1966 PLP 814 (PTD)
PRADESH AND BHANDARA, NAGPUR Versus M. G. CHITNAVIS
| Citation | 1966 PLP 814 (PTD) |
| Forum / Court | Bombay India |
| Bench Members | Tendolkar and Desai, JJ |
| Parties | PRADESH AND BHANDARA, NAGPUR Versus M. G. CHITNAVIS |
Q1: What are the key laws and sections cited in 1966 PLP 814 (PTD)?
This judgment primarily cites: statutory provisions as referenced in Pakistani case law index.
Q2: Which judicial bench decided the case 1966 PLP 814 (PTD)?
The case was heard and decided by the Bombay India bench comprising: Tendolkar and Desai, JJ.
Q3: What is the official citation format for this judgment on Pakistan Law Portal?
Cite this legal precedent as: 1966 PLP 814 (PTD) (PRADESH AND BHANDARA, NAGPUR Versus M. G. CHITNAVIS). Read the full summary and cross-referenced laws free on Pakistan Law Portal.
Headnotes / Summary
Income-tax Act (XI of 1922), S. 9 (1) (iv), (2), 3rd proviso Income from property-Deduction from annual letting value Conservancy tax and water rate imposed directly in exchange for services rendered, and not merely by reference to existence of property-Whether "in respect of property"-Whether deductible in full. Where it can be shown that a tax or rate is not attracted merely by reason of the fact that a property exists, and further that the tax or rate is really in exchange for services rendered, then it is not a tax "in respect of property" within the meaning of the third proviso to section 9(2) of the Income-tax Act, 1922. The assessee, who owned several properties, most of which were situate in Nagpur, claimed deduction in full from the annual letting value of the properties, of water rate and conservancy tax imposed under the City of Nagpur Corporation Act, 1948, which authorized the Corporation to impose a conservancy tax upon premises or compounds cleansed by the Corporation agency and a water rate where water was supplied by the Corporation: Held, that as the conservancy tax or water rate was imposed for a direct service rendered by the Corporation in exchange for the tax or rate, and as the conservancy tax or the water rate was not payable by reason of the mere fact that the property existed, the conservancy tax or water rate was not "in respect of property" within the meaning of the third proviso to section 9(2) of the Income-tax Act; and that the entire water rate and conservancy tax should be deducted in computing the assessee's income from property. STATEMENT OF CASE By this application, the Commissioner of Income-tax, Madhya Pradesh and Bhopal, Nagpur, requires the Appellate Tribunal to refer to the High Court one question of law which is said to arise out of the Tribunal's order in I. T. A. No. 1626 of 1954-55. Inasmuch as, in our opinion, a question of law does arise out of the aforesaid order, we hereby draw up a statement of the case and refer it to the High Court of Judicature at. Nagpur under section 66 (1) of the Indian Income-tax Act. Paries agree that the facts have been correctly stated. Mr. Bharuka is not satisfied with the form of the question of law.
2. The assessee, Shri M. G. Chitnavis, is a big landlord. He owns several properties. Most of these properties are situate in the City of Nagpur. A few properties are outside the City of Nagpur, but the - parties proceeded before the Tribunal on the footing that all the properties were within the jurisdiction of the Municipal Corporation of the City of Nagpur.
3. The assessee grants leases. All the leases are more or less alike. A copy of a sample lease-deed is Annexure A and forms part of the case.
4. The income from property is computed under section 9 of the Indian Income-tax Act. In the year of account ending 31st May 1950, the assessee's gross receipts amounted to Rs. 1,00,
840. This sum of Rs. 1,00,840 included property tax Rs. 4,720, water rate Rs. 6,480 and conservancy tax Rs. 3,568, totalling Rs. 14,769, which were separately credited in the books of. account. (In accordance with the Income-tax Officer's order the water rate and conservancy tax totalled Rs. 10,390). A sample copy of the receipt passed by the assessee is Annexure `B' and forms Part of the case.
5. The Income-tax Officer relying upon the third proviso to section 9 (2) of the Act computed the assessee's income from properties as follows: "Annual letting value including residential 1,00,840 Rs. Deduct 1/2 Municipal taxes 7,555 (1/2 of Rs. 10390 + Rs. 4720) Rs. Less 93,285 Rs. 1/6th for repairs 15,547 Insurance 1,890 Vacancy 325 Interest on mortgage 6,739 Ground rent 298 Land revenue 442 Collection charges as last year 5,362 Irrecoverable rent 1,360 31,963 61,322
6. The assessee appealed to the Appellate Assistant Commissioner and contended, inter alia that what should have been deducted from the sum of Rs. 1,00,840 was the entire water rate and conservancy tax and one-half of Rs. 4,720 (property tax). This contention was not accepted by the Appellate Assistant Commissioner, whereupon the assessee appealed to the Appellate Tribunal.
