1981 (11) TMI 7 - HC - Income Tax

Summary

Issues Involved:

1. Deduction of urban land tax for earlier years.
2. Deduction of municipal property tax for earlier years.

Detailed Analysis:

1. Deduction of Urban Land Tax for Earlier Years:

The assessee, a film distribution company, claimed a deduction of Rs. 64,222 for urban land tax for the assessment year 1971-72, which covered a period of seven years starting from July 1, 1963. The Income Tax Officer (ITO) disallowed the claim, stating it pertained to earlier years. The Appellate Assistant Commissioner (AAC) allowed only Rs. 7,432 for the year ended March 31, 1971, disallowing Rs. 41,330. The Tribunal allowed the entire claim of Rs. 41,330, stating the assessee used the mercantile method of accounting, thus entitling it to provision for the entire liability.

The High Court upheld the Tribunal's decision, referencing a prior judgment (CIT v. Srinivasa Iyer (T.S.)) which held that the liability for urban land tax accrued only after the Supreme Court validated the tax in Asst. Commr. of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1970] 75 ITR 603. The High Court concluded that the assessee was entitled to deduct the entire urban land tax liability in the year it became a definite liability, affirming the Tribunal's decision and ruling in favor of the assessee.

2. Deduction of Municipal Property Tax for Earlier Years:

The assessee claimed a deduction of Rs. 16,789.80 for municipal property tax paid during the year ended March 31, 1971, which spanned five half years from October 1, 1968, to March 31, 1971. The ITO allowed only Rs. 6,715.89 for the two half years within the relevant accounting year, disallowing Rs. 10,074 for the earlier three half years. The Tribunal allowed the entire claim, stating the deduction should be based on the year of actual payment.

The High Court disagreed, emphasizing the provisions of the Madras City Municipal Corporation Act, 1919. Section 104 of the Act mandates that property tax accrues every half year and must be paid within 15 days after the commencement of the half year. Rule 20(3) of Schedule IV specifies that if a demand notice is not served within the relevant or succeeding half year, the tax cannot be demanded. The High Court clarified that the liability accrues at the end of each half year, irrespective of the actual payment date.

The High Court rejected the assessee's argument, upheld by the Tribunal, that the deduction could be claimed in the year of payment. The Court emphasized that the liability accrues automatically at the end of each half year, and the assessee should have claimed the deduction in the respective years. The High Court ruled that the deduction must be limited to the amount allowed by the ITO, thus ruling against the assessee on this issue.

Conclusion:

- The High Court affirmed the Tribunal's decision allowing the entire urban land tax deduction for the year it became a definite liability.
- The High Court reversed the Tribunal's decision on municipal property tax, limiting the deduction to the amount allowed by the ITO, based on the accrual of liability as per the statutory provisions.