Service linked municipal levies are not 'taxes in respect of the property', so the proviso to section 9(2) does not apply.

Conservancy tax and water rate are characterised as service linked municipal levies payable only when cleansing or water supply services are provided or used; consequently they are not taxes imposed merely by reason of property ownership and do not fall within the phrase "taxes levied by any local authority in respect of the property" in the third proviso to section 9(2) of the Income tax Act, 1922. The operative effect is that these levies are excluded from the proviso's scope, a conclusion reached in favour of the assessee.

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Issues: Whether conservancy tax and water rate imposed by the municipal authority are "taxes levied in respect of the property" within the meaning of the third proviso to section 9(2) of the Income-tax Act, 1922.

Analysis: Section 9(2) and its third proviso allow deduction of one-half of taxes "levied by any local authority in respect of the property" where such taxes are payable wholly by the owner or partly by owner and tenant. The City of Nagpur Corporation Act, 1948 (Section 114(1)) shows conservancy tax is imposed where private latrines, privies or cesspools exist and are cleansed by Corporation agency, and water-rate is imposed "where water is supplied". The rules preserved under section 3(2) of that Act similarly impose conservancy and water rates only when municipal services are provided or used. These statutory schemes demonstrate that the levies are tied to a service rendered by the Corporation (cleansing or water supply) and are not imposed merely because the property exists; therefore they are not taxes solely "in respect of the property" within the meaning of the proviso.

Conclusion: The conservancy tax and the water rate are not taxes "in respect of the property" within the meaning of the third proviso to section 9(2) of the Income-tax Act, 1922. This question is answered in the negative, in favour of the assessee.

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