Commercial surcharge recovered from tenants can form part of actual rent for house property income computation.

Commercial surcharge recovered from tenants for non-residential premises is treated as part of the actual rent for determining annual value under section 23(1) of the Income-tax Act. The Court reasoned that, under the municipal framework, the surcharge forms part of consolidated rates, the owner remains primarily liable to the municipality, and the statutory right to recover the amount from the occupier supports its character as a tenancy-related receipt. Amounts received in connection with the letting relationship retain their income character even if separately accounted for or later payable onward to the municipal authority. The recovered surcharge is therefore includible in income from house property, subject to deduction only when actually paid as permitted by law.

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Issues: Whether commercial surcharge recovered from tenants or occupiers in respect of premises used for commercial or non-residential purposes forms part of the actual rent received for the purpose of determining annual value under section 23(1) of the Income-tax Act, 1961.

Analysis: The Court held that the scheme of the Kolkata Municipal Corporation Act, 1980 shows that consolidated rates include surcharge and that the owner is primarily liable for payment, while retaining a statutory right to recover the amount from the occupier. Reading section 5 of the Income-tax Act, 1961 with section 23(1), the Court reasoned that once the amount is received in connection with the tenancy, its character as income is not destroyed merely because the owner may later be obliged to pass it on to the municipal authority. The statutory fiction under the municipal law enabling recovery as if it were rent supported, rather than excluded, the treatment of the recovered surcharge as part of rent. The Court also relied on the principle that amounts collected in the course of a legal relationship and received as part of consideration constitute taxable receipt, even if separately earmarked in accounts.

Conclusion: The commercial surcharge recovered from tenants forms part of the actual rent received and is includible in the computation of income from house property; the assessee's challenge fails.

Ratio Decidendi: Amounts recovered by a landlord from tenants as commercial surcharge, when received in connection with the letting relationship and recoverable under the governing municipal law as if rent, constitute part of the actual rent for section 23(1) and are taxable as income from house property, subject to deduction only when actually paid as permitted by law.

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