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TMI Blog2003 (12) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee became approximately 50 per. cent owner of the said building from assessment year 1997-98 onwards. Since Land Building were standing in the name of Poddar Udyog Ltd., all formalities relating to municipal assessment, building and collection of rent from tenants were used to be done in the name of Poddar Udyog Ltd. The assessee had disclosed rental income from said property under the head 'Income from house property'. It was noticed by the Assessing Officer that assessee, while collecting rent from the tenants, also collected municipal tax amounting to Rs. 27,31,070 and as well as surcharge on municipal tax amounting to Rs. 26,59,959. The assessee had included the municipal tax collected from tenants amounting to Rs. 27,31,070 in gross rent received but had excluded the said surcharge on municipal tax amounting to Rs. 26,59,959 in the gross rent received, for the purpose of detcqnining annual value of the property on the basis of actual rent received within the meaning of section 23 of Income-tax Act, 1961 (in short, the Act). It was submitted before the Assessing Officer by the assessee that surcharge on municipal tax not being part of rent was not includible in the ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal Corporation. It was further contended that the rent is a monetary compensation payable by the tenant in consideration of granting him right to use, enjoy and occupy the tenanted premises. The Ld. D.R further submitted that when tenant is allowed to use the premises for commercial purposes, the rent would certainly include whatever amount is payable by the tenant for the use of the premises for commercial purposes. It was, accordingly, submitted that the surcharge collected by the owner from the tenant would certainly constitute rent paid for use of the premises for commercial purposes. The Ld. DR further submitted that the actual amount including surcharge received by the assessee from the tenant for use and occupation of the tenanted premises for commercial purposes is to be treated as actual rent received for the purpose of determining annual value within the meaning of section 23 of the I.T. Act (as it then stood), and the taxes including surcharge levied by Municipal Corporation and actually paid by the assessee during the relevant year is to be deducted therefrom as per First Proviso to section 23 of the I.T. Act. With these submissions he supported the order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be included in the actual rent received for the purpose of determining annual value and/or of com putting the income under the head House Property. Before we go to consider rival contentions, we find it useful to set out the relevant Provisions of the Income-tax Act, 1961 and as well the Provisions of the Calcutta Municipal Corporation Act, 1980 having direct bearing in understanding the issue involved. Provisions under Income-tax Act, 1961 "Section 22. Income from House Property--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. Annual value how determined.--(1) For the purposes of section 22, the annual value of any property shall be deemed to be-- (a) The sum for which the property might reasonably be expected to let from year to year; or (b) Where the property is let and the annual rent received or receivable by the owner in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llection of taxes mentioned in sub-section (1) shall be in accordance with the provisions of Act and the rules and the regulations made thereunder. Section 171. Consolidated rate on lands and buildings.--(I) For the purposes of this Act, a consolidated rate on the annual value, determined under this Chapter, of lands and buildings in Kolkata shall be imposed by the Corporation. (2) and (3)" (4) Notwithstanding the provisions of sub-section (2) and sub-section (9) the Corporation may, where any land and building or hut or portion thereof is used for commercial or non-residential purpose, levy a surcharge on the consolidated rate on such land or building or hut or portion thereof at such rate not exceeding fifty per cent of the consolidated rate as the Corporation may from time to time determine: Provided that where any portion of any land or building or hut is used for commercial or non-residential purpose, the amount of the consolidated rate payable in respect of such portion shall, while fixing the consolidated rate for the entire land or building or hut be separately calculated: Provided further that subject to such rules as may be made by the State Government in this b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hundred and fifty square metres, or (b) where a person owns or occupies for residential purpose more than one plot of land or building or portions thereof within the municipal limit of Kolkata. (4A) If the gross annual rent of any land or buildings or part thereof cannot be easily estimated, the gross annual rent of such land or building for the purpose of sub-section (1) shall be deemed to be seven and half per cent of the value of the building obtained by adding the estimated present cost of erecting the building at the time of assessment less a reasonable amount to be deducted on account of depreciation if any, to the estimated present market value of the land: Provided that the estimated present cost shall not include the cost of any plant or machinery, excepting those enumerated in Schedule VIII, on the land or the building as aforesaid. (5) Section 193. Incidents of consolidated rate on lands and buildings.