1961 (1) TMI 89 - HC - Income Tax

Summary

Issues:
1. Deductibility of estate duty paid as revenue expenditure for computing business income.

Analysis:
The case involved a reference by the Income-tax Appellate Tribunal regarding the deductibility of estate duty paid by a company under section 84 of the Estate Duty Act as a revenue expenditure for computing the assessee's business income for the assessment years 1955-56 and 1956-57. The main question was whether the estate duty paid could be considered an expenditure expended for the purpose of the assessee's business under section 10(2)(xv) of the Indian Income-tax Act, 1922. The company had paid estate duty amounts of £2,605-9-4 for 1955-56 and £3,809-1-6 for 1956-57.

The court analyzed the provisions of section 84 of the Estate Duty Act, 1953, which imposed a statutory obligation on companies incorporated outside India carrying on business in India to pay estate duty on shares held by deceased members. Failure to comply with this obligation attracted penalties. The court considered whether the duty paid was expended wholly and exclusively for the purpose of the business. It was argued that the payment of estate duty was a statutory obligation necessary for carrying on the business in compliance with the law of the land.

The court further examined the provisions of the Estate Duty Act, particularly section 5 which levied duty on property passing on the death of a person. It was noted that shares in a company were deemed to be situated where the company was incorporated. Additionally, the court referred to an agreement between India and the UK regarding double taxation, which specified that duty would not be imposed in India on property situated outside India for a person domiciled in the UK. The court also highlighted section 76 of the Estate Duty Act, which allowed for the repayment of duty paid in certain circumstances.

Ultimately, the court held that the estate duty paid by the company could be considered an expenditure expended for the purpose of the business, as it was a statutory obligation necessary for carrying on the business in conformity with the law. Therefore, the duty paid was deductible as a revenue expenditure for computing the assessee's business income. The court affirmed the Tribunal's conclusion and answered the question referred in the affirmative, without making any order as to costs due to the case being of first impression without specific precedent.