Judgment

Mahajan J. - This is an appeal against a judgment of the High Court of Judicature at Bombay in an income-tax matter and it raised the question whether municipal property tax and urban immovable property tax payable under the relevant Bombay Acts are allowable deductions under S. 9(1) (iv), Income tax Act.

2. The assessee company is an investment company deriving its income from properties in the city of Bombay. For the assessment year 1940-41, the net income of the assessee under the head "property" was computed by the Income-tax Officer in the sum of Rs. 6,21,764 after deducting from gross rents certain payments. The company had paid during the relevant year Rs.122,675 as municipal property tax and Rs. 32,760 as urban property tax. Deduction of these two sums was claimed under the provisions of S. 9 of the Act. Out of the first item, a deduction in the sum of Rs. 48,572 was allowed on the ground that this item represented tenants burdens paid by the assessee, otherwise the claim was disallowed. The appeals of the asseseee to the Appellate Assistant Commissioner and to the Income-tax Appellate Tribunal were unsuccessful. The Tribunal, however, agreed to refer two questions of law to the High Court of Judicature at Bombay, namely, - (1) Whether the municipal taxes paid by the applicant company are an allowable deduction under the provisions of S. 9 (1) (iv), Income-tax Act; (2) Whether the urban immovable property taxes paid by the applicant-company are an allowable deduction under S. 9 (1) (iv) or under S. 9 (1) (v), Income -tax Act.

3. A supplementary reference was made covering a third question which was not raised before us and it is not therefore necessary to refer to it. The High Court answered all the three questions in the negative and hence this appeal.

4. The question for our determination is whether the municipal property tax and urban immovable property tax can be deducted as an allowance under cl. (iv) of sub-s. (1) of S. 9 of the Act. The decision of the point depends firstly on the Construction of the language employed in sub cl (iv) of sub S. (1) of S. 9 of the Act, and secondly, on a finding as to the true nature and character of the liability of the owner under the relevant Bombay Acts for the payment of these taxes.

5. Section 9 along with the relevant clauses runs thus : "9 (1) 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 of lands appurtenant thereto of which he is the owner, ..... subject to the following allowances, namely : (iv) where the properly is subject to a mortgage or other capital charge the amount of any interest on such mortgage or charge where the property is subject to an annual charge not being a capital charge, the amount of such charge; where the property is subject to a ground rent, the amount of such ground rent: and, where the property has been acquired constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital. . . . ."

6. It will be seen that cl. 4 consists of four sub-clause corresponding to the four deductions allowed under the clause. Before the amending Act of l939 Cl. 4 contained only sub-cls. (1). (3) and (4) Under sub-cl (1), interest is deductible whether the amount borrowed on the security of the property was spent on the property or not. There is not question of any capital or other expenditure on the property. The expression capital charge in the sub-clause cannot connote a charge on the capital, that is, the property assessed. That would be a redundancy as the opening words themselves clearly indicate that the charge is on the property. We are therefore of opinion that capital charge here could only mean a charge created for a capital sum, i. e., a charge to secure the discharge of a liability of a capital nature.

7. In 1938, the Privy Council decided the case of Bijoy Singh v. Commissio