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Issues Involved:
1. Whether the surcharge on municipal taxes recovered by the owner from tenants should be taxed as part of the rent for determining income from house property. Detailed Analysis: 1. Background and Facts: The assessee, a company, disclosed income from various sources including business and house property. The company owned a portion of a building and collected rent from tenants, including municipal taxes and surcharge on municipal taxes. The dispute was whether the surcharge on municipal taxes should be included in the gross rent for determining income from house property under Section 23 of the Income-tax Act, 1961. 2. Assessing Officer's Decision: The Assessing Officer included the surcharge on municipal taxes in the actual rent received by the assessee for determining the income under the head 'House Property'. The assessee contended that the surcharge was not part of the rent and should not be included in the annual value of the property. 3. Commissioner of Income-tax (Appeals) [CIT(A)] Decision: The CIT(A) decided in favor of the assessee, following the Tribunal's decision in the assessee's own case for the assessment year 1986-87, which held that the surcharge on municipal tax collected by the assessee cannot be considered as the income of the assessee. 4. Division Bench's Recommendation: The Division Bench of the Tribunal, upon examining the provisions of the Income-tax Act and the Calcutta Municipal Corporation Act, 1980, recommended reconsideration by a larger Bench, leading to the constitution of the Special Bench. 5. Arguments by the Departmental Representative (DR): The DR argued that the surcharge on municipal taxes is part of the consolidated rate payable by the owner under the Calcutta Municipal Corporation Act, 1980. The primary liability to pay the consolidated rate, including surcharge, is on the owner. The DR contended that the surcharge collected from tenants constitutes rent for the use of the premises for commercial purposes and should be included in the actual rent received for determining the annual value under Section 23 of the Income-tax Act. 6. Arguments by the Assessee's Representative (AR): The AR argued that the issue was covered by the Tribunal's earlier decision in favor of the assessee. The AR contended that the liability to pay the surcharge is on the tenant, and the surcharge collected by the owner is not part of the actual rent received. The AR referred to various provisions of the Municipal Act and a circular issued by the Deputy Assessor of Calcutta Municipal Corporation to support this contention. 7. Tribunal's Analysis and Decision: The Tribunal examined the relevant provisions of the Income-tax Act and the Calcutta Municipal Corporation Act. It noted that the annual value of the property is determined based on the actual rent received, as per Section 23(1)(b) of the Income-tax Act. The Tribunal observed that the term 'rent' is comprehensive enough to include any payment agreed by the tenant to be paid to the landlord for the use, enjoyment, and occupation of the premises, including municipal taxes and surcharge. The Tribunal referred to various judicial precedents, including the decision of the Calcutta High Court in Puspa Devi Gaurisaria v. Sudera Enterprises, which held that rent includes all payments agreed to be made by the tenant to the landlord for the enjoyment of the demised property, whether described as rent or otherwise. The Tribunal concluded that the surcharge on municipal tax collected by the assessee from tenants for commercial use of the premises constitutes rent and should be included in the actual rent received for determining the annual value and income under the head 'House Property'. 8. Statutory Liability and Recovery Provisions: The Tribunal analyzed the provisions of the Calcutta Municipal Corporation Act, which empower the Corporation to levy a consolidated rate, including surcharge, on lands and buildings. The primary liability to pay the consolidated rate, including surcharge, is on the owner. The owner is empowered to recover the surcharge from the occupier using the premises for commercial purposes. The Tribunal noted that the owner is not merely a trustee or agent for collecting the surcharge but has a statutory liability to pay it. The surcharge collected by the owner from the tenant is part of the rent for the use and occupation of the premises. 9. Conclusion: The Tribunal held that the surcharge on municipal taxes collected by the assessee from tenants should be included in the actual rent received for determining the annual value and income under the head 'House Property'. The assessee is entitled to claim a deduction of the surcharge paid to the Municipal Corporation as per the proviso to Section 23(1) of the Income-tax Act. The order of the CIT(A) was set aside, and the Assessing Officer's order was restored. 10. Result: The appeal filed by the Revenue was allowed.
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