Income from property /houses situated in Burma.

Srinivasan, J.- The assessee derived income from certain house properties in Burma during the accounting year ending with 30th September, 1959, relevant to the assessment year 1960-61. In respect of the gross income of Rs. 28,020 received under this head, the assessee had to pay municipal taxes of Rs. 3,019 and services taxes of Rs 7 116 The assessee claimed to be entitled to deduct these amounts in computing his income under this head of income from property. The Income-tax Officer, while accepting the position that the income under this head as per the Burma Assessment Order was only Rs. 17,275, refused to allow the deduction of the municipal tax, as no particulars regarding the claim were made available. On appeal, the Appellate Assistant Commissioner observed that the income from property situate in Burma has to be computed in accordance with section 9 of the Indian Income-tax Act, and in doing so, tax, cess, etc., levied by a local authority must be taken to mean tax, cess and levy made by the corresponding authority in Burma. He accordingly allowed the deduction claimed. The Department took the matter in appeal to the Appellate Tribunal. The Appellate Tribunal rejected the contention that the local authority referred to in section 9 of the Act could refer only to a local authority within the Indian Union. The section to its mind was perfectly clear that the taxes levied by any local authority in respect of property under section 9 (2), third proviso, could mean in the context only, such taxes levied by the Burma local authority, for that local authority alone could levy taxes in respect of that property. It also thought that it was the real income derived from the property that had to be computed and that could not be reached unless provision for all the taxes levied by the local authority was made. It also pointed out that in the definition of agricultural income, the Legislature has specifically indicated assessment to land revenue in the taxable territories, while a similar expression does not find place in section 9 (2). It accordingly accepted the view of the Appellate Assistant Commissioner as correct and dismissed the appeal.

On the application of the Department, the question that stands referred to us is:

" Whether, on the facts and in the circumstances of the case, the municipal taxes paid to a local authority in Burma could be allowed in computing income from house properties in Burma under section 9 of the Income-tax Act ? "

Section 9 of the Income-tax Act deals with the mode of computation of the income from property. Broadly stated, the tax in respect of such income shall be payable by an assessee "in respect of the bona fide annual value of the property". Certain allowances are indicated in the various sub-clauses of section 9(1). Subclause (iv) further provides that where the property is subject to an annual charge not being a capital charge, the amount of such charge should be deducted. What an annual charge meant in the context was the subject of a difference of opinion among the several High Courts. The question was set at rest by the decision of the Supreme Court in New Piece Goods Bazaar Company, Limited v. Commissioner of Income-tax1. It was decided herein that municipal taxes paid under the Bombay Municipal Act and the urban immovable property tax paid under the Bombay Finance Act would come with the scope of the expression ‘an annual charge not being a capital charge ‘and that the words ‘annual charge ‘meant ‘a charge to secure an annual liability’. As a result of this decision, the Legislature amended section 9 of the Income-tax Act and put in an Explanation for the purpose of clause (iv) of the relevant sub-section. This explanation lays down that the expression ‘annual charge' does not include any tax in respect of property or income from property levied by a local authority or a State Government or the Central Government.

Under sub-section (2) of section 9, however, the Legislature provided for the

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