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Issues: Whether conservancy tax and water rate levied by a local authority are taxes levied in respect of property within the third proviso to section 9(2) of the Income-tax Act, 1922, so as to permit only one-half deduction from the annual value.
Analysis: The provisions of section 9 distinguish between annual charges and taxes in respect of property, and the third proviso to section 9(2) allows only one-half deduction where the local authority tax is levied in respect of property and is payable wholly by the owner or partly by the owner and partly by the tenant. The character of the levy had therefore to be examined. The conservancy tax and water rate were imposed under the City of Nagpur Corporation Act, 1948 and the preserved rules under the Central Provinces and Berar Municipalities Act, 1922 only where municipal conservancy services were rendered or water was supplied. The levy was thus linked to direct services provided by the Corporation and was not attracted merely because property existed.
Conclusion: Conservancy tax and water rate are not taxes levied in respect of property within the meaning of the third proviso to section 9(2) of the Income-tax Act, 1922. The Tribunal was right in allowing full deduction.
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