1984 (1) TMI 107 - AT - Income Tax

Summary

Issues:
Claim for deduction of municipal taxes in relation to earlier years.

Analysis:
The dispute in this appeal centers around the assessee's claim for deduction of municipal taxes related to previous years. The Income Tax Officer (ITO) disallowed the assessee's claim for arrears of municipal taxes amounting to Rs. 22,385, stating that municipal tax had to be deducted from the bona fide annual value in each year under section 23(1) of the Income-tax Act, 1961. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, leading the assessee to appeal before the Appellate Tribunal.

Upon hearing both parties, the assessee's representative argued that the excess municipal taxes were not claimed earlier as they were not demanded by the corporation. Reference was made to a Madras High Court decision and a Calcutta High Court decision supporting the allowance of such deductions for municipal taxes. The Madras High Court decision emphasized that the liability to tax arises at the time of actual levy, justifying the deduction only in the year of levy. The Calcutta High Court decision supported the deduction of the full taxes levied by the corporation, even if disputed, under section 23(1) of the Act.

The departmental representative contended that the annual value should be determined after deduction of taxes borne by the owner, and unless taxes were paid, they could not be considered as borne. The Hon'ble Supreme Court's observations were cited to support the view that the annual value should remain constant during the year, and only the tax liability imposed by the local authority should be allowed as a deduction.

After careful consideration, the Tribunal accepted the assessee's contention, citing the absence of contrary authorities and the anomalous situation that would arise if the revenue's interpretation was followed. The Tribunal held that arrears of taxes paid by the assessee should be allowed as a deduction, subject to verification that they were not claimed in any earlier year.

In conclusion, the appeal was allowed, and the claim for deduction of arrears of municipal taxes in the present year was upheld, following the interpretations and decisions of the High Courts and the Supreme Court.