property  or the estate of an individual becomes  a  capital charge. In the Allahabad judgment under appeal these (1) I.L.R. 1943 Bom. 628.          (2) I.L.R. 1944 All. 780. 558 words  were considered as not meaning a charge  on  capital. It  was  said  that if an annual charge means  a  charge  to secure  the discharge of an annual liability, then,  capital charge means a charge to secure the discharge of a liability of a capital nature.  We think this construction is a  natu- ral construction of the section and is right.     The  determination  of the point whether  the  taxes  in dispute  fall within the ambit of the phrase "annual  charge not being a capital charge" depends on the provisions of the statutes  under  which they are levied. Section 143  of  the City of Bombay Municipal Act, 1888, authorises the levy of a general  tax  on all buildings and lands in  the  city.  The primary  responsibility to pay this property tax is  on  the lessor  (vide section 146 of the Act).  In order  to  assess the tax provision has been made for the determination of the annual  rateable  value of  the  building in  section   154. Section  156 provides for  the maintenance of an  assessment book in which entries have to be made every official year of all  buildings in the city, their rateable value, the  names of persons primarily liable for payment of the property  tax on such buildings and of the amount for which  each building has  been assessed.  Section 167 lays down that the  assess- ment  book  need  not be prepared every  official  year  but public  notices shall be given in accordance  with  sections 160  to 162 every year and the provisions o+ the  said  sec- tions  and of sections 163 and 167 shall be applicable  each year.   These  sections  lay down a  procedure  for  hearing objections and complaints against entries in the  assessment book.  From these provisions it is clear’ that  the  liabil- ity  for  the tax is  determined at the beginning  of   each official  year and the tax is an annual one. It recurs  from year  to year.  Sections 143to 168 concern  themselves  with the imposition, liability and assessment of the tax for  the year.  The amount of the tax for the year and the  liability for  its payment having been determined, the Act  then  pre- scribes for its collection in the chapter "The collection of taxes." Section 197 provides that each of the property taxes shall be payable in 559  advance  in  half yearly instalments on each first  day  of April  and  each first day of October. The provision  as  to half  yearly instalment necessarily connotes an  annual  li- ability. In other words, it means that the annual  liability can  be  discharged by half yearly payments.  Procedure  has also  been  prescribed for recovery of  the  instalments  by presentment of a bill, a notice of demand and then distress, and sale. Finally section 212 provides as follows :--     "Property  taxes  due under this Act in respect  of  any building or land shall, subject to the prior payment of  the land  revenue,  if any, due to  the  provincial  ,Government

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thereupon, be a first charge  ........  upon the said build- ing or land  ....  " It creates a statutory charge on the building. Urban immove- able property tax is leviable under section 22 of Part VI of the Bombay Finance Act, 1932,on the annual letting value  of the  property.  The duty to collect the tax is laid  on  the municipality  and  it does so in the same manner as  in  the case  of the municipal property tax.  Section 24 (2) (b)  is in terms similar to section 212 of the Bombay Municipal Act. It  makes the land or the building security for the  payment of  this  tax also.  For the purposes of section  9  of  the Indian Income-tax Act both these taxes, namely, the  munici- pal  property tax as well as the urban  immoveable  property tax   are of the same character and stand on the same  foot- ing.    Mr.  Munshi, the learned counsel for the  appellant  con- tended that both the taxes are assessed on the annual  value of  the land or the building and are annual taxes,  although it may be that they are collected at intervals of six months for  the sake of convenience, that the income-tax itself  is assessed on an annual basis, that in allowing deductions all payments made or all liabilities incurred during the  previ- ous year of assessment should be allowed and that the  taxes in  question fell clearly within the language of  section  9 (1)  (iv). The learned Attorney-General, on the other  hand, argued that although the taxes are assessed for the year the liability to pay them arises at the beginning 560 of  each half year and unless a notice of demand  is  issued and  a bill presented there is no liability to pay them  and that till then no charge under section 212 of the Act  could possibly  arise  and that the liability to  pay  being  half yearly  in advance, the charge is not an annual charge.   It was  also suggested that the taxes were a capital charge  in the  sense of the property being security for  the  payment. We are satisfied that the contentions raised by the  learned Attorney-General  are  not sound.  It is apparent  from  the whole tenor of the two Bombay Acts that the taxes are in the nature  of an annual levy on the property’ and are  assessed on  the annual value of the property each year.  The  annual liability can be discharged by half yearly instalments.  The liability  being an annual one and the property having  been subjected  to it, the provisions of clause (iv) of  sub-sec- tion  (1)  of section 9 are  immediately  attracted.   Great emphasis  was laid on the word"due" used in section  212  of the  Municipal Act and it was said that as the taxes do  not become  due  under the Act unless the time for  the  payment arrives,  no charge comes into existence till then and  that the  charge is not an annual charge.  We do not  think  that this  is  a correct construction of section 212.  The  words "property taxes due under this Act" mean property taxes  for which  a  person  is liable under the  Act.   Taxes  payable during  the  year have been made a charge on  the  property. The liability and the charge both co-exist and are co-exten- sive.   The provisions of the Act affording  facilities  for the  discharge  of the liability do not in  any  way  affect their true nature and character.  If the annual liability is not  discharged in the manner laid down by section 197,  can it be said that the property cannot be sold for recovery  of the  whole  amount due for the year ?  The  answer  to  this query can only be in the affirmative, i.e., that the proper- ty is liable to sale.     In  Commissioner  of Income-tax, Bombay  v.  Mahomedbhoy Rowji(1)  Beaumont C.J., while rejecting the claim  for  the deduction of the taxes, placed reliance on

