common ground that has been raised in these three appeals by department for assessment years 1977-78, 1978-79 and 1979-80 is that learned Commissioner (Appeals) had erred in holding that State education cess is allowable against annual value under section 24(1)(vii) of Income- tax Act, 1961 ('the Act'), and not against gross income. 2. assessee is company. assessee owned certain immovable properties, which were in occupation of tenants. State Government levied State education cess under provisions of Maharashtra Education and Employment Guarantee (Cess) Act, 1962 ('the Cess Act'). Section 3 of Cess Act provided for levy and collection in manner indicated in Act, education cess for purpose of providing for cost of promoting education in State of Maharashtra. Section 4 of Cess Act laid down rates at which cess was to be collected. Section 8 of Cess Act laid down that if actual occupier of building was owner, said cess would be leviable primarily on him. If building had been let out, cess would be leviable upon lessor. Section 12 of Cess Act provided that if there was failure to recover amount from lessor, same could be recovered from occupier of building. Section 13(1) of Cess Act empowered landlord to receive amount of cess from tenant, if landlord had already paid same in discharge of his liability under section 8. Section 13(3) laid down that recovery of any amount of cess from occupier would not be deemed to be increase for purpose of section 7 of Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947. 3. assessee had paid Rs. 33,906 in each of above mentioned three assessment years towards State education cess under section 8 and had recovered same from tenants as permitted by section 13(1). contention of assessee was that sum for which property might reasonably be expected to let from year to year, should be gross amount inclusive of education cess recovered from tenants and that on basis of that amount, annual value of property should be determined under section 23(1) of Act, and from annual value so determined, deduction in respect of State education cess should be given under section 24(1)(vii). This contention was not accepted by ITO. His reasons are contained in following passage in assessment order: "The assessee has claimed Rs. 33,906 as deductible from net property income. State education cess is charged under section 195E of Bombay Municipal Corporation Act. This cess is recovered by Bombay municipal corporation on behalf of State Government. This is imposed on tenants who are actually in occupation of property. However, it is made recoverable from owners of property. In fact, assessee pays State education cess on behalf of its tenants and recovers from its tenants. payment of education cess does not affect annual letting value of property and, as such, it should be deducted from gross annual letting value of property. If that is not done, result would be that this amount would go to annual letting value of property, and assessee's deductions under section 24 would also increase, accordingly. In fact, in case of Laxmi Properties Ltd. v. ITO for assessment year 1966-67, Income-tax Appellate Tribunal, Bombay, Bench 'A', in IT Appeal No. 6040 of 1967-68, dated 13-3-1970, has observed that State education cess does not affect annual letting value of property. Accordingly, State education cess paid by assessee will be allowed as deduction from gross annual letting value of property." 4. Commissioner (Appeals) agreed with contention of assessee, although no reasons are given in his order. What all he observed is as follows: "The cess is allowable against annual rateable value under section 24(1)(vii) and not against gross income. In recomputation, Income-tax Officer is directed to make allowance, accordingly." 5. department has come in appeals before us. dispute between parties lies in narrow compass. question is at what stage amount o f education cess should be deducted in determining income from property. contention on behalf of department is that amount of education cess should be deducted from gross amount representing rent as such, and amount of education cess at initial stage of determining annual value under section 23(1). In other words, contention is that annual value under section 23(1) should be determined. on basis of rent paid by tenants exclusive of amount of education cess. If this is done, there would be no question of deduction of education cess under section 24(1)(vii). T h e contention on behalf of assessee, on other hand, is that for determination of annual value, amount of education cess paid by tenants should be treated as part of rent paid by them and that annual value should be determined on basis of gross rent inclusive of education cess and, thereafter, deduction in respect of education cess should be made under section 24(1)(vii). 6. We have considered rival submissions. As already stated, ITO h s observed in assessment order that education cess had been imposed under provisions of Bombay Municipal Corporation Act, 1888. This observation is not correct. In fact, education cess has been imposed under provisions of Cess Act. ITO has further observed that assessee had paid education cess to Government on behalf of tenants and had recovered same from tenants, and, as such, education cess does not affect annual letting value of property, with result, that it should be deducted from gross annual letting value of property. 