ADDITIONAL COMMISSIONER OF INCOME TAX Vs. RAJESWARI M B
LAWS(MAD)-1977-1-20
HIGH COURT OF MADRAS
Decided on January 24,1977

ADDITIONAL COMMISSIONER OF INCOME-TAX Appellant
VERSUS
M.B. RAJESWARI Respondents

JUDGEMENT

Ismail, J. - (1.) THE matter relates to assessment years 1968-69 and 1969-70. THE assessee owned properties in Kodaikanal and Bangalore and both were admittedly occupied by the assessee for her own residence. THE Income-tax Officer in his computation had not deducted the municipal tax paid by the assessee from the annual value for the purpose of arriving at the income from the property. However, on appeal preferred by the assessee, the Appellate Assistant Commissioner granted her the necessary relief. Against the order of the Appellate Assistant Commissioner, the department took up the matter in appeal and the Tribunal dismissed the appeal holding that the assessee was entitled to the deduction of the municipal tax from the annual value for the computation of the income from the property. It is, thereafter, at the instance of the department, the Income-tax Appellate Tribunal under Section 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?"
(2.) 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 income of the owner, the annual value of the property shall be deemed to be ten per cent. of such total income : Provided further 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) one-half of the total amount of such taxes or one eighth of the annual value of the property, whichever is less, shall, notwithstanding anything contained in such law, be deemed to be the tenant's liability for such taxes, and (b) in determining the annual value of the property with reference to the rent payable by the tenant, a deduction shall be made equal to that part, if any, of the tenant's liability which is borne by the owner. " From this, it will be seen that the main part of Sub-section (2) dealt with what constituted the annual value of any property and that was irrespective of whether the property was leased out or occupied by the owner. It was the first proviso which dealt with a case where the owner himself was in occupation of the property and it is the second proviso which dealt with a case where the property was occupied by a tenant. It will be further seen that only under the second proviso dealing with the property in the occupation of a tenant that a provision for deduction of a part of the municipal tax was made. The first proviso was amended by the Indian Income-tax (Amendment) Act, 1953, by substituting the following : " Provided that, where the property is in the occupation of the owner for the purposes of his own residence, the annual value shall be determined in the same manner as if the property had been let to a tenant, so however that, where the sum so determined exceeds ten per cent. of the total income of the owner, the annual value of the property shall be deemed to be ten per cent. of such total income." Thus, it will be seen that by virtue of this amendment, the owner-occupied property was brought on a par with the property leased to a tenant, with reference to municipal tax. There had been subsequent amendments to Section 9 of the 1922 Act, but this part of the provision has not been affected by those amendments. When the 1922 Act was replaced by the 1961 Act, Section 9 was split up and recast into Sections 22 to 27 and for the purpose 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. Explanation.--For the purposes of this sub-section in the case of a property the construction of which was completed before the 1st day of April, 1950, the total amount of such taxes, and in the case of any other property, one half of the total amount of such taxes shall be deemed to be the tenant's liability : Provided further that in the case of a building comprising one or more residential units the erection of which is begun and completed after the 1st day of April, 1961, the annual value as determined under this sub-section shall, for a period of three years from the date of completion of the building, be reduced by a sum equal to the aggregate of-- (i) in respect of any residential unit whose annual value as so determined, does not exceed six hundred rupees, by the amount of such annual value; (ii) in respect of any residential unit whose annual value as so determined exceeds six hundred rupees, by an amount of six hundred rupees ; so, however, that the income in respect of any residential unit is in no case a loss." The first proviso and the Explanation to the said sub-section were replaced by a new proviso with effect from April i, 1969, by the Finance Act of 1968, as follows: " Provided that where the property is in the occupation of a tenant, the taxes levied by any local authority in respect of the property shall, to the extent such taxes are borne by the owner, be deducted in determining the annual value of the property."
(3.) SUB-section (2) of this section is as follows : " 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 : Provided that where the sum so arrived at exceeds ten per cent. of the total income of the owner (the total income for this purpose being computed without including therein any income from such property and, before making any deduction under Chapter VI-A or Section 280-0), the excess shall be disregarded. Explanation.--Where any such residential unit as is referred to in the second proviso to SUB-section (1) is in the occupation of the owner for the purposes of his own residence, nothing contained in that proviso shall apply in computing the annual value of that residential unit." As far as 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 the Appellate Assistant Commissioner, as confirmed by the Income-tax Appellate Tribunal, is that the expression "the annual value shall first be determined as in Sub-section (1)" will take in not only the main part of Section 23(1), but also the proviso occurring in the sub-section dealing with the deductibility of the municipal tax paid by the owner. The question for consideration is which of the two views is correct. ;


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