Property income computation includes recoverable education cess in rent, with deduction available only after annual value is determined.

State education cess recoverable from tenants under the Maharashtra Education and Employment Guarantee (Cess) Act, 1962 forms part of the rent for computing annual value under section 23(1) of the Income-tax Act, because the annual value is determined by reference to rent received by the owner. Once included in the annual value, the cess is separately deductible under section 24(1)(vii) as a tax levied on the owner. The analysis treats statutory cess recovered from the tenant as part of contractual/statutory rent for property income computation, with deduction available only after inclusion.

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Issues: Whether State education cess recovered from tenants forms part of the rent for determining the annual value of property under section 23(1) of the Income-tax Act, 1961, and whether deduction of the cess is then allowable under section 24(1)(vii).

Analysis: The cess levied under the Maharashtra Education and Employment Guarantee (Cess) Act, 1962 was recoverable from the tenant by the landlord under the statutory scheme. The amount recovered as education cess was treated, in the context of the rent control legislation and the relevant judicial authorities relied upon, as part of the rent payable by the tenant. Since annual value under section 23(1) is computed with reference to the rent received by the owner, the cess could not be excluded at that stage. Once included in the annual value, the cess, being a tax levied on the owner under the Cess Act, answered the description of an allowable deduction under section 24(1)(vii).

Conclusion: State education cess recovered from tenants is to be treated as part of the rent for section 23(1), and deduction is allowable under section 24(1)(vii); the issue is decided in favour of the assessee.

Ratio Decidendi: Where a statutory cess is recoverable from the tenant as part of the rent, it forms part of the rent for computing annual value and is separately deductible only after such computation under the property-income deduction provision.

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