--(1) The consolidated rate on lands and buildings shall be primarily leviable: (a) if the land or building is let, upon the lessor; (b) if the land or building is sublet, upon the superior lessor; (c) if the land or building is unlet, upon the person in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95. Recovery of consolidated rate on lands and buildings from occupiers.--(1) On the failure to recover any sum due on account of consolidated rate on any land or buildings from the person primarily liable thereof under section 193, the Municipal Commissioner shall, notwithstanding anything contained, in the West Bengal Premises Tenancy Act, 1956 or in any other law for the time being in force, recover from every occupier of such land or building, by attachment of the rent payable by such occupier, a portion of the total sum due which bears, as nearly as may be, the same proportion to that sum as the rent annually payable by such occupier bears to the total amount of rent annually payable in respect of the whole of such land or building. (2) An occupier, from whom any sum is recovered under sub-section shall be entitled to be reimbursed by the person primarily liable for the payment of such sum, and may, in addition to have resource to other remedies that may be open to him, deduct the amount so recovered from the amount of any rent becoming due from time to time from him to such person. Section 196. Payment of consolidated rate on any lands and buildings.--(1) Save as otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire amount of the surcharge on the consolidated rate on any land or building from the occupier of such land or building who uses it for commercial or non-residential purposes: Provided that if there is more than one such occupier, the amount of surcharge on the consolidated rate may be apportioned and recovered from each such occupier in such proportion as the annual value of the portion occupied by him hears to the total annual value of such land or building. Section 231. Mode of recovery.--If any person primarily liable to pay any consolidated rate on any land or building and is entitled to recover any sum from an occupier of such land or building, he shall have, for recovery thereof, the same rights and remedies as if such sum were rent payable to him by the person from whom he is entitled to recover such sum." 6. It is evident from section 22 Of the Income-tax Act, 1961 that the annual value of the property of the nature specified therein, chargeable to Income-tax under the head 'income from house property'. The annual value for the purpose of section 22 is to be determined in the manner as provided in section 23 of the Act. Section 23(1)(a) of the Act provides that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f actual rent received in respect of the property let out by assessee to the tenants for their use and occupation. 7. The word 'rent' is not defined under the IT Act. The rent is a payment in money or in kind by one person to another in consideration of granting a right to use, enjoy and occupy the land or premises demised. In other words, any payment for use, enjoyment and occupation of the rented premises is called rent. In the case of Puspa Devi Gaurisaria v. Sudera Enterprises [1990] 2 Cal. L.J., a question relating to the meaning of the term 'rent' had come before the Hon'ble Calcutta High Court for their consideration. The Hon'ble Calcutta High Court in this case has observed and held as under: "17. It is urged by Mr. Roy Chowdhury that A.C. Charge, Corporation Tax, commercial surcharge and multi-storied building tax can not constitute rent. The levy of A.C. Charge is covered by paragraphs I and III(c) of the agreement. Other levies by the landlord are covered under paragraph II(5) of the agreement. The stipulation also provides how to work out the liability. As a matter of fact, the mathematical part of assessment is not challenged. It is only the right to realise as par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was part of rent. Reliance has been placed upon K. Davalji's case. Numerous cases were reviewed by M.N. Roy, J. in Usha Ranjan Bhattacharya v. Mahalakshmi Thacker 1975 (1) Cal. L.J. 204 to define rent. In this case basic rent was fixed at Rs. 99. A charge of Rs. 11 was leviable on account of lift, water, scavenging service. The learned Judge said that rent is whole amount agreed to be paid by the tenant for his enjoyment of what has been let out to him, whether described as rent or otherwise. I am in respectful agreement with the view the levy need not necessarily be termed as rent in order to constitute rent. This decision has been followed by a Division Bench of this Court in Anita Dasgupta v. A.C. Sett. Another Division Bench subscribed the same view in Parul Banerjee v. Anand Kumar Agarwala 1979 (2) Cal. L.J. 297. In this case rent and maintenance charge were fixed at Rs. 300 and Rs. 250 respectively. Relying upon Karnani Properties v. Anqustine AIR 1957 SC 309 Court observed that rent is comprehensive enough to include all payment agreed by the tenant to be paid to the landlord for use and occupation not only of the building and its appurtenances but also all fittings, electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is a guiding factor to determine the amount payable to the owner in consideration of granting right to the tenant to use and occupy the tenanted