- (1.) BY this reference under section 256 (1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this Court for opinion at the instance of the revenue : "whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the assessee is entitled to the deduction of Municipal taxes of Rs. 28,687/- which pertained to the period prior to the previous year relevant to the assessment year 1976-77 for which relevant notice of demand dated 20-10-1975 in the relevant accounting year?"
(2.) THE controversy in this reference pertains to assessment year 1976-77, the relevant previous year being the year ended on 31st March, 1976. The assessee filed a return of income for the above assessment year on 9th September, 1976, disclosing total income of Rs. 38,970/ -. The above total income included net income of Rs. 13,669/- under the head "income from house property". On examination of the return, the Income-tax Officer found that in computing her house property income during the assessment year under consideration, the assessee deducted a sum of Rs. 28,687/- being Municipal taxes payable as per demand notice dated 20th October, 1975 received by the assessee during the relevant previous year on 4th December, 1975. Though the demand of Municipal taxes raised by the above demand notice was relatable to earlier previous years, the assessee claimed deduction of the same in computation of her income for the above assessment year on the ground that the demand notice for the payment of the same had been issued by the Municipal Corporation and received by the assessee in the previous year relevant to the assessment year under consideration. The Income-tax Officer did not allow the deduction on the ground that the demand did not relate to the previous year relevant to the assessment year under consideration. Aggrieved by the order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner of Income-tax. Before the Appellate Assistant Commissioner, it was contended by the assessee that though the Municipal taxes related to earlier years, the liability on account thereof accrued in the relevant previous year on receipt of the demand notice from the Municipality by the assessee which entitled her to claim deduction in computing her house property income of that year. The Appellate Assistant Commissioner accepted the above contention of the assessee. He held that though the liability to pay the Municipal taxes amounting to Rs. 28,687. 00/- related to earlier years, it accrued in the relevant previous year on receipt of the demand notice dated 20th October 1975 by the assessee on 4th December 1975 and, therefore, it was an allowable deduction in computation of her house property income for the relevant assessment year. He, therefore, allowed the appeal of the assessee and directed the Income-tax Officer to accept the claim of the assessee for deduction of the above amount of Municipal taxes. The appeal of the revenue against the order of the Appellate Assistant Commissioner was rejected by the Income-tax Appellate Tribunal ("tribunal" ). Hence this reference at the instance of the revenue.
(3.) WE have heard the learned Counsel for the revenue Mr. R. V. Desai. There is no dispute about the fact that in determining the annual value of any property for the purposes of section 22 of the Act, Municipal taxes levied in respect of that property and borne by the owner are deductible. The only controversy is whether deduction can be allowed of Municipal taxes pertaining to earlier assessment years the demand in respect of which has been raised in the relevant previous year.;