Municipal tax paid for business use of jointly owned premises can qualify as rent or business expenditure.

Municipal tax paid by a co-owner-assessee under an occupancy arrangement with the other co-owners was treated as part of the consideration for business use of the premises and could qualify as rent under section 30. The payment was not invalid merely because the property was jointly owned, since one co-owner was permitted to occupy and use the premises under agreement. Independently, the same outgo was also allowable as business expenditure under section 37 because it was incurred for the purposes of the business. The disallowance was therefore not sustainable.

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Issues: Whether municipal tax paid by a co-owner-assessee under an arrangement with other co-owners, in lieu of rent for use of the business premises, was deductible as rent under section 30 of the Income-tax Act, 1961 or alternatively as business expenditure under section 37 of the Income-tax Act, 1961.

Analysis: The arrangement between the co-owners provided that the assessee would bear the municipal taxes for the entire property in consideration of his right to use the third floor for business. The payment was treated as part of the consideration for occupation of the premises and was capable of answering the description of rent, which under the law may consist of money or any other thing of value rendered periodically. The arrangement was also not invalid merely because the property was jointly owned and one co-owner was permitted to occupy and use it under the agreement. Independently, the expenditure was also found to be allowable as a business outgoing under section 37, since it was incurred for the purposes of the business and fell within the liberal construction given to business expenditure.

Conclusion: The municipal tax payment was allowable as a deductible business outgoing and the disallowance could not be sustained.

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