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Issues: Whether surcharge on municipal tax recovered by the owner from tenants for commercial or non-residential use of the let premises forms part of the actual rent received for determining annual value under the head income from house property.
Analysis: The annual value under section 23 of the Income-tax Act, 1961 is to be determined on the basis of actual rent received or receivable where the property is let and that expression is not confined to basic rent alone. Rent, in its wider sense, includes all payments agreed to be made by the tenant to the landlord for use, enjoyment and occupation of the premises, whether described as rent or otherwise. Under the Kolkata Municipal Corporation Act, 1980, the consolidated rate includes surcharge, the owner is primarily liable to pay it, and although the owner may recover the surcharge from the occupier using the premises for commercial purposes, that recovery does not alter the character of the receipt in the owner's hands. The surcharge was collected by the owner as part of the consideration for use of the premises and was retained towards the owner's statutory liability. A separate treatment in the books or a label of deposit or agency does not change its true character.
Conclusion: The surcharge collected from tenants formed part of the actual rent received and had to be included while computing annual value under section 23(1)(b) of the Income-tax Act, 1961.
Final Conclusion: The exclusion of the surcharge from gross rent was unsustainable, and the assessment made by the revenue authority was restored.
Ratio Decidendi: For computing annual value of let property, any compulsory or agreed amount recovered by the landlord from the tenant as consideration for use and occupation of the premises is part of actual rent, even if the landlord later uses it to meet a statutory tax liability.
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