1. This appeal of the assessee against "the order of the AAC arising out of the assessment for the year 1981-82 (accounting period from 1-4-1980 to 31-3-1981) has these relevant facts.
2. The ITO while determining the annual value of the house property deducted Rs. 8,808 on account of municipal tax levied and paid for that year from the gross rent of the property. The assessee claimed deduction of Rs. 23,489 on that account on the ground that there was increase in the rent of the house property from 1-4-1980 and, therefore, he would be required to pay municipal taxes on the enhanced rent, which on calculation came to Rs. 23,489. Contention of the assessee before the ITO was that municipal tax was though not levied on the enhanced rent but it was bound to be levied at any time in future and he would be under obligation to pay the same. It was also his contention that arrears of the enhanced tax would not be allowable to him as deduction from the gross rent in future and, therefore, he claimed the same on fair estimate on accrual basis. The ITO turned down such contention of the assessee on the reasoning that in terms of the first proviso to Section 23(1) of the Income-tax Act, 1961 ('the Act'), only taxes levied by the local authority were deducted and no further deduction could be allowed in anticipation of enhanced tax. The AAC concurring with the finding of the ITO dismissed the appeal.
3. The learned Counsel for the assessee referred to the judgments of the Hon'ble Supreme Court in CWT v. K.S.N. Bhatt [1984] 145 ITR 1 and CWT v. Vadilal Lallubhai [1984] 145 ITR 7 and argued that as in the case of Income-tax and wealth-tax, the liability crystallised on the last day and on the valuation date, respectively, of the relevant assessment year, the municipal tax liability also crystallised on the last day of the previous year and same should be given credit though not actually paid. Further, according to him, in the case of CIT v.Dalhousie Properties Ltd. [1984] 149 ITR 708 (SC), the municipal tax levied though not actually paid and was disputed by the assessee, was held by the Hon'ble Supreme Court to be deducted. He further relied upon the order dated 2-7-1981 of the Tribunal, Calcutta Bench 'D' in the case of ITO v. Smt. Pusparani Anand [IT Appeal No. 1599 (Cal.) of 1980] in which it was held by the Tribunal that the amount of municipal tax fin respect of which though demand notice was not served was allowable as deduction.
4. The learned departmental representative on the other hand contended that no tax was actually levied on the increased rent by the Municipal Corporation of Calcutta and, therefore, the assessee could not claim deduction on mere assumption of enhancement of tax. Further, he referred to the judgment of the Madras High Court in CIT v. L.
Kuppu-swamy Chettiar [1981] 132 ITR 416 and contended that municipal tax was not automatic so as to require the property owner to pay the tax voluntarily and, therefore, liability to pay tax would arise only on actual levy and the deduction under proviso to Section 23(1) was justified only in the year in which the levy was made. It is also contended by him that in view of amendment of the first proviso to Section 23 by the Taxation Laws (Amendment) Act, 1984, with effect from 1-4-1985, the assessee would get a chance to claim deduction of the taxes in the year in which they would be actually paid.
5. In order to resolve the issue, it is necessary to refer relevant provisions of the Calcutta Municipal Act, 1951. Section 172 of the said Act deals with determination of annual value and duration of valuation.
It reads as under : (1) The valuation of any land or building situated in the several words, the respective numbers and boundaries of which are specified in Schedule V, which has been made before the commencement of this Act, and which is in force at the commencement of this Act shall remain in force and be deemed to be the valuation for the purpose of assessment of consolidated rate on such land or building under this Act until a fresh valuation is made under this Act.
(2) A general valuation under this Act shall be made by the Commissioner or, if the State Government so directs, by such agency as the State Government may, by notification in the Official Gazette, appoint. Such valuation shall have effect from the beginning of the quarter following that in which a notice under Section 178 is issued and shall remain in force in respect of each ward for a period of six years (irrespective of any alteration in the number or boundaries of such ward during the currency of such period), and may be revised thereafter at the termination of successive periods of six years.
Sub-section (3) of Section 172 mentions such conditions under which there can be revaluation for the purpose of imposing tax. None of these conditions mention if revaluation can be done because of increase in rent of the building. The assessee has no case that the. building was substantially altered or improved or reconstructed. Thus, the assessee though contemplated enhancement of municipal tax on account of increase in rent but in the Calcutta Municipal Act, there is no such provision for enhancement of tax on that account. On the other hand, the annual value of building for purpose of levy of tax once determined normally remains in force for a period of six years inasmuch as that according to Section 184 of the Calcutta Municipal Act, every valuation made under Section 172 shall, subject to the objections, be final. Thus, finality has been attached to the determination of annual value of a building. What the assessee has done is that he has computed the probable tax likely to be levied because of the enhancement in the rent in the light of provisions in Chapter XI of the Calcutta Municipal Act.
On such assumption, he came forward with the plea that so much tax would be levied. This is apparently blissful misapprehension of the law. Mere calculation of tax at the maximum imposable rate prescribed under Section 165 of the Calcutta Municipal Act does not and cannot amount to levy of tax. Section 165 authorises the municipality to levy tax within the certain limits. It cannot be assumed that in each and every case, the municipality would adopt with maximum scale of rate.
For levy of tax, certain procedure has been prescribed which is contained in Section 172. It is not like self-assessment of income-tax.
Determination of annual value is quasi-judicial act of the municipal authorities inasmuch as that the same is open to appeal before the Court of General Causes under Section 183 of the Calcutta municipal Act. After the annual value is determined, accordingly, the municipality determines the rate of tax, of course, within the limit permitted by Section 165. Thereafter, the municipal assessment book is maintained as required by Section 185 of the Calcutta Municipal Act and therein the amount payable quarterly is entered. After undergoing these statutory requirements, tax is levied. The Hon'ble Madras High Court has in the case of L. Kuppuswamy Chettiar (supra) aptly said 'the property tax is not an automatic levy so as to require the property owner to go and pay the tax voluntarily and without any levy, followed by a notice of demand from the departmental authorities'. Analysis of the Madras City Municipal Act, 1919 by the Hon'ble High Court in the following words is aptly applicable to the instant case : ...Broadly stated, the scheme is to continue the same rate of property tax until it is altered as a result of a quinquennial revision for which purpose the relevant procedure prescribed by the rules have to be gone into. There are also provisions for an assessec to contest the revision of the property tax by way of appeal, etc. As Section 104 contemplates a levy, it is clear that the liability to tax arises at the time of the actual levy____ 6. In view of above discussion, it is obvious that in fact there was no levy of tax by the Calcutta Municipal Corporation. It is only an assumption of the assessee to his advantage that there would be levy of tax. It is not the case of the assessee that the Calcutta Municipal Corporation has taken any step to revise the value, much less that any demand notice was served upon him, for enhanced tax.
7. Further, whatever fear the assessee has that he would be required to pay tax at the enhanced rate without setting deduction has been taken away by the Taxation Laws (Amendment) Act, 1984 by making a provision that actual amount of tax paid irrespective of the period to which it pertains would be an allowable deduction in the year of actual payment.
Section 23 was applicable to the case of the assessee has to be interpreted in the light of this amendment. Where facility has been given for claiming deduction in the year of actual payment, the question of claiming the said deduction on accrual basis does not and should not arise. However, in the instant case, there is no accrual of the liability at all.
8. Order of the Tribunal, Calcutta Bench, relied upon by the learned Counsel for the assessee has not considered the provisions of the Calcutta Municipal Act, and the amendment of first proviso to Section 23 of the 1961 Act was also not then in existence. We, therefore, respectively, express our inability to follow the same. We find that the order of the AAC is proper, it is confirmed.