1944 (8) TMI 13 - HC - Income Tax

Summary

Issues Involved:

1. Deduction of house tax from the gross rent in determining the bona fide annual value of the property.
2. Deduction of house tax as an annual charge not amounting to a capital charge.
3. Deduction of water tax from the gross rent in determining the bona fide annual value of the property.
4. Deduction of water tax as an annual charge not amounting to a capital charge.

Issue-wise Detailed Analysis:

1. Deduction of house tax from the gross rent in determining the bona fide annual value of the property:

The assessee claimed that the amounts paid on account of house tax should be deducted from the gross amount payable as rent by the tenant. The Tribunal disagreed, stating that the annual value should be viewed from the position of the owner and interpreted as the full economic rent, which is the rent the owner would get after free competition between intending tenants in the open market. The Tribunal emphasized that "no questions of house or water tax would enter into the calculations" of such tenants. The Court agreed with the Tribunal, concluding that the annual value is the gross income and the term "annual value" must be construed in the same sense throughout the Act. Therefore, the first question was answered in the negative.

2. Deduction of house tax as an annual charge not amounting to a capital charge:

The Tribunal argued that allowing the deduction of house tax as an annual charge would lead to a double deduction, which was not intended by the Legislature. The Court found this reasoning flawed, noting that the conclusion does not follow from the premises. The Tribunal also argued that the charges created for the payment of house tax are inchoate and contingent. The Court disagreed, explaining that the statutory charges upon the property to secure the payment of house tax are not contingent upon anything except possibly the payment of land revenue. The Court held that the house tax is an annual charge and not a capital charge, as it is a recurring liability based on the assessment. Therefore, the second question was answered in the affirmative.

3. Deduction of water tax from the gross rent in determining the bona fide annual value of the property:

The assessee claimed that the amount of water tax should be deducted from the gross rent. The Tribunal and the Court rejected this claim, concluding that the water tax is a true tax and not a payment for water supplied. The Court noted that "the proceeds of the tax are employed in supplying water to the whole community," and the amount of tax does not depend on the amount of water used. Therefore, the third question was answered in the negative.

4. Deduction of water tax as an annual charge not amounting to a capital charge:

The Tribunal argued that the water tax is not an annual charge as it is contingent and inchoate. The Court disagreed, explaining that the water tax is a statutory charge upon the property to secure its payment, similar to the house tax. The Court held that the water tax is an annual charge and not a capital charge, as it is a recurring liability based on the assessment. Therefore, the fourth question was answered in the affirmative.

Conclusion:

The Court concluded that the first and third questions should be answered in the negative, and the second and fourth questions should be answered in the affirmative. A copy of the judgment was ordered to be forwarded to the Appellate Tribunal under the seal of the Court and the signature of the Registrar.