7. His further observation is that if this is not done, result would be that deductions under section 24(1)(vii) would increase. first part of this observation is not correct. real character of education cess was considered by Bombay High Court in Smt. Muktabai Gangadhar Kadam v. Smt. Muktabai Laxman Palwankar 71 BLR 752. In that decision, Bombay High Court considered relevant provisions of Cess Act and Bombay Rents, Hotel and Lodging House Rates (Control) Act. After considering those provisions, High Court came to conclusion that education cess payable by occupant by virtue of section 13 of Cess Act is part of 'rent' within meaning of that term as used in Bombay Rents, Hotel and Lodging House Rates (Control) Act, and when claimed in addition to contractual or standard rent constitutes 'permitted increase' as defined in section 5(7) of standard rent constitutes 'permitted increase' as defined in section 5(7) of latter Act. Thus, looking to this scheme of both relevant Acts, we hold that education cess should be treated as part of rent payable by tenant. Since annual value of property under section 23(1) is required to be determined on basis of rent received by owner, it follows from what has been stated above that amount of education cess should be treated as part of rent for determining said annual value. Under section 24(1)(vii), deduction is to be made in respect of property. State education cess is tax levied on assessee by State Government under Cess Act. Consequently, assessee would be entitled to deduction of that amount from annual value determined under section 23(1). 8. ITO has also referred to decision of Tribunal for assessment year 1967-68 in case of another assessee in case of Laxmi Property Ltd. [IT Appeal No. 6040 of 1967-68, decided on 13-3-1970] wherein it was observed that State education cess did not affect annual letting value of property. copy of order of Tribunal in that appeal is not before us. However, relevant portion of said decision of Tribunal has been extracted in IT Appeal Nos. 3444 to 3446 (Bom.) of 1980, decided on 18- 11-1981, and copy of latter decision of Tribunal is before us. From that, w e find that Tribunal had in former appeal based its decision on decision of Bombay High Court in LIC v. Bombay Municipal Corpn. 67 BLR 202. Bombay High Court in that decision was concerned with education cess levied under provisions of Bombay Municipal Corporation Act, for years 1957-58 and 1958-59. Bombay High Court held that payment of education cess by tenants to landlord, in addition to contractual or standard rent, did not amount to increase in rent, and as such, education cess could not be taken into account in determining rateable value under provisions of Bombay Municipal Corporation Act. Relying on this decision of Bombay High Court, Tribunal had held that education cess had nothing to do with rent payable by tenant, and, as such, that cess should not be taken into account for determining annual value under section 23(1). 9. above decision of Bombay High Court, on which Tribunal had relied has been overruled by Supreme Court in appeal filed by Bombay Municipal Corporation against said decision of Bombay High Court, i.e., decision of Supreme Court in case of Bombay Municipal Corpn. v. LIC of India AIR 1970 SC 1584. Supreme Court has held that education cess payable by tenant under provisions of Bombay Municipal Corporation Act, should be added to contractual or standard rent, in order to compute rateable value of building under provisions of Bombay Municipal Corporation Act. Thus, this decision of Supreme Court is authority of proposition that education cess paid by tenant to landlord partakes characteristics of rent and, as such, same should be taken into account when any determination is to be made on basis of rent paid by tenant. It follows that in determining annual value under section 23(1), education cess should be treated as part of rent. 10. In subsequent decision of Tribunal, viz., Laxmi Properties Ltd. v. ITO [IT Appeal Nos. 3444 to 3446 (Bom.) of 1980, decided on 18-11-1981], Tribunal has not given clear decision on question whether education cess should be taken into account as part of rent while determining annual value under section 23(1). Tribunal has restored matter to ITO to ascertain whether education cess had been taken into account in determining annual value and then further direction has been given to ITO to grant deduction under section 24(1)(vii), if he found that education cess had been taken into account in determining annual value. Tribunal has also given alternate direction that if ITO found that education cess had not been taken into account in determining annual value, no deduction under section 24(1)(vii), should be given, because in that case it would amount to double deduction in respect of same item. In present case, we have considered decision of Bombay High Court in Smt. Muktabai Gangadhar Kadam's case and also decision of Supreme Court in Bombay Municipal Corpn.'s case and have come to conclusion that education cess should be treated as rent for determining annual value under section 23(1), and that deduction under section 24(1)(vii) should be given in respect of said cess. Thus, there is no conflict with latter decision of Tribunal. As far as earlier decision of Tribunal is concerned, we have already stated that it is based on decision of Bombay High Court, which has been reversed by Supreme Court. For reasons given above, we confirm order of Commissioner (Appeals). 11. In result, appeals fail and are dismissed. *** INCOME TAX OFFICER v. INDUSTRY HOUSE LTD.