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TMI Blog1993 (9) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 1984-85 first. In the assessment made under section 143(3) on 3-3-1987, the Assessing Officer allowed a deduction of Rs. 5,61,042 being interest payable to the Calcutta Municipal Corporation (CMC) on the amount of municipal taxes outstanding. In the assessment, though the rent received in respect of the Tivoli Park building was considered under the head 'Income from house property', the other income derived from the building at No. 50, Chowringhee Road, Calcutta appears to have been assessed under the head 'business'. 5. The CIT considered the assessment erroneous insofar as it related to the deduction of the interest on the outstanding municipal taxes. He referred to the decision of the Calcutta High Court in the case of Russel Properties (P.) Ltd. v. CIT [1982] 137 ITR 358 in support of his view. He, therefore initiated proceedings under section 263 of the Act for revising of the assessment. After hearing the objections of the assessee, he was of the view that the Assessing Officer should have examined the allowability of the claim in accordance with the provisions of section 43B of the Act. According to the CIT, the interest payable to the Calcutta Mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evail. Section 217 of the Act, is as under: "217. Notice of demand, notice fee, interest and penalty.---(1) Save as otherwise provided in this Act, if the amount of the tax for which a bill has been presented under section 216 is not paid within thirty days from the presentation thereof or if the tax on professions, trades and callings or the tax on advertisements is not paid alter it has become due, the Municipal Commissioner may cause to be served upon the person liable for the payment of the same a notice of demand in such form as may be specified by the Corporation by regulations. (2) For every notice of demand which the Municipal Commissioner causes to be served on any person under this section, a fee of such amount, not exceeding twenty five rupees, as the Corporation may determine by regulations shall be payable by the said person and shall be included in the cost of recovery. (3) On the amount of the bill remaining unpaid after thirty days of presentation of the bill under section 216 simple interest at such rate as may be determined by the State Government from time to time shall be payable for the period commencing on the first day of the quarter following that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were referred to by the Supreme Court in the case of Mahalakshmi Sugar Mills Co. have to be contrasted. Under that Act, the Officer or authority empowered to collect the cess may forward to the Collector a certificate specifying the amount of arrears including interest. The use of the words in section 3(6) of the U. P. Act "specifying the amount of arrears including interest" was held by the Supreme Court to indicate the position that interest was part of the arrears of cess. But both section 217(4) and section 219 of the CMC Act with which we are presently concerned contain enough indications to show that the interest on the outstanding municipal tax is to be treated as a separate and distinct component, not to be mixed up with the arrears of tax. In the case before the Supreme Court, as far as penalty provided by section 3(7) of the U. P. Act was concerned, the Supreme Court observed that though the penalty was recoverable in the same manner as the arrears of cess, the Legislature has dealt with penalty as something distinct from the recovery of arrears of cess including interest. In the present case, the same can be said in respect of interest payable on the municipal taxes. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. It must be noticed that the Calcutta High Court was not concerned with the precise question that has arisen before us in view of the provisions of section 43B of the Act. The question whether interest formed part of the municipal tax was not specifically before the High Court and the only question was whether the interest was allowable as a deduction on the ground that it was just compensation for the delay or it was penalty for defiance of law. It was not necessary, on the facts of the case before the High Court, for the High Court to examine or pronounce on the question whether the interest formed part of the municipal tax itself. A close reading of the observations of the High Court in the last paragraph at page 365 of the report does not show that the High Court have laid down as a proposition that the interest for the delayed payment of municipal tax formed part of the municipal tax, and was therefore deductible from the total income. We are therefore unable to understand the judgment of the Calcutta High Court as in anyway deciding the question before us against the assessee. 12. It follows therefore that the interest being separate from the tax as such under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and allowed under section 37(1) of the Act. 15. We have carefully considered the rival contentions. We have perused the computation of income as filed by the assessee. In respect of the assessment year 1984-85, the profit as per the Profit and Loss Account was Rs. 11,21,441. This included the rent from all the properties owned by the assessee. In the computation as well as the assessment order, however, the rent received from Tivoli Park building was taken out from the head 'business' and considered for assessment as 'property income'. The rental income from the other properties including No. 50, Chowringhee Road, Calcutta was brought to tax under the head 'business'. It is against the business income of the assessee that the claim for deduction of Rs. 5,61,042 was made. In the assessment also the same was allowed only against the 'business income' and not against the 'property income'. The same position obtained in the return for the assessment year 1988-89. It is to be noticed that the outstanding liability for interest was not debited in the accounts of the assessee, but was claimed as deduction against the 'business income' only in the returns of income. In the "sundry credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but should be decided on commercial principles. Factually, the assessee is found to have claimed the interest against the business income. If that is so, the decisions of the Calcutta High Court in the case of Russel Properties (P.) Ltd. is directly in its favour. In that case, the interest payable on the outstanding municipal taxes was held allowable against the business income of the assessee, on a specific question being raised before the High Court by means of an additional question which is extracted at page 359 of the report. Even assuming that the rental income from the properties other than the Tivoli Park property was wrongly assessed under the head 'business' and should have been properly assessed only under the head 'property', the judgment of the Supreme Court in the case of Cocananda Radhaswami Bank Ltd. followed by the Calcutta High Court in the case of New India Investment Corpn. Ltd., are directly in favour of the assessees contentions. Whichever way the matter is looked at, it is clear that the assessee is entitled to the deduction of the interest payable on the outstanding municipal taxes. We, therefore, accept the contentions of the assessee in the appeals. The o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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