THE NEW PIECEGOODS BAZAR CO., LTD., BOMBAY versus THE COMMISSIONER OF INCOME-TAX, BOMBAY

,

$.c.R.

SUPREME COURT REPORTS

553

deposited with the respondents did not require tration and was properly admitted the creation of the charge.

regis in evidence to prove

The appeal fails and is dismissed with costs.

Appeal dismissed.

Agent for the appellant: Tarachand Brijmohanlal. Agent for respondent No. 1 : S. P. Varma.

I

1950

R~ Mfl"'qj v. · Bliagwandas Daruka AtttJ Othm

P atanjali Sastri J.

THE NEW PIECEGOODS BAZAR CO., LTD., BOMBAY

ti. THE COMMISSIONER OF INCOME-TAX, BOMBAY

1950

May26

[SAIYID FAZL ALI, PATANJALI SASTRI, MEHR CHAND MAHAJAN and , MUKHERJEA JJ.]

Indian Income-tax Act (XI of 1922), s. 9(1) (iv)-Income from .not being pt"Operty-Computation-Deductions-"Annual capital charge"-"Annual charge" ·and '~capital .charge", mean-· ittgi of-Charge for. municipal . property tax and urban immoveable pro,,my tax-Whether deductible--City of Bombay Municipal Act, 1888, s. 212--,-Bombay Finance Act, I 932, s. 22.

charge

The charge created in respect of municipal property

tax by s. 212 af the City of Bombay Municipal Act, 1888, is an "annual charge not being a capital charge" within the meaning of s. 9 ( 1) (it) of the Indian Income-tax Act, 1922, and the amount of such charge should therefore be deducted in computing the income from such property for the purposes of .s- 9 of the Indian Income tax Act.

The charge in . respect of urban

tax created by the Bombay Finance Act, 1932, is similar in character and the amount of such charge should also be deducted_

immoveable property

Tl* expression

"capital charge"

in s. 9 (1) (iv) means a charge created for a capital sum, that is to say, a charge created to secure liability of a capital nature; and an "annual charge" means a charge to secure an annual liability.

the discharge of a

1950

.N n11 Pieugoods Baz;ar Co. Lid. v. Co.unissioner .of lnamu-lax, Bomb47

Ma/iqjan ].

554

SUPREME COURT REPORTS

(1950}

APPELLATE LXVI of 1949 .

JuR1so1cnoN: Civil Appeal

No.

Appea~ from

the High Court of Judicature, the

section 66 of

reference under

Bombay, m a Indian Income-tax Act,. 1922.

K. M. Munshi (N. P. Nathvani, with him),

for

the appellant.

M. C. Setalvad, Attorney-General (H. J. Umrigar, with him), for the respondent.

for

India

1950. May 26. The

judgment of the Court was

delivered by

MEHR

CHAND MAHAJAN J.--This

is an appeal against a judgment of the High Court of Judicature at the Bombay in an income-t:\X matter and tax and urban question whether municipal property immoveable property tax payable under the relevant Bombay Acts are allowable deductions under section 9 (1) (iv) of the Indian Income-tax Act.

it raises

in

For

in the

its income

as urban property tax. Deduction of t

The assessee company is an investment company deriving the city of from properties the assessment year 1940-41 the net Bombay. income of the assessee under the head "property" was computed by the Income-tax Officer sum of Rs. 6,21,764 after deducting from gross rents certain payments. The company had paid during the releva year Rs. 1,22,675 as municipal property Rs. 32,760 two sums was claimed under the provisions of section 9 of the Act. Out of the first item a deduction in the sum of Rs. 48,572 was allowed on the ground that this item represented tenants' burdens paid by the assesscc, the cl.aim was disallowed. The appeals of -0therwise the assessee to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal were un successful. The Tribunal, · however, · agreed to refer two questions of law to the High Court of Judicature at Bombay, namely,-

tax

·

(1) Whether

the :;ipplicant-company are an an~wable deductio11 under

the munic;ipal

taxes pai(l by

,

S.C.R.

SUPREME COURT REPORTS

555

the provisions of section . 9 ( 1) Income-tax Act ;

(iv) of the

Indian

1950

New Pi4cegoods Baz:ar Co. Ltd.

v. Commissioner of Incorne-t1J1<, Bombay

MllMjan].