7. The same contention was repeated before the Appellate Tribunal. It was accepted by the Tribunal for the reasons recorded by it in its order, a copy of which is Annexure `C' and forms part of the case.
8. In the past, i.e. before the amendment of the Income-tax Act by the Income-tax (Amendment) Act, 1950 (LXXI of 1950), the annual letting value used to be determined by the Department after deducting from the gross receipts the entire Municipal taxes levied on the properties, namely, water rate and conservancy tax. As there is no dispute about the property tax, we are not referring to it. The third proviso to section 9 (2) which, it appears, was intended to give relief to property owners, was interpreted by the Income-tax authorities in a manner prejudicial to the property owners. According to the Income-tax authorities, the water rate and the conservancy tax levied under the City of Nagpur Corporation Act, 1948, were payable wholly by the owner or partly by the owner and partly by the tenant: vide the third proviso to section 9 (2).
9. The question of law that, therefore, arises is. Whether the conservancy tax and the water rate are payable wholly by the owner or partly by the owner and partly by the tenant within the meaning of the words of the third proviso to section 9 (2) of the Income-tax Act" M. P. Amin with G. N. Joshi for Commissioner. N. A. Palkhiwala with M. R. Bobde for the Assessee.
Judgment & Decree
TENDOLKAR, J.-This reference raises a short question of law. The question as formulated is: "Whether the conservancy tax and the water rate are taxes levied in respect of property (payable wholly by the owner or partly by .the owner and partly by the tenant) within the meaning of the words of the third proviso to section 9 (2) of the Indian Income-tax Act?" Now, the assessee in this case is one Mr. M. G. Chitnavis, who owns several properties most of which are in the City of Nagpur, and the matter was dealt with by the Income-tax authorities and by the Tribunal on the footing that all properties were in Nagpur. The income from property was computed under section 9 of the Income-tax Act for the year of account ending with 31st May 1950. The assessee's gross receipts amounted to Rs. 1,00,
840. This sum included property tax Rs. 4,720; water rate Rs. 6,480 and conservancy tax Rs. 3,568 making a total of Rs. 14,769, which were separately credited in the books of account of the assessee. The Income-tax Officer, ,relying upon the third proviso to section 9, subsection (2), computed the assessee's income from property by taking the annual letting value at Rs. 1,00,840 and deducting therefrom half of all the three taxes together. The assessee appealed to the Appellate Assistant Commissioner and contended that what should have been deducted was, so far as conservancy tax and water rate were concerned, the entire tax. This contention was not accepted by the Appellate Assistant Commissioner and the assessee appealed to the Tribunal, who accepted this contention and held that the water rate and the conservancy tax should have been deducted in full .and they did not fall within the scope of the third proviso to section 9, subsection (2). The question that is raised before us is whether the Tribunal was right in coming to that conclusion. Turning to section 9, subsection (1) provides that the tax shall be payable by the assessee under the head "Income from Property" in respect of the bona fide annual value o property. Sub-clause (iv) of subsection (1) provides for an allowance in " an annual charge. Then an explanation at the end of subsection (1) enacts: "For the purposes of clause (iv) of this subsection the annual charge does not include any tax in respect income from property levied by a local authority a State Government or the Central Government." Then subsection (2) provides: "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." And the third proviso to this subsection reads: "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 authorizing 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 shall, notwithstanding anything contained in such law, be deemed to be the tenant's liability for such taxes." Therefore, reading these relevant provisions of the law, it is quite clear that tax "in respect of property" can be deducted from the annual value only to the extent provided in the third proviso to section 9, subsection (2), and that is, to the extent of one-half of the total amount of such tax. This deduction can be made if the tax is payable wholly by the owner or partly by the owner and partly by the tenant; and it is to be made notwithstanding anything contained in the law imposing the tax. In this case, there is no dispute that these taxes were payable by the owner or partly by the owner and partly by the tenant ; but the dispute centres upon whether the conservancy tax and the water rate were taxes levied "in respect of the property". The question, therefore, that has been referred to us does not truly bring out the dispute between the parties, and we propose to reframe the question as follows: "Whether the conservancy tax and the water rate are taxes levied in respect of the property within the meaning of those words in the third proviso to section 9 (2) of the Indian Income-tax Act?" Now, on the one hand, Mr. Palkhiwala for the assessee has argued that