1997 (6) TMI 23 - HC - Income Tax

Summary

Issues:
- Deduction of municipal tax for earlier years in computing income from house property.

Analysis:
The judgment pertains to a reference by the Revenue regarding the deduction of municipal tax in the assessment year 1980-81. The primary issue was whether the Appellate Tribunal was justified in allowing the deduction of Rs. 28,555, being municipal tax relating to earlier years, in computing the assessee's income from house property. The assessee, an individual with income from various sources, claimed a deduction of Rs. 48,834 for municipal tax paid for the accounting year and earlier three years. The assessing authority disallowed the deduction for the earlier years, but the Income-tax Appellate Tribunal ruled in favor of the assessee, leading to the reference. The contention raised was that the proviso to section 23(1) of the Income-tax Act did not permit deduction of municipal tax in a year other than the one in which the liability arose.

The court analyzed the relevant provisions of the Income-tax Act, specifically the proviso to section 23(1) in force during the assessment year and after subsequent amendments. The proviso allowed for the deduction of local taxes borne by the owner in determining the annual value of the property. The court highlighted that the amendment made the deductibility of local taxes applicable to the previous year in which such taxes were actually paid by the owner. Referring to a previous judgment, the court emphasized that the amendment was declaratory of the existing law. Consequently, the court concluded that the municipal tax paid for earlier years should be deducted in computing the annual rental value for the assessment year in question.

Drawing parallels from a judgment of the Karnataka High Court, where a similar deduction claim was allowed, the court affirmed the Tribunal's decision in the present case as correct. Therefore, the court answered the reference question in the affirmative, favoring the assessee and ruling against the Revenue. The judgment concluded by stating that the reference was answered accordingly, with no costs awarded.