Municipal tax deduction under income tax law denied where the levy was treated as a capital charge, not an annual charge.

Municipal general tax payable under the City of Bombay Municipal Act, 1888 is not deductible under section 9(1)(iv) of the Indian Income-tax Act, 1922. The provision allows deduction for interest on a mortgage or other capital charge and, after the 1939 amendment, for an annual charge not being a capital charge. The tax was assessed annually and payable in instalments, but it did not constitute an annual charge in its true character, and any charge created by the municipal law operated as a charge on capital. The statutory scheme also showed that, where municipal taxes or local rates were intended to be deductible, the Act said so expressly.

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Issues: Whether municipal general tax payable under the City of Bombay Municipal Act, 1888, is deductible under section 9(1)(iv) of the Indian Income-tax Act, 1922 as an annual charge not being a capital charge.

Analysis: The allowance under section 9(1)(iv) applies to interest on mortgage or other capital charge, and, after the 1939 amendment, to an annual charge not being a capital charge. The municipal general tax was assessed annually, payable in half-yearly instalments, and became a first charge on the property only on default under section 212 of the City of Bombay Municipal Act, 1888. On its true character, the tax was not an annual charge within the meaning of section 9(1)(iv), and in any event the charge created by the municipal law was a charge on capital. The scheme of the Income-tax Act also showed that, where the Legislature intended deductions for municipal taxes or local rates, it said so expressly, as in section 10 and section 9(1)(v).

Conclusion: Municipal general tax paid under the City of Bombay Municipal Act, 1888 is not deductible under section 9(1)(iv) of the Indian Income-tax Act, 1922.

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