1984 (8) TMI 2 - SC - Income Tax

The expression annual value is a notional figure and it does not refer to any actual receipt - assessee should have actually paid the amount of tax in question before such deduction is claimed - 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) - Petition by revenue is dismissed

Summary

Issues:
Interpretation of the proviso to section 23(1) of the Income-tax Act, 1961 regarding deduction of municipal taxes paid by the owner of a property.

Analysis:
The case involved a dispute between the Commissioner of Income-tax and an assessee regarding the deduction of municipal taxes paid by the owner of a property under the proviso to section 23(1) of the Income-tax Act, 1961. The assessee, a company owning extensive properties, claimed a deduction of Rs. 1,78,784 representing the tax levied by the Corporation of Calcutta. The Income-tax Appellate Tribunal held that the full amount of Rs. 1,78,784 should be allowed as a deduction, irrespective of the fact that the assessee had disputed the extent of the liability before the Corporation and had not paid the whole amount. The Commissioner of Income-tax challenged this decision by raising a question before the High Court.

The High Court answered the question in favor of the assessee, stating that the amount of tax borne by the owner should be allowed as a deduction under section 23(1) of the Act. The key issue before the court was the interpretation of the term "borne by the owner" in the proviso to section 23(1). The court held that this term refers to the amount of tax which the owner is liable to pay, not the amount actually paid in discharge of the liability. The court reasoned that the annual value of a property is a notional figure, and deductions should be based on the tax liability assumed by the owner, not the actual payments made during the year.

The court emphasized that the annual value of a property should remain constant during the relevant period, and fluctuations due to actual payments should be eliminated. Even if the assessee disputes the correctness of the tax levy, the statutory deduction based on the levy in force should still be allowed. Therefore, the High Court's decision in favor of the assessee was upheld, and the special leave petition filed by the Commissioner of Income-tax was dismissed.