Deductibility of urban property tax: a charge arising only on default is not an annual charge and not deductible.

Whether urban immovable property tax under the Bombay Finance Act is deductible from income from property under Sections 9(1)(iv) or 9(1)(v) is addressed by analysing the statutory meanings of "annual charge" and "land revenue." The court reasoned that a charge that arises only on default is not an "annual charge," and that the Bombay statute itself treats the urban property tax as analogous to municipal taxation rather than land revenue. Consequently the tax does not qualify as an annual charge or as land revenue and is not deductible in computing income from property.

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Issues: Whether the urban immovable property tax paid under the Bombay Finance Act is deductible in computing income from property under Section 9(1)(iv) or Section 9(1)(v) of the Income-tax Act.

Analysis: The Court examined clause (iv) which permits deduction for an annual charge on the property and clause (v) which permits deduction for sums paid as land revenue. Section 24-B of the Bombay Finance Act creates a charge on the property only upon default in payment and makes that charge subject to prior payment of land revenue. The Court held that a charge arising only on default is not an "annual charge" within the meaning of Section 9(1)(iv). The Court further analysed the meaning of "land revenue" and observed that the Bombay legislation itself distinguishes the urban immovable property tax from land revenue; the tax is analogous to municipal taxes and is not land revenue within Section 9(1)(v).

Conclusion: The urban immovable property tax payable under the Bombay Finance Act is not deductible under Section 9(1)(iv) or Section 9(1)(v) of the Income-tax Act; the assessee is not entitled to any deduction.

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