premises. The use and occupation of the tenanted premises by the tenant is incidental to the tenancy created in his favour by the landlord and not independent of it. In the present case, it is an admitted position that the surcharge has been paid by the tenant to the assessee land, lord for use of the tenanted premises for commercial purposes. In this sense, therefore, the surcharge so paid by the tenant to the assessee landlord would certainly constitute rent and it would come within the ambit of "actual rent received". In support of our view, a reliance may be placed on the decision of Hon'ble Calcutta High Court in the case of (1) Anita Das Gupta v. A.C. Self 1988 CWN 242, (2) Usha Ranjan Bhattacharya v. Mahalakshmi Thacker [1975] 1 Cal. LJ 204, (3) Parul Banerjee v. Ananda Kumar Agarwalla [1979] 2 Cal. LJ 297, which cases have been reviewed and referred to in the case of Pushpa Devi Gaurisaria. We are in respectful agreement with the decision in the case of Puspa Devi Gaurisaria holding that all the levies whether termed as rent or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eviable under section 193, and such apportionment between the person upon whom the consolidated rate on such land building is leviable under section 193 and his tenant shall be of the difference between the amount bf the consolidated rate on such land building and the amount which would be leviable if the consolidated rate on such land building were calculated on the basis of the rent payable to him. On the failure to recover any sum due on account of consolidated rate from the person primarily liable thereof under section 193, section 195 of the CMC Act speaks of recovery from every occupier, by way of attachment of the rent payable by such occupier, a portion of the total sum due which bears, as nearly as may be, the proportion to that sum as the rent annually payable by such occupier bears to the total amount of the rent actually payable in respect of the whole of such land building. Thus, in the case of failure on the part of the owner who is primarily liable to pay the consolidated rate, the law empowers the recovery of the sum due, from the tenants out of the rent payable by him to the owner and the tenant eventually may adjust the same against the rent payable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Bisra Stone Lime Co. Ltd. surcharge is a part of consolidated rate and it is really an enhancement of consolidated rate and not a new tax. In view of the definition of the consolidated rate in section 2(20) of the Calcutta Municipal Corporation Act, 1980, there can not be any controversy that consolidated rate includes the surcharge...." 12. Thus, on bare reading of sections 170, 171,193,195,230 and 231 of the CMC Act and looking to the scheme of the CMC Act it is clear that the owner is liable to pay the consolidated rate and taxes including the surcharge on consolidated rate. The corporation is primarily concerned with the recovery of consolidated rate and taxes including the surcharge from the owner, and several modes of recovery have been provided in the CMC Act. It is also clear that in case of failure to recover the consolidated rate including surcharge from the owner, who is primarily liable to pay the same, the Corporation may recover the sum due from every occupier by way of attachment of the rent payable by the occupier to the owner but not exceeding the amount of rent so payable by the occupier. In other words, in case the owner fails to pay the consolidated rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of CITv. Southern Explosives Co. [2000] 242 ITR 107 is useful to be referred- "In the instant case, the amounts collected by the assessee were amounts which were meant to be utilized by the assessee for meeting its tax liability. Even if the assessee had paid over the entire amount received by it as deposit towards sales tax to the State Government, it would still have been open to the assessee to seek refund if the assessee wished to claim such refund on the ground that the tax had been levied at a higher rate than the rate permissible. In the event of such claim being upheld, it would have been open to the assessee, to receive a refund and thereafter pay those amounts to the persons from whom the amounts had been collected. The fact that the assessee had chosen to adopt the device a labelling a part of the amounts collected towards its sales tax liability as deposit cannot make a difference. The accounts were received for the purpose of meeting the tax liability. The fact that the assessee did not pay over those amounts to the State Government only-disentitles the assessee from claiming the deduction to the extent it could have had the amounts been paid over in full to the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 58, every licensee shall collect any pay to the Government at the time and in the manner prescribed the proper electricity duty payable under the Act in respect of energy supplied by him to customers. The duty so payable shall be a first charge on the amount recoverable by the licensee for the energy supplied by him and shall be a debt due by him to the State Government. As per the proviso to sub-section (1) of section 4, where the licensee has been unable to recover his dues for the energy supplied by him, he shall not be liable to pay the duty in respect of the energy so supplied. It is, thus, the obligation of the licensee to pay electricity duty to the Government in respect of energy supplied by the licensee to the