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TMI Blog1977 (1) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 256(1) of the Income-tax Act, 1961, hereinafter referred to as the Act, has referred the following question for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that municipal tax should be deducted under section 23(1) of the Income-tax Act, 1961, from the income from owner-occupied property for the assessment years 1968-69 and 1969-70 ?" For the purpose of answering the question referred to above, it is necessary to refer to the history of the relevant statutory provision. The corresponding section dealing with the income from the property in the Indian Income-tax Act, 1922, hereinafter referred to as the 1922 Act, was section 9. Section 9(2) of that Act, before its amendment by the Indian Income-tax (Amendment) Act, 1952, stood as follows: "(2) For the purposes of this section, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year: Provided that where the property is in the occupation of the owner for the purposes of his own residence and the aforesaid sum exceeds ten per cent. of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of this reference, it is enough if we refer to sections 22 and 23. Section 22 corresponding to section 9(1) of the 1922 Act stated: "The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head 'Income from house property'." Section 23(1), as it stood prior to amendment by the Finance Act, 1968, which came into force on April 1, 1969, was as follows: "23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be expected to let from year to year: Provided that where the property is in the occupation of a tenant and the taxes levied by any local authority in respect of the property are, under the law authorising such levy, payable wholly by the owner, or partly by the owner and partly by the tenant, a deduction shall be made equal to the part, if any, of the tenant's liability borne by the owner. Explan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1) is concerned, the provision, before the amendment with effect from April 1, 1969, contemplated the owner bearing the tenant's share of the liability in payment of taxes and getting deduction in respect of that share, where the property is in the occupation of a tenant. After the amendment, though the proviso refers to the property being in the occupation of a tenant, it provides for deduction of the taxes actually paid by the owner, from the annual value. As far as the present reference is concerned, the controversy centers round the following expression occurring in sub-section (2), namely, "Where the property is in the occupation of the owner for the purposes of his own residence, the annual value shall first be determined as in sub-section (1)." The case of the revenue is that the expression "the annual value shall first be determined as in sub-section (1)" occurring in section 23(2) will refer only to the main part of section 23(1) and that it will not take in the proviso and that, if it is so construed, there is no scope for deducting the municipal tax from the annual value in the case of properties occupied by the owner. As against this, the view taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Act, 1961, as quoted above. That is one of the basic contradictions in the case made by Mr. Mitter, learned counsel for the assessee. The second fundamental contradiction in the assessee's case on this point has been that in one breath the assessee claims vacancy remission and in the other breath claims that there is no annual value for this property. The quantum of vacancy remission will ipso facto or ex hypothesi mean the proportionate amount of rent which would normally, though not conclusively, be the annual value. Therefore, we hold that municipal taxes cannot be deducted in the facts and circumstances of this reference." We are of the opinion that the above observations are not of any assistance for deciding the present reference, because the Calcutta High Court in that judgment did not deal with section 23(2) at all. That is the reason why the Gujarat High Court in Commissioner of Income-tax v. Arvind Narottam Lalbhai Dalpatbhai Vada [1976] 105 ITR 378, 385 (Guj), referred to already, had this to say on the above observations of the Calcutta High Court: "The problem before the Calcutta High Court was not in respect of property occupied by the assessee for his ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was not to exceed one-eighth of the annual letting value was removed. By the amendment of 1960 in respect of properties constructed prior to April 1, 1950, full deduction of municipal taxes was to be granted and in respect of properties constructed after April 1, 1950, one-half of the municipal taxes were to be deducted. Under the 1961 Act the provision in respect of tenant-occupied property is as set out in sub-section (1) of section 23 and in respect of self-occupied property, under sub-section (2) of section 23, the annual value was to be determined as in sub-section (1) and further be reduced by one-half of the amount so determined or one thousand eight hundred rupees, whichever is less. Thereafter, with effect from April 1, 1969, an amendment was effected and by this amendment, the first proviso to section 23(1) was recast and full deduction was granted for the tenant-occupied property and under the new proviso where the property is in the occupation of a tenant and the taxes levied by any local authority in respect of the property was to the extent such taxes are borne by the owner, to be deducted in determining the annual value of the property. Thereafter, a further amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation to sub-section (2). If sub-section (2) of section 23 does not take in the second proviso to sub-section (1) of section 23, there is no need to provide for an Explanation in sub-section (2) of section 23. In the context of the second proviso to sub-section (1) of section 23 not expressly contemplating the residential units falling within the said proviso being in the occupation of a tenant, the said proviso has necessarily to be read in the light of the Explanation to sub-section (2) of section 23. Thirdly, sub-section (2) of section 23 states: "Where the property is in the occupation of the owner for the purposes of his own residence, the annual value shall first be determined as in sub-section (1) and further be reduced by one-half of the amount so determined or one thousand eight hundred rupees, whichever is less." The expression "further be reduced" necessarily contemplates an earlier reduction and that earlier reduction can only be deduction in the form of municipal taxes paid by the owner as contemplated by the first proviso to section 23(1). Thus, the above three circumstances clearly and indisputably lead to the conclusion that the expression "the annual va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1) refer to the main body of sub-section (1) and not to the proviso because it would be a contradiction in terms to say that the pro perty which is in the occupation of the owner himself for the purpose of his own residence, shall be treated as if it were in the occupation of a tenant without there being a legal fiction. If the words are 'as determined in sub-section (1)', then the main body of sub-section (1) will only apply, namely, that the annual value should be considered to be the same for which the property could reasonably be let from year to year." Notwithstanding the above observations, the Gujarat High Court rested its conclusion in favour of the deductibility of the municipal taxes solely on the presence of the words "and further be reduced" occurring in sub-section (2) of section 23. The Gujarat High Court further observed: "However, we must also take notice of the words, 'and further be reduced'. The words 'further be reduced' indicate that some reduction from the annual letting value has already been carried out before further reduction contemplated by sub-section (2) of section 23 can be considered and that further (a mistake for 'earlier' or 'former') ..... X X X X Extracts X X X X X X X X Extracts X X X X
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