Per Shri C.L. Sethi, J.M. - This Special Bench has been constituted under section 255(4) on the recommendation of the Division Bench of the Tribunal for considering the issue as to whether, on the facts and in the circumstances of the case, the surcharge on the municipal taxes recovered by the owner of the premises from tenants is to be taxed as part of the rent recovered for the purpose of determination of income from house property.

2. The relevant facts briefly stated are that the assessee company had disclosed income from various sources including business and house property in the relevant assessment year under consideration. The assessee company was having 1/3rd ownership in building known as ‘Poddar Court’ at 18, Rabindra Sarani, Kolkata prior to assessment year 1997-98, the other 2/3rd part being owned by Poddar Udyog Ltd. Subsequently, by scheme of arrangement sanctioned by Hon’ble High Court at Calcutta, the assessee became approximately 50 per cent owner of the said building from assessment year 1997-98 onwards. Since Land & Building were standing in the name of Poddar Udyog Ltd., all formalities relating to municipal assessment, building and collection of rent from tenants were used to be done in the name of Poddar Udyog Ltd. The assessee had disclosed rental income from said property under the head ‘Income from house property’. It was noticed by the Assessing Officer that assessee, while collecting rent from the tenants, also collected municipal tax amounting to Rs. 27,31,070 and as well as surcharge on municipal tax amounting to Rs. 26,59,959. The assessee had included the municipal tax collected from tenants amounting to Rs. 27,31,070 in gross rent received but had excluded the said surcharge on municipal tax amounting to Rs. 26,59,959 in the gross rent received, for the purpose of determining annual value of the property on the basis of actual rent received within the meaning of section 23 of Income-tax Act, 1961 (in short, the Act). It was submitted before the Assessing Officer by the assessee that surcharge on municipal tax not being part of rent was not includible in the annual value of the property for the purpose of assessment of income under the head ‘House Property’. The Assessing Officer did not agree with the assessee’s contention and included the said surcharge on municipal tax collected by the assessee in the amount of actual rent received by the assessee with a view to determine income assessable under the head ‘House Property’. being aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeal) (in short the CIT(A), who decided the issue in favour of the assessee by following the decision of Tribunal in the assessee’s own case for the assessment year 1986-87. It was held by the Tribunal that the surcharge on municipal tax collected by the assessee cannot be considered to be the income of the assessee by accepting the submission advanced by the assessee before it in the assessment year 1986‑87.

2.1 When the matter came up before the Division Bench of this Tribunal in pursuance to an appeal filed by the revenue against the order of CIT(A), on examination of the provisions of I.T. Act, the provisions of Calcutta Municipal Corporation Act, 1980 and the decision of the Tribunal in the assessment year 1986-87 the Division Bench was satisfied that the issue requires re-consideration by a larger Bench of the Tribunal. The Divisional Bench, therefore, recommended for constitution of Special Bench and, accordingly, the Hon’ble President of ITAT has constituted this Special Bench.

3. The ld. Departmental Representative, Shri K. Chatterjee, submitted that consolidated tax payable by the owner under Calcutta Municipal Corporation Act, 1980, includes surcharge on consolidated rate payable in respect of the premises used for commercial or non-residential purposes. In support of his submission the Ld. D.R. referred to the definition of ‘consolidated rate’ given in section 2(20) of th