1962 (2) TMI 105 - HC - Income Tax

Summary

Issues:
1. Whether business profits tax paid in Burma is deductible under the Indian Income-tax Act.
2. Whether foreign taxes are deductible as business expenses under the Indian Income-tax Act.

Analysis:
The case involved the assessment of an Indian company's profits from its branch in Burma for the year 1948-49. The primary issue was the deductibility of &8377; 50,157 paid as business profits tax in Burma under the Indian Income-tax Act. The Income-tax Officer disallowed the deduction, leading to appeals by the assessee to the Appellate Assistant Commissioner and the Appellate Tribunal.

The main contention by the assessee was that the business profits tax paid in Burma should be allowed as a deduction under section 10(2)(xv) of the Indian Income-tax Act. The assessee argued that since profits and gains are generally determined after deducting expenses, the business profits tax should also be considered a deductible expense. However, the Appellate Tribunal held that the income in Burma should be considered in its entirety without deducting the business profits tax paid there.

The Commissioner argued that the business profits tax paid in Burma was not deductible under the Indian Income-tax Act, citing provisions in section 10(4) that disallow sums paid as taxes on profits or gains of business. It was emphasized that foreign laws, such as the Burma Excess Profits Tax Act, cannot be considered for deductions under the Indian Income-tax Act.

The judgment referred to the case of Commissioners of Inland Revenue v. Dowdall O'Mahoney & Co. Ltd., where it was established that foreign taxes are not paid for the purpose of earning profits and are thus not deductible. Additionally, the decision in Ratilal B. Daftari v. Commissioner of Income-tax was discussed, highlighting that expenses must be incurred for the purpose of earning profits to be deductible.

Ultimately, the court held that the business profits tax paid in Burma was not deductible under the Indian Income-tax Act as a business expense. The judgment affirmed that foreign taxes are not considered expenses for the purpose of earning profits and, therefore, cannot be deducted. The question was answered in the affirmative, and the assessee was directed to pay the costs.