the words "in respect of the property" in the third proviso to section 9, subsection (2), mean nothing more or less than a property tax and do not include within its scope any other tax in relation to property; on the other hand, Mr. Amin for the Income-tax Commissioner has attempted to argue that the words "in respect of the property-" include all taxes which have any relationship to the property at all. It appears to us that for the purposes of deciding this particular reference it will not be necessary for us to determine the exact scope of the words "in respect of the property" used in the third proviso to section 9 (2); but we are certainly not prepared to accept the very wide proposition canvassed for by Mr. Palkhiwala that the words do not mean anything more than a property tax. A property tax was well known and has been well known in this country for very many years ; and merely as a matter of legislative history the proviso was put in order to get over a judicial decision that a property tax - had to be deducted from the annual value. Therefore in using, the words "tax in respect .of the property" instead of the words "property tax", the Legislature could not have intended that any tax other than a property tax was necessary outside the scope of the proviso. But it appears to us that where it can be shown that the tax is not attracted merely by reason of the fact that the property exists, and, further, that the tax is really in exchange for services rendered, then, in any event, it is not a tax "in respect of the property"; and this appears to be the case in respect both of the conservancy tax and the water rate. Now, these taxes are levied under the City of Nagpur Corporation Act, 1948. Section 114, subsection (1), of that Act authorises the Corporation to impose "(b) a latrine or conservancy tax payable by the occupier or owner upon private latrines, privies or cesspools or upon premises or compounds cleansed by Corporation agency;" and "(d) a water-rate, where water is supplied by the Corporation." It will be seen, therefore, that the Act which authorises the imposition also provides that two conditions shall be fulfilled before a conservancy tax is payable: (1) that the occupier or owner must have private latrines, privies or cesspools or other premises or compounds; and (2) that such latrines, privies or cesspools or premises or compounds are cleansed by Corporation agency. Therefore, it is clear that the power to impose this tax itself provides for a direct service to be rendered by the Corporation in exchange for the tax and the tax is not levied merely by reason of the fact that a building exists. With regard to the water rate, the words in the Act are "where water is supplied" and, therefore, if the Corporation does not supply water, there can be no water rate. Here again, there is a service directly rendered and it is for that service that the rate is imposed. Then turning to the rules made for the purpose of imposing these taxes which are the rules which were made under the Central Provinces and Berar Municipalities Act, 1922, which was repealed by the City of Nagpur Corporation Act, 1948, but the rules made under which have been preserved in force by section 3 (2) of the City of Nagpur Corporation Act, rule 2 (ii) provides for the imposition' of a conservancy tax "on every building or land to which a private latrine, privies or cesspool is attached, or any resident whereof uses a private latrine, privy or cesspool, which is either cleansed by municipal agency or is connected with the municipal underground sewer, or the premises or compounds of which are cleaned by municipal agency." Here again, the rule specifically gives effect to the conditions imposed on the power of the Corporation to levy the tax, which bring in directly a service rendered by the Corporation to the owner or occupier of the property. Then the rules relating to the imposition of the water rate, which are also rules made under the Central Provinces and Berar Municipal Act, 1922, and which have-continued in force, provide in rule 1, sub-rule (1) (a), that "there shall be imposed on every building or land which has a private supply of water from Municipal service pipes or any resident whereof uses water from such supply, water rate leviable from the owner or occupier . . . . . . . according to the following scale . . . . " Therefore, an essential prerequisite for the collection of .a water rate is that the building should either have a private supply from the municipal main or a resident of that building should have water from municipal mains. Here again, the rate is imposed directly in exchange for services rendered to the owner or occupier of the building, and in both cases, therefore, it cannot be said that the conservancy tax or the water rate became payable by reason of the mere fact that the property existed and, in addition, that it was payable in exchange for services rendered. In our opinion, therefore, in respect of these two taxes it cannot be said that they are taxes "in respect of the property" within the meaning of the third proviso to section 9, subsection (2), and the Tribunal came to a correct conclusion on this issue. Our answer, therefore, to the amended. question shall be in the negative. The Income-tax Commissioner to pay costs. Question answered in the negative.