(2) Whether

immoveable property the urban taxes paid by the applicant-company are an allowable deduction under section ? (1) (iv) or under section 9 (1)

(v) .of the Indian Income-tax Act. A supplementary reference was made covering a third question which was not raised before us and it is not therefore necessary refer to it. The High to Court answered all the three questions in the . negative .and hence this appeal.

The question for- our determination is whether the municipal property tax immovable pro and urban perty tax can b~ deducted as an alfowance under clause 9£ section 9 of the Act. The (iv) of sub-section (1) the construc ·decision of the point depends tion of the language employed (iv) of sub-section (1) of section 9 of the Act, and secondly, on a. finding as to the true nature arid character of the liability of the owner under the relevant Bombay Acts for the payment of these taxes. Section 9 along with

the relevant clause

firstly on

sub-clause

runs

in

thus:- ( 1) The tax shall be pa,yable by an assessee "9. under the head in respect of from property' the bona fide annual value of property consisting of any buildings or· lands appurtenant thereto of which he is the owner, ...... subject to the following allowances, namely:-

'income

(iv) where. the property is subject to a mortgage or other capital charge, the amount of any interest on such mortgage or charge ; where the property is subject to an annual charge not being a capital charge, the is subject amount of such charge ; where the property to a ground rent, rent: and, where the property has been acquired, constructed, reconstructed with borrowed repaired, capital, interest payable on such ~ap1ta : ......... . \ • II

renewed or the amount of any

the amount of such ground

It will be seen that clause

clauses corresponding

to

(iv) consists of four sub the four deductions allowed

1950

New Piectgoods Bazar Co. Ltd. v. Commissionn of /n1;omt-tax, Bombay

Mahajma].

556

SUPREME COURT REPORTS

[1950]

the first,

the clause. Before

the amending Act of 1939, under the clause (iv) contained only third and fourth sub-clauses. Under the first sul>-clause interest is deduct the amount borrowed on the security of ible whether the property was spent on the property or not. There is no question of any capital or other expenditure on the property. The expression "capital charge" the sub-clause cannot connote a charge on the capital, that the property assessed. That would be a redundancy is, as the opening words that the charge is on ·the property. We are therefore of only mean a opinion charge created for a capital sum, i.e., a charge to secure the discharge of a liability of a capital nature.

that capital charge here could

themselves clearly

indicate

in

).

In 1933

It was not a

liability voluntarily

the amount paid by him

the case of the Privy Council decided Biioy Singh Dud huria v. Commissioner of Income-tax It was not an assessment under section 9 Calcutta (1 but an assessment on the general income of an assessee who was liable to pay maintenance for his step-mother which had been charged on all his assets by a decree of Court. incurred by him but one cast on him by law. The Privy Council held that in discharge of that liability formed no part of his real income and so the should not be included in his assessment. Though deci,ion proceeded on the principle that the outgoings were not part of the assessee's the framers of the amending Act of 1939 wanted, to extend the principle, the assessment of pro to cases where obligatory perty was concerned, payments had to be made out of the income assessee's from the property charged with such payments, and namely, "where the property is the second subject to an annual charge not being a capital charge, the amount of such charge" was added. is this sul>-clause which the appellant in support of its claim to deduction of the municipal and urban pro In view of the opening perty taxes in the present case. words of the newly added the expression also used therein cannot have refer "capital charge" and we think it must ence to a charge on the property,

so far as even

income at all,

apparently,

sul>-clause,

sub-clause,

invokes

It

( 1) T.t •. R. 6o Cal. 1029.

1950

Ntt11 Pieugoods Bazar Co. Ltd. v. Commissioner of lncMm-lfVI,. Bomh<ry

Mahajan].

S.C.R.

SUPREME COURT REPORTS

557

be understood that is to say, deduction of interest where a capital on the property, tion of annual sums so charged, capital sums, exclude cases where capital the property is made

in the same sense as in sub-clause ( 1); the first sub-clause having provided for is charged this sub-clause provides for a- deduc such sums not being intended to the securiy of

raised on repayable in instalments.

the limiting words being

sum

In

of

Commissioner Mahomedbhoy Rowji (1 Court considered regards follows:-

Income-tax, Bombay v. ), a Bench of the Bombay High the meaning of these words. As "annual charge," Beaumont C. J. observed as

"The words, secure an annual liability."

