9911796707
|
Home
Issues:
Whether profession tax paid under Section 111 of the Madras City Municipal Act should be allowed as a proper deduction from the taxable income as an expenditure incurred solely for the purposes of the profession of the assessees within the meaning of Section 11 of the Income Tax Act. Analysis: The High Court of Madras addressed the issue of whether profession tax paid under Section 111 of the Madras City Municipal Act should be considered a deductible expense for income tax purposes. The assessees, a firm of attorneys practicing in Madras, claimed the deduction, while the Commissioner of Income Tax contended that it was not allowable. The court examined the nature of the profession tax levied by the Municipality to determine its treatment. It was established that the profession tax is a contribution from the income of the assessee to the Municipality, similar to Income Tax paid to the Government. The court referred to the Ashton Gas Co. v. Attorney-General case to emphasize that Income Tax paid is part of the income itself and not an expenditure for earning that income. The court concluded that the profession tax is a payment made out of the income of the taxpayer and not an expenditure incurred to earn the income. Under Section 111 of the City Municipal Act, every person exercising a profession, trade, or calling within the City is liable to pay the profession tax, with the amount dependent on the income of the person taxed. The tax is imposed based on the income earned by professional individuals, not solely for carrying on their profession. The court highlighted that the nature of the tax remains consistent regardless of the individual taxed, including government appointees and pensioners, further supporting that the tax is a claim on a portion of their income. The court rejected the argument that the profession tax is a payment for obtaining a license to practice, as the Act does not make carrying on a profession without paying the tax illegal, and no formal license is issued upon payment. The court referenced legal precedents such as Smith v. Lion Brewery Co., Ltd. and Usher's Wiltshire Brewery, Ltd. v. Bruce to distinguish expenses directly incurred for increasing trade income from the nature of the profession tax. It was noted that the profession tax does not fall within Section 11 as it is not an expenditure for the purpose of earning profits. The court also differentiated the case from the Commissioner of Income Tax v. Nedungadi Bank, which referred to Companies tax and not profession tax. Finally, the court concluded that the profession tax paid is not a proper deduction for Income Tax assessment, answering the question submitted in the negative and ordering the assessees to pay costs and fees.
|
