An assessee is entitled to claim deduction for municipal taxes levied in respect of the property in the accounting year relevant to the assessment year under consideration, irrespective of whether the tax was paid or not.

Y. V. ANJANEYULU, J.

( 1 ) THIS reference arises under the Income-tax Act, 1961, and relates to the income-tax assessment years 1975-76 and 1976-77. At the instance of the assessee the Tribunal referred the following question of law for the consideration of this court :"whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that where deduction has to be allowed in terms of the proviso to section 23 (1) of the Income-tax Act, 1961, of municipal taxes, only such amounts for which demand is made for the first time in the accounting period could be allowed as a deduction ?"

( 2 ) FOR the income-tax assessment years 1975-76 and 1976-77, the assessee claimed deduction of Rs. 15,794 and Rs. 15,290, respectively, by way of municipal taxes payable in respect of properties owned by it. The deduction was claimed under the proviso to section 23 (1) of the Act. The tax authorities scrutinised the claim and found that Rs. 4,866 and Rs. 7,400 are allowable for these two assessment years by way of tax. In that view, the claim for deduction was restricted to the abovementioned two sums.

( 3 ) AGGRIEVED by the order of the Income-tax Officer, appeals were preferred. For the assessment year 1975-76, appeal was preferred before the Appellate Assistant Commissioner, and for the assessment year 1976-77, appeal was preferred before the Commissioner of Income-tax (Appeals ). The two appellate authorities came to diametrically opposite conclusions. The Appellate Assistant Commissioner upheld the Income-tax Officers view and dismissed the appeal. The Commissioner of Income-tax (Appeals), however, took the contrary view and held that whatever amount is paid by way of municipal taxes during the particular year is allowable in determining the income from property under section 23, in the absence of any limitation in the proviso to section 23 (1) of the Act that tax relating to only one year should be allowed.

( 4 ) THE assessee as well as the Revenue filed appeals before the Tribunal. The assessee was aggrieved by the decision of the Appellate Assistant Commissioner for the assessment year 1975-76, while the Revenue was aggrieved by the decision of the Commissioner of Income-tax (Appeals) for the assessment year 1976-77. The Tribunal held that whatever demands were received by way of tax for the first time from the municipal authorities would have to be allowed in computing the income from property. In that view, the assessments were set aside and the Income-tax Officer was directed to ascertain the municipal taxes levied in respect of each accounting period separately and to allow such amounts as a deduction. The assessee filed an application under section 256 (1) of the Income-tax Act before the Tribunal and at its instance, the Tribunal has referred the question of law which we have already indicated above.

( 5 ) LEARNED counsel for the petitioner, Ranganathachary, contends that the language of the proviso to section 23 (1) does not contain any limitation of the amount allowable by way of deduction towards municipal taxes while determining the income from property. According to learned counsel, whatever amount is paid by way of tax in a particular year qualifies for deduction. In support of his contention, learned counsel relied on a decision of the Madras High Court in CIT v. L. Kuppuswamy Chettiar [1981] 132 ITR 416 (Mad ). Learned counsel also invited our attention to the amendment made by the Taxation Laws (Amendment) Act, 1984, with effect from 1/04/1985, to the effect that municipal tax is allowable as a deduction irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him. The amendment came into force on 1/04/1985, and applies to assessments for and subsequent to 1985-86.

( 6 ) ON a clear scrutiny of the language contained in the proviso to section 23 (1) of the Act (prior to its amendment with

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