I think, would cover a charge to

Kania J ., as he then was, said as follows :-

"I do not see how a charge can be annual unless to be made in respect of a payment

it rnearis a charge a nmw ll v."

This construction of in the iudgment under appeal.

the words has been followed

)

In Gappumal Kanhaiya Lal

Income-tax (2 (the connected appeal before use), Bench of the Allahabad High Court agreed with construction placed on these words in i.e., the words case, to secure an annual liabilitv. there ·is no meaning of the phrase sectian 9 (1) meaning of these words.

v. Commissioner of the the the Bombay "annual charge" mean a charge It is therefore clear that the in (iv) and the meaning given is the natural

confli~t of j~dicial decisions as

"annual charge"

occurring

to

to

that

As. to

referred

took the view

the phrase "capital charge", Beaumont C. J. in the case above the words mean a charge on capital. Kania J., however, took a different view and observed that he was not that a document prepared the suggestion which provides to be made monthly or annually and charged on immoveable pro pel:ty or the estate of an individual becomes a capital In the Allahabad judgment under appeal these charge. 1 )

a certain payment

l.L.R. 1943 Born. 628.

I.L.R. 1944 All. 780.

to accept

for

(1)

(

558

SUPREME COURT REPORTS

(1950)

1950

v. Commissioner ef /nfOme-tax, Bomb9

that

It was said to secure the discharge of an annual

words were considered as not meaning a charge on if an annual charge means capital. liability, a chrage the then, discharge of a liability of a capital nature. We think ·this construction the sec tion and is right.

capital charge means a charge

is a natural ~onstruction of

to secure

for

the

(vi de

to assess

value of

the lessor

depends on

. building m

in which entries have

The determination of the point whether the taxes "annual in dispute fall within the ambit of the phrase the charge not being a capital charge" they are levied. provisions of the statutes under which Section 143 of the City of Bombay Municip~l Act, 1888, authorises the levy of a general tax on all build ings and lands in the city. The primary responsibility section to pay Jhis property tax is on 146 of the Act). In order the tax provision for the determination of the annual has been made section 154. rateable Section 156 provides the maintenance of an be made to assessment book their every official year of all buildings in the cit)', rateable value, liable the names of persons primarily for payment of the property tax on such buildings and for which each building has been of the amount Section 167 lays down the assessment assessed. book need not be prepared every year but public notices shall be given in accordance with sec tions 160 to 162 every year and the provisions of the said sections an<l of sections 163 and 167 shall be ap lay down a pro plicable each year. These sections cedure for hearing objections and complaints agamst in· the assessment book. pro entries it tax visions determined 1s official the year and It recurs from Sections 143 to 168 concern themselves to year. year with the imposition, the liability and assessment of the year. The amount of the tax for the year tax for and the liability for its payment having been deter the Act then prescribes for its collection in the mined, "The collection of taxes". Section. 197 provides chapter taxes shall be payable in that each of the

From liability for each

the . that the 'beginning of

is an annual one.

clear at tax

property

official

these

that

the

is

S.C.R.

SUPREME COURT REPORTS

559

In other words,

advance in half yearly instalments on each first day of April and each first day of October. The provision as to instalment necessarily connotes an annual half yearly liability. it means that the annual liabi lity can be discharged by half yearly payments. Proce dure has also been prescribed for recovery of the instal ments by presentment of a. bill, a notice of demand and and ·sale. Finally section 212 provides as then distress, follows:-

1950

V111J Piecegoods, Baz.ar Co. Ltd. v. Commissi'lNr ?f ln&Omt-lax,. Bombay

Mahqjan].

"Property taxes due under

any building or land shall, ment of th_e land revenue, Government thereupon, said building or land ......... "

this Act

in respect of subject to the prior pay if any, due to the provincial be a first charge ...... upon the

It creates a statutory charge on the building. Urban immoveable property

in the same manner as

is laid on the munic!pality

tax is leviable under section 22 of Part VI of the Bombay Finance Act, 1932, on the annual letting value of the property. The duty to collect the tax it does so the municipal property tax. Section 24 (2) (b) is in terms similar to section 212 of the Bombay Municipal Act. It makes the the payment of this tax also. the purposes of section 9 of the taxes as well as the namely, urban immoveable property the same character and stand on the same footing.

