22 September 2010
A person claimed House Tax paid say of Rs. 5,00,000/- while computing income from House property for AY 2007-08.
Now in AY 2010-11, he got the HOUSE TAX REFUND (NOT INCOME TAX REFUND) of Rs. 4,00,000/- alongwith interest of Rs. 55,000/-.He also has rental income in AY 10-11. So please suggest the tax treatment of above said refund. I think, there are two options : - Consider Rs. 4,00,000+55,000/- as Income from Other sources
- Consider interest on refund as Income from Other sources and Rs. 4,00,000/- added to the rental income and claim 30% deduction on the same.
Which one is correct ? Have anything mentioned in the Act or Rules or Circulars or Notification regarding this?
23 September 2010
Refund of municipal tax by the local authority, which was already allowed as deduction under Section 23, in the computation of annual value of any earlier previous year, is not taxable in the hands of the recipient at the time of refund or recovery. This ratio was laid down in CIT vs India Automobiles Ltd (251 ITR 117 Calcutta), where it was held that the amount of relief or refund obtained by the assessee could not be taxed as income under Section 23.
Recovery of loss or expenditure allowed earlier shall be deemed as income from business or income from other sources — vide Sections 41 and 59 respectively. These sections are applicable for computing the income under those respective heads. It will not extend to income from house property. Hence, refund of municipal taxes is not taxable.
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