Municipal property taxes affect annual value, but are not separately deductible as allowances under the property-income provisions.

Municipal property tax and urban immovable property tax may be considered in fixing the reasonable annual value of property under the Income-tax Act, because annual value is the amount a property might reasonably be expected to let for from year to year having regard to ordinary landlord liabilities. They are not, however, separately deductible as allowances in computing annual value, and they do not qualify under the provision for an annual charge not being a capital charge where the municipal levy is treated as a charge on the property itself. The reference was answered against the assessee.

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Issues: Whether municipal property tax and urban immovable property tax were to be deducted while determining the annual value of property, or treated as allowable deductions under Section 9(1)(iv) or Section 9(1)(v) of the Income-tax Act.

Analysis: The annual value under Section 9(2) is the sum for which the property might reasonably be expected to let from year to year, and that figure must be determined having regard to the prevailing circumstances and liabilities ordinarily borne by the landlord. On that basis, municipal taxes are relevant in fixing the reasonable letting value, but they are not separately deductible as an allowance before annual value is computed. The property taxes also did not fall within Section 9(1)(iv), because the charge created by the municipal law was treated as a charge on the property itself and not as an annual charge not being a capital charge. Section 9(1)(v) was not pressed.

Conclusion: The municipal taxes were not deductible either in computing annual value or as an allowance under Section 9(1)(iv), and the reference was answered against the assessee.

Final Conclusion: The governing rule is that municipal property taxes may be a factor in fixing reasonable annual value, but they do not qualify as deductible allowances under the relevant property-income provisions.

Ratio Decidendi: Municipal taxes that are charged on the property itself are not an annual charge not being a capital charge for purposes of deduction, though they may be considered in arriving at reasonable annual value.

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