Indian the municipal property

land or the building security

tax tax are of

Income-tax Act both

in the case of

these

and

For

for

that both

income-tax

Mr. Munshi,

the learned counsel for the appellant contended the taxes are assessed on the annual value of the land or the building and are annual although it may be that they are collected at taxes, intervals of six _ months for thi:: sake of convenience, that the is assessed on an annual that in allowing deductions all payments made basis, incurred during the ' prc;vious year of or all liabilities in assessment should be allowed and question fell clearly within the language of section 9 (1) (iv). The. learned Attorney-General, on the other hand, argued the to pay them arUc:t at the beginning year the liability

the taxes are assessed

that although

the taxes

itself

that

for

560

SUPREME COURT REPORTS

[1950]

1950

!(,.. Piee•& cods JJ"rw Co. l.J4. v.

~ of l"'601'W·IO¥, Bomb".1

Mahajan].

in

that

that levy on

two Bombay Acts

It is apparent from

It was also suggested

the payment. We are satisfied

is of each half year and unless a notice of demand is no liability to pay issued and a bill presented there then no charge under section 212 of them and that till the liability to that the Act could possibly arise and the charge is not an pay being half yearly in advance, the taxes anRUal charge. the sense of the property be were a capital charge that for ing security learned Attorney-General the contentions raised by the are not sound. tenor the whole the t axes are in the of the nature of an annual the property and are each assessed on the annual value of the property year. The annual liability can be discharged by half yearly instalments. The liability being al} annual one the pro and the property having been subjected to it, (iv) of sub-section ( 1) of section 9 are visions of clause immediately attracted. Great emphasis was laid on the word "due" used in section 212 of the Municipal Act and it was said that as the taxes do not become the payment due under the Act unless the time arrives, till then and is not an annual charge. We <lo not that the charge is a correct construction of section 212. think that this "property taxes due under this Act" mean The words property taxes for which a person is liable under the Act. Taxes payable during the year have been made a charge on the property. The liability an<l the charge co-exist and are co-extensive. The provisions of both the Act affording facilities. for the discharge of the liabi lity do not true nature and character. in can it be said the manner laid down by section 197, cannot be sold for recovery of the that the property whole amount due for the year ? The answer to this query can only be in the affirmative, the that property is liable to sale.

for no charge comes into existence

in any way affect If the annuaf liability

is not discharged

their

i.e.,

In Commissioner of Income-tax, Bombay v. Maho ( 1 ) Beaumont C. J., while rejecting the placed reliance on

medhov Rowji claim for the deduction of the taxes,

(1) T. L.R. '943 Born. 628.

1950

New Pm,gOf/ds Bazar Co. Ltd. v. CommissiOlllr of Income-It»<, Bombay

Mahajan].

S.C.R.

SUPREME COURT REPORTS

561

that

Justice said that

that circumstance

the deduction was not allowable.

section 9 (1) (v) which allows a deduction in respect of any sums paid on account of land revenue. It was observed that land revenue stands on the same footing the legislature made a as municipal taxes and that as special provision for deduction of sums payable in to land revenue but not in respect of sums paid regard indi on account of municipal taxes cated For the reference was also made to the provi same purpose sions of section 10 which deal with business allowances and wherein deduction of any sum paid on account of local rates or municipal taxes has been land revenue, allowed. In the concluding part of his judgment · the learned Chief it was not necessary for him . to consider what · the exact meaning of the it was sufficient for him to say words was and that that it did not cover municipal taxes which are made a charge on the property under section 212 of the Bombay Municipal Act. Without <leterminirig the exact meaning of the words u·sed by the statute .jt seems to us it was not possible the conclusion that the taxes were not within the ambit of the clause. It is elementary that the primary duty of a Court is tO' the intention of the legislature as ex to give effect in the words used by it and no outside con pressed sideration can be called in aid to find intention. ( v) of the section is not very Again reference to clause is · a .charge of a para helpful. because land revenue that be lands and mount nature on all buildings and a deduction in respect of the amount was men ing so, tioned · in express the terms. Municipal taxes, other hand, do not stand on the same footing as land revenue. The law as to them varies from province to province and they may 1wt be necessarily a charge on in all cases. The legislature ~eems to have property that thought as municipal taxe~ on property if they fall within the ambit of clause . Are concerned, deduction will be claimable in respect of them in section "Income from business" proceed on section 9 with

(iv), but not otherwise. The deductions alfowed 11) under the ·head a different footing and construction of the aid of section 10 is apt to mislead.

to arrive at

so far

that

on

1950

New Pitcegoods Bazar Co. 1.Jd. v. Commissiuner of lncome~tax, Bombay

Mahajan].

