TMI Blog1958 (8) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... hares in Avra Ltd., before deduction of the Ceylon income-tax thereon, is valid and proper. A similar question with reference to the provisions of the Ceylon Income-tax Ordinance was considered by us in Ramaswami Naidu v. Commissioner of Income-tax [1959] 35 I.T.R. 33. The principles we laid down in that case apply. The question is therefore answered in the negative and in favour of the assessee. The sum of ₹ 9,562 which was deducted by the company before the dividends were paid to the assessee was never the income of the assessee. The first question ran: Whether there was material for the Tribunal to hold that the business of stores and/or mills were separate and independent from the main shop, so as not to be entitled to any relief under section 25(4) of the Act in respect thereof. This question arises only in relation to the proceedings in the assessment year 1945-46, There was ample material on which the Tribunal could rest its conclusion that what were referred to as stores, mills and the main shop, each constituted a distinct line of business. The Tribunal was therefore justified in coming to the conclusion that the relief under section 25(4) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings for 1947-48, because it was not shown to us that any dividend income accrued in the relevant year of account subsequent to February 10, 1947. But this is a point that will have to be verified by the Tribunal in giving effect to our answer to the third question. The relevant facts were as follows: The Hindu undivided family carried on three lines of business, referred to in the statement of the case as the main shop, the stores and the mills. With effect from Jane 1, 1944, these three businesses were transferred to the limited company called Avra Ltd., Colombo, with 6,425 fully paid up shares of ₹ 100 each. Out of this each of the three members of the family, Veerappa Chettiar, Ramanatha and Adaikappan was allotted 2,125 shares, and this holding continued to be shown in the books of the company right through. It should be remembered that in June, 1944, all the three constituted an undivided family. The partition was with effect from February 10, 1917, The Tribunal recorded in paragraph 8 of the statement of the case: ......nor were the 6,375 shares held by the family in Avra Ltd., albeit standing in the names of three members separately, re-transferred to them in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets of the joint family after February 10, 1947, but that the shares in Avra Ltd., ceased to be the assets of the joint family after February 10, 1047. The income accruing from the shares to each of the three members after February 10, 1947, had to be excluded from the assessment of the Hindu undivided family. The last of the questions we have to answer is question (iv) which ran: Whether the rates paid to the Colombo Municipality on the Ceylon house properties are deductible in computing the rental income therefrom in the four assessment years 1944-45 to 1947-48? We have to answer this question with reference to the relevant provisions of section 9(1) of the Income-tax Act, and the provisions of the Ceylon Municipal Councils Ordinance regulating the assessment, levy and collection of rates on houses in Ceylon. The relevant provisions of section 9(1) of the Income-tax Act ran: The tax shall be payable by an assessee under the head 'Income from Property' in respect of the bona fide annual value of property consisting of any buildings or lands appurtenant thereto of which he is the owner,..... subject to the following allowances, namely:..... (iv) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pond for instance to section 103 of the Madras City Municipal Act which runs: The property tax on buildings and lands shall, subject to the prior payment of the land revenue, if any, due to the Government thereon, be a first charge upon the said buildings or lands and upon the moveable property, if any, found within or upon such buildings or lands and belonging to the person liable to such tax. Section 85 is an analogous provision in the Madras District Municipalities Act (V of 1920). Thus the position in Ceylon is that the owner of the house assessed to municipal rates is under a legal liability to pay those rates. Those rates are annual, but provision is made under the statute for payment of these rates in instalments. Whether factually any instalments were fixed is not clear from the material made available to us. For non-payment of the rates any property of the defaulting owner is liable to seizure and sale. We can leave out of account the liability of properties, belonging to others but found on the premises assessed to municipal rates, to seizure and sale for non-payment of these rates. No provision is made by the laws in Ceylon for making the house property on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the property is subject to an annual charge...... the amount of such charge. 'Clearly, the phrase 'the amount of such charge' indicates that the word 'charge' used in the earlier phrase also means payment. It would be singularly inappropriate to use the word 'charge' if security was intended, for 'annual security' would be wholly meaningless. That the meaning is 'payment' would also seem to be clear from the explanation appearing after clause (vii)of the sub-section where it is said that the expression 'annual charge' in chase (iv) does not include any tax in respect of property or income from property, if such tax is of a certain kind. The question, whether the expression 'annual charge' should be construed as meaning only an annual payment without any reference to security for that payment, did not really arise for determination in Commissioner of Income-tax v. State Bank of India [1957] 31 I.T.R. 545. The payments the learned Chief Justice had to consider in that case were specifically charged upon the house property in question there, in the sense that the house property was constituted security for those paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain to the need for the existence of a charge on the property for the discharge of the liability for the annual payment when he observed at page 523: Municipal taxes, on the other hand, do not stand on the same footing as land revenue. The law as to them varies from province to province and there may not be necessarily a charge on property in all cases. The Legislature seems to have thought that so far as municipal taxes on property are concerned, if they fall within the ambit of clause (iv), deduction will be claimable in respect of them but not otherwise. In view of the principles laid down by the Supreme Court in New Piece Goods Bazar Co. Ltd. v. Commissioner of Income-tax [1950] 18 I.T.R. 516, we think that the question at issue before us is not really res integra. In Burrows on Words and Phrases Vol. 1, pages 411-12, the first passage under the heading charge runs: A charge differs altogether from a mortgage. By a charge the title is not transferred, but the person creating the charge merely says that out of a particular fund he will discharge a particular debt. The next passage runs: The word 'charge' may well be used to describe a burden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation to consider. The familiar legislative pattern in India is to charge the house property with the liability for the house tax. Often it constitutes the first charge on the house property, subject to the claims of the Government for land revenue. These were in fact the charges excluded by the explanation. If the tax itself did not constitute an annual charge, obviously there would be no scope for recourse to the explanation to exclude it from the scope of section 9(1)(iv). As pointed out by the Supreme Court in New Piece Goods Bazar Co. Ltd. v. Commissioner of Income-tax [1950] 18 I.T.R. 516, if the expression capita charge has to be construed as a charge created for a capital sum, that is, to secure the discharge of a liability of a capital nature, the expression annual charge in that context should mean, again in the words of Mahajan, J., a charge to secure the discharge of an annual liability. We are clearly of opinion that the word charge in the statutory expression annual charge in section 9(1)(iv) connotes something more than a mere liability to pay, something more than the annual payment. Both the concepts are involved, liability to pay and a charge on the h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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