Municipal tax deduction from property income turns on levy, not actual payment, under Section 23.

Municipal tax levied by a local authority is deductible while computing annual value of property income under Section 23 of the Income-tax Act, 1961, even if it was not actually paid during the accounting year. The decisive factor is the levy of the tax, not payment during the previous year. Accordingly, the owner is entitled to the deduction once the tax has been levied, and actual payment is not a condition precedent for allowance. The departmental appeal failed.

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Issues: Whether municipal tax levied by the local authority could be deducted from the annual value of property income under Section 23 of the Income-tax Act, 1961, even though the tax had not been paid during the accounting year.

Analysis: The first proviso to Section 23(1) provides for deduction of taxes levied by the local authority in respect of property occupied by a tenant to the extent borne by the owner. The decisive factor is the levy of municipal tax, not its actual payment during the previous year. Once the tax has been levied, it is deductible in computing annual value, and payment is not a condition precedent for such deduction.

Conclusion: The assessee was entitled to deduction of municipal tax from property income notwithstanding non-payment during the accounting year, and the departmental appeal failed.

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