562

SUPREME COURT REPORTS

f 1950 I

Kania J.

in

i.e., liable

the consideration

under the various that

the above case in arriving at his conclusion was influenced by that these taxes were of a variable character, to be increased or reduced prov1s10ns of the Municipal Act and in the natu"re of a contingent charge. With great respect, it may be pointed out that all charges in a way may contingent nature. variable and of a be or If no default is made, no charge is ever enforceable and whenever there it can be increased or reduced during either by payment or hy additional borrowing.

is a charge, the year

the charge was

arc

In Moss Empires Ltd. v. Inland R~venue Commis sioners ( 1 ) it was held by the House of Lords that the fact that certain payments were contingent and vari their character of being able in amount did not affect "annual" must annual payments and that the word be taken to have recurrent or being capable of recurrence.

the quality of being

In Cunard's Trustees v. Inland Revenue Commis sioners ( 2 ) it was held that the payments were capable of being recurrent and were therefore annual payments recurrent year they were not necessarily even though in amount was by year and the fact they varied immaterial. The learned Attorney-General in view of these decisions did not suppor~ the view expressed by Kania J.

that

tax under

Reliance was placed on a decision of the High in Mamad Keyi v. Commissioner of Court of Madras in which moneys paid as Income-tax, Madras (..~,) the Bombay immoveable property urban Finance Act were disallowed as inadmissible under section 9 (1) (iv) dt 9 (1) (v) of the Indian Income-tax Act. This decision merely followed the view expressed in Commissioner of Income-tax, Bombay v. Mahomed· ( 1 within the meaning of schedule D case III, rule 1 ), bhov Rowji ( •) • and was not arrived at on any inde pendent or fresh reasoning and is not of much assistance in the decision of the case. The Allahabad High Court

(') (S)

[1937] A.C. 785. l.L.R. 1944 Mad. 399·

(') ~ 1 )

[1948] I A.E.R. 150. l t..R. 1943 Born. 628.

S.C.R.

SUPREME COURT REPORTS

563

in Gappumal Kanhaiya Lal v. Commissioner of Jncome tax ( 1 took a correct view of ) this matter and therein has our approval.

(the connected appeal

the reasoning given

The result is that this appeal is allowed and

the the High Court two questions which were referred by are answered in the affirmative. The appellants will have their costs in the appeal.

Income-tax Tribunal and cited above

the

to

1950

New Piecegoods Bazar Co. Ltd. v. Commissioner of fn,ome-tax, Bombay

Mahajan].

Appeal allowed.

Agent for

the appellants : M. S. Krishnamoorthi

Sastri.

. Agent for the· respondent : P. A. Mehta.

COMMISSIONER OF INCOME-TAX, U.P. v. GAPPUMAL KANHAlYA LAL

1950

May26

[SAIYID FAzL Au, PATANJALI SAsTRI, MEHR CHAND MAHAJAN ;nd MuKHERJEA JJ.] Indian Income-tax (XI of 1922), s. 9 (1) (iv)-lncome from p1"Dperty-Computation of annual value-Deduction of "annual charges not being capital charges"-Municipa/ house-tax and water tax-Whether deductible-Nature of such· charges-U.P. Munici palities Act (II of 1916), ss. 128, 149, 177.

The amount of house-tax and the amount of water-tax imposed by the municipal board of Allahabad under s. 128 of the Unit¢ Provinces Municipalities Act, 1916, and paid by the owner as a lessor under .s. 149 of the said Act are "annual charges not being capital _ charges is subject," within the meaning of s. 9 (1) (iv) of the Indian Income-tax Act, 1922, and should therefore be deducted from the bona fide ai;mual value of the property determined under sub-sections ( l) and - (2) of s. 9 of the Indian Income-tax Act

to which · the property

Judgment· of the Allahabad High Court affirmed. New Pieccgoods. Bazar Co. Ltd. v. Commissioner

of

Income-tax, Bombay fl950l S. C. R. 553) followed.

( 1 ) I.L.R. 1943 Born. 628.

.

4-5 S, C. Tndia (N. D )/58