1936 (4) TMI 10 - HC - Income Tax

Summary

Issues:
1. Interpretation of Section 9(2) of the Indian Income Tax Act regarding the inclusion of house tax paid by tenants in the annual value of property.
2. Conflict of authority on the interpretation of the law between different Full Benches.

Analysis:
The case involved a reference by the Commissioner of Income Tax under Section 66(2) of the Indian Income Tax Act, focusing on the interpretation of Section 9(2) regarding the inclusion of house tax paid by tenants in the annual value of property. The Full Bench of seven Judges was formed to address the conflict of authorities on this issue. The assessee objected to the inclusion of both rent and municipal tax paid by the tenant in determining the annual value, citing a previous Full Bench decision. However, the Bench clarified that the annual value should be determined based on the sum for which the property might reasonably be expected to let, which includes the amount paid by the tenant. The Bench emphasized that the tenant's payment towards municipal tax should be considered as part of the rent paid to the landlord, as it reflects the actual letting value of the property.

The Bench rejected the argument that the annual value should only reflect the net profit kept by the landlord, emphasizing that the definition in Section 9(2) of the Act clearly defines annual value as the sum for which the property might reasonably be expected to let. The Bench noted that excluding the amount paid for municipal tax by the tenant would allow landlords to reduce the annual value by making arrangements for tenants to pay other liabilities, undermining the purpose of the legislation. The decision was also supported by a previous case in the Calcutta High Court, reinforcing the interpretation that the amount paid by tenants for municipal tax should be included in determining the annual value of the property.

Therefore, the Full Bench concluded that the amount paid by tenants on account of Delhi Municipal house tax should be included in the annual value of the property. However, it clarified that the rent paid by the tenant is only prima facie evidence of the annual value, and further considerations such as rents for similar properties in the locality may lead to adjustments in the final determination of the annual value.