consumers unless the licensee is unable to recover the duties for the energy supplied by it. If the licensee recovers his dues; but does hot recover the amount of duty, in that event, the duty will be a first charge on the amount recovered by the licensee for the energy supplied. The provisions regarding recovery made under section S make it clear that if the sum due on account of electricity duty was payable under sub-section (1) of section 4, the sum together with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been the consistent view of the Hon'ble Supreme Court that if a receipt is a trading receipt the fact that it is not so shown in the account books of the assessee would not prevent the assessing authority from treating it as a trading receipt. It is the true nature and quality of the receipt and not the head under which it is entered in the account books which is decisive. The Hon'ble Supreme Court has further observed that eventually if the amount so collected is passed on to the State Government or refunded to the purchasers, the assessee would be entitled to claim deduction of the sum when so paid or refunded. The Hon'ble Supreme Court in the case of KCP. Ltd. v. CIT [2000] 245 ITR 421 has referred to and applied the aforesaid decisions amongst others, of Hon'ble Supreme Court in Chowringhee Sales Bureau (P.) Ltd.'s case, Sinclair Murray Co. (P.) Ltd.'s case and Bazpur Co-operative Sugar Factory Ltd.'s case and has taken the similar view. The principle laid down by Hon'ble Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. has been applied by Hon'ble Gujarat High Court in the case of Plastic Products Engg. Co. v. CIT [2000] 245 ITR 349, wherein it has been obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt shall be kept in suspense account and would be liable to adjustment, depending upon the outcome of the hearing to be given to the appellants. 2. The concerned Hearing Officer is directed to give a fresh hearing/grant rehearing to the appellants with respect to determination of the liabilities starting from 4th quarter of the assessment year 1986-87. In the course of such hearing, the Hearing Officer shall, apart from determining the tax liability, also consider whether the appellants are entitled to any reduction on account of the service charges/maintenance charges, as claimed by the appellants. The appellants say that they were entitled to 20 per cent reduction on this account and that the Corporation has granted such benefit to some others similarly placed. The respondents say that they are not entitled to any such Discount because section 174(1) of Calcutta Municipal Corporation Act, 1980, does not contain any prescription for such reduction and that there is as Standard reduction prescribed which is at the rate of 10 per cent. Notwithstanding these rival contentions we direct the Hearing Officer to consider, in the light of the law applicable on the subject whether the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than 10 per cent as provided in the existing provisions of section 174(1) of the CMC Act. The Hearing Officer also determined the amount of outstanding liability from 4th quarter of 1986-87 to 1st quarter of 2000-2001, which included, inter alia, the liability towards the surcharge also. In this respect the following portion of the order passed by the Hearing Officer would be useful to understand the composition of outstanding liability payable by the assessee. "Since the statement filed on behalf of M/s. Poddar Udyog Limited on 4-2-2000 does not include the dues accrued on the basis of the annual value for 4/86-87 fixed by the. Hearing Officer on 11-2-1988 at Rs. 1,21,61,210.00 this statement filed On behalf of M/s. Poddar Udyog Limited cannot be relied upon. On the other hand the statement submitted on behalf of Calcutta Municipal Corporation during hearing on 19-5-2000 include the outstanding liability including surcharge, interest and penalty as well on the annual value of Rs. 1,21,61,210.00 with effect from 4th quarter of 1986-1988 this statement submitted on behalf of Calcutta Municipal Corporation can be relied upon. Accepting this statement filed on behalf of Calcutta Mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med deduction of taxes paid to local authority under the first proviso to section 23(1) of the LT. Act. In this view of the matter, we do not find any justification for the assessee to exclude the surcharge component collected by it from the tenants for the purpose of determination of actual rent received and consequently for the purpose of determining the income chargeable under the head "house property". Further the amount of surcharge collected by the assessee was the amount which were meant to be utilized by the assessee for meeting its primary liability to pay surcharge to the Corporation. The tenants were made to pay the amount of surcharge for use of the tenant premises for commercial or non-residential purposes, to the owner and the amount of surcharge collected by the assessee owner has been merely retained by the assessee and in the meanwhile used by the assessee. The surcharge which was in its true character a payment for use of tenanted premises for commercial or non-residential purposes and as such constituted "rent", cannot be rendered otherwise by the assessee labelling the receipt as a deposit collected in the capacity of agent or trustee. The amount of surcharge ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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