Municipal tax paid by tenant on owner's behalf affects annual value, but is not a deductible allowance.

The owner's share of the municipal rate under the Calcutta Municipal Act, 1923 is a legal liability of the owner, not a tenant's tax; if the tenant discharges it under the lease, that payment forms part of the consideration for occupation and may affect the letting value. In computing annual value under section 9 of the Income-tax Act, 1922, no deduction is allowed for municipal tax paid on the owner's behalf unless the statute expressly authorises it. Such payment may be relevant evidence of gross rental value, but it is not a deductible allowance once annual value is determined.

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Issues: (i) Whether the owner's share of the municipal rate under the Calcutta Municipal Act, 1923 is, in law, a tenant's tax; (ii) whether any deduction can be made, in computing the annual value of property under section 9 of the Income-tax Act, 1922, on account of the municipal tax paid under the Calcutta Municipal Act, 1923.

Issue (i): Whether the owner's share of the municipal rate under the Calcutta Municipal Act, 1923 is, in law, a tenant's tax.

Analysis: The statutory charge under section 149 of the Calcutta Municipal Act, 1923 falls one-half on the owner and one-half on the occupier. The owner's portion is therefore a legal liability of the owner. If the lease requires the tenant to discharge that liability, the discharge forms part of the consideration received by the owner for the occupation of the property. The fact that the payment is made to the municipality on the owner's behalf does not alter its character as a benefit to the owner in assessing the letting value of the property.

Conclusion: No. The owner's share of the municipal rate is not a tenant's tax; it is a liability of the owner, and its discharge is a benefit to the owner.

Issue (ii): Whether any deduction can be made, in computing the annual value of property under section 9 of the Income-tax Act, 1922, on account of the municipal tax paid under the Calcutta Municipal Act, 1923.

Analysis: The annual value under section 9 is a hypothetical letting value, and the statute permits only the specified allowances. A municipal tax paid by the tenant on the owner's behalf is not an authorised deduction from annual value. Such payment may be relevant as evidence of the rent or consideration for which the property might reasonably be expected to let, but it is not deductible once annual value is ascertained. The owner's liability for the rate, if discharged by the tenant, enters the evidence of gross rental and not a deduction from annual value.

Conclusion: No deduction is permissible on account of the municipal tax in computing annual value under section 9.

Final Conclusion: The reference was answered against the assessees on both questions, and the municipal tax paid on the owner's behalf was held to be part of the consideration relevant to annual value, not a deductible item.

Ratio Decidendi: A statutory municipal charge imposed on the owner, if discharged by the tenant under the lease, is part of the consideration for the tenancy and may bear upon annual value, but it is not deductible unless the income-tax statute expressly authorises such deduction.

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