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(1)  I.L.R. 1943 Bom. 628. 561 section 9 (1) (v) which allows a deduction in respect of any sums  paid on account of land revenue. It was observed  that land  revenue stands on the same footing as municipal  taxes and  that  as the legislature made a special  provision  for deduction of sums payable in regard to land revenue but  not in  respect of sums paid on account of municipal taxes  that circumstance indicated that the deduction was not allowable. For  the same purpose reference was also made to the  provi- sions of section 10 which deal with business allowances  and wherein  deduction of any sum paid on account of land  reve- nue,  local rates or municipal taxes has been  allowed.   In the  concluding part of his judgment the learned Chief  Jus- tice said that it was not necessary for him to consider what the  exact meaning of the words was and that it  was  suffi- cient  for him to say that it did not cover municipal  taxes which are made a charge on the property under section 212 of the  Bombay  Municipal Act.  Without determining  the  exact meaning  of the words used by the statute it seems to us  it was not possible to arrive at the conclusion that the  taxes were  not within the ambit of the clause. It  is  elementary that  the primary duty of a Court is to give effect  to  the intention of the legislature as expressed in the words  used by  it and no outside consideration can be called in aid  tO find  that intention. Again reference to clause (v)  of  the section is not very helpful because land revenue is a charge of  a paramount nature on all buildings and lands  and  that being so, a deduction in respect of the amount was mentioned in  express terms.   Municipal taxes, on the other hand,  do not  stand on the same footing as land revenue.  The law  as to them varies from province to province and they may not be necessarily a charge on property in all cases.   The  legis- lature seems to have thought that so far as municipal  taxes on property are concerned, if they fall within the ambit  of clause (iv), deduction will be claimable in respect of  them but  not  otherwise.  The deductions allowed in  section  10 under the head "Income from business" proceed on a different footing  and a construction of section 9 with   the  aid  of section 10 is apt to mislead. 562     Kania J. in the above case in arriving at his conclusion was influenced by the consideration that these taxes were of a  variable character, i.e., liable to be increased  or  re- duced under the various provisions of the Municipal Act  and that  the charge was in the nature of a  contingent  charge. With  great respect, it may be pointed out that all  charges in  a way may be or are of a  variable and  contingent   na- ture.  If no default is made, no charge is ever  enforceable and  whenever  there  is a charge, it can  be  increased  or reduced  during the year either by payment or by  additional borrowing.     In Moss Empires Ltd. v. Inland Revenue Commissioners (1) it was held by the House of Lords that the fact that certain payments  were  contingent and variable in  amount  did  not affect their character of being annual payments and that the word,  "annual" must be taken to have the quality  of  being recurrent or being capable of recurrence.     In Cunard’s Trustees v. Inland Revenue Commissioners (2) it  was held that the payments were capable of being  recur- rent  and were therefore annual payments within the  meaning of  schedule D, case III, rule 1 (1), even though they  were not  necessarily  recurrent year by year and the  fact  that they   varied  in  amount  was  immaterial.    The   learned Attorney-General in view of these decisions did not  support

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the view expressed by Kania J.     Reliance  was placed on a decision of the High Court  of Madras   in  Mamad  Keyi  v.  Commissioner  of   Income-tax, Madras(3), in which moneys paid as urban immoveable property tax under the Bombay Finance Act were disallowed as inadmis- sible  under section 9 (1) (iv) or 9 (1) (v) of  the  Indian Income-tax  Act.  ’This decision merely  followed  the  view expressed in Commissioner of income-tax, Bombay v. Mahomedb- hoy  Rowji (4)and was not arrived at on any  independent  or fresh  reasoning and is not of much assistance in the  deci- sion of the case. The Allahabad High Court   (1)  [1937] A.C. 785.                 (2)  [1948] 1 A.E.R. 150.   (3)   I.L.R.  1944 Mad. 399.            (4)   I.L.R.  1943 Bom. 628. 563 in  Gappumal Kanhaiya Lal v. Commissioner of  Incometax  (1) (the  connected appeal) took a correct view of  this  matter and the reasoning given therein has our approval.     The  result is that this appeal is allowed and  the  two questions  which  were  referred to the High  Court  by  the Income-tax  Tribunal  and cited above are  answered  in  the affirmative.   The appellants will have their costs  in  the appeal. Appeal allowed.    Agent for the appellants:  M.S. Krishnamoorthi Sastri.    Agent for the respondent:  P.A. Mehta.