COMMISSIONER OF INCOME-TAX CALCUTTA vs. DALHOUSIE PROPERTIES LTD.

CIVIL APPEAL No. 3786/1982Supreme Court[1985] 1 S.C.R. 61323 August 1984Bench: 2 JudgesAuthor: E.S. VENKATARAMIAH, V. BALAKRISHNA ERADI5 pages
AI SummaryDismissed

What were the facts?

For the assessment year 1966-67, Dalhousie Properties Ltd. (the assessee) claimed a deduction of Rs. 1,78,784, representing municipal taxes levied by the Corporation of Calcutta, while computing its income from house property. The assessee had questioned the extent of this enhanced tax liability before the Corporation and had not actually paid the entire amount. The Income-tax Department rejected this claim. The Income-tax Appellate Tribunal allowed the deduction, holding that the total liability was deductible under the proviso to section 23(1) of the Income-tax Act, 1961, irrespective of actual payment or dispute. The High Court, on reference, upheld the Tribunal's decision. The Commissioner of Income-tax filed a special leave petition to appeal.

What did the Supreme Court hold?

The Supreme Court held that the expression 'borne by the owner' in the proviso to section 23(1) of the Income-tax Act, 1961, as it stood in assessment year 1966-67, refers to the amount of tax which the owner is liable to discharge, not the amount actually paid. The Court reasoned that the 'annual value' is a notional figure. Deducting taxes for which the owner has assumed responsibility, based on liability rather than actual payment, ensures that the annual value remains stable during the previous year and avoids unwarranted fluctuations. Therefore, it is not necessary for the assessee to have actually paid the tax before claiming the deduction. This principle applies even if the assessee has disputed the correctness of the levy before local authorities, as a mere expectation of success in such proceedings does not disentitle them to the statutory deduction based on the levy in force. The High Court was correct in its decision.

What were the issues?

1. Whether, for determining the annual value of property under section 23(1) of the Income-tax Act, 1961, as it stood in assessment year 1966-67, the expression 'borne by the owner' in the proviso refers to the amount of municipal tax the owner is liable to pay, or the amount actually paid in discharge of that liability? Assessee's contention: The assessee argued that the total liability for municipal taxes, whether actually paid or not, was deductible under the proviso to section 23(1). Revenue's contention: The department rejected the claim, implying that actual payment was a prerequisite for deduction.

Which sections of the Income-tax Act were involved?

Section 23(1),Section 22,Section 256(1)

AI-generated summary — verify with the full judgment below

• • COMMISSIONER OF INCOME-TAX CALCUTTA v. DALHOUSIE PROPERTIES LTD.

August 23, 1984 [E.S. VENKATARAMIAH AND V. BALKARISHNA ERADI, JJ.] 613 A n Income-tax Act, 1961-Proviso to secteon 23 (I) it as stood in the assessment. year 1966-67-For determining annual value of property assessee entitled to clainJ deductio~ of total liability of municipal tar,es whether actually paid or not. C Words and phrases-Expression 'borne'-Scope of.

White determining the· annual value of the property which was liable to iricome-tax for the assessment year 1966-67 under the head "Income from house propf(rty" under section 22 of the Income-tax Act, 1961, the respondent-asses- see claimed that the total liability for municipal taxes levied by the corpo- ration, whether actually paid or not and whether the extent of liability ques- tioned or not, was deductible under the priviso to section 23 (I) of the Act.

The department, rejected the claiin. The Income-tax Appellate Tribunal allowed the claim. On a refrence being made the High Court held in favour of the assessee. Therefore the department filed this petition for special leave to appeal.

Dismissing the petition, HELD : The only poi

The order continues below.

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