1977 (11) TMI 22 - HC - Income Tax

Summary

Issues:
1. Deductibility of wealth-tax under the Indian I.T. Act, 1922.
2. Allowability of professional fees in relation to wealth-tax assessment.

Analysis:

Issue 1:
The assessee claimed a deduction of Rs. 3,00,528 as expenditure for wealth-tax paid for the assessment year 1959-60. However, both the Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) disallowed this deduction. The Tribunal also upheld this decision based on the Supreme Court's ruling in Travancore Titanium Products Ltd. v. CIT [1966] 60 ITR 277, which stated that wealth-tax was not allowable as a business expenditure under the Indian I.T. Act, 1922. Subsequently, the Supreme Court's decision in Indian Aluminium Co. Ltd. v. CIT [1972] 84 ITR 735 held that wealth-tax paid by a trading company on assets used for business purposes was deductible as a business expense. However, a retrospective provision introduced by Parliament through the I.T. (Amend.) Act, 1972, disallowed the deduction of wealth-tax paid by an assessee under certain assessment years, including 1959-60. Consequently, the deduction claimed by the assessee for wealth-tax payment was impermissible under the law.

Issue 2:
Regarding the professional fees of Rs. 1,500 related to the wealth-tax assessment, the court analyzed the situation differently. The legal position established by the Supreme Court in Indian Aluminium Co. Ltd.'s case was in effect when the ITO, AAC, and Tribunal passed their orders. As per this ruling, wealth-tax paid by a trading company on assets used for business purposes was deductible. Therefore, the assessee's claim for professional fees in connection with the wealth-tax assessment was justified, despite the subsequent legislative provision rendering the Supreme Court's decision ineffective. The court held that the assessee was entitled to deduct the professional fees in relation to the wealth-tax assessment. Consequently, the first question was answered negatively against the assessee, while the second question was answered affirmatively in favor of the assessee.

In conclusion, the court ruled in favor of the assessee concerning the deductibility of professional fees but disallowed the deduction for wealth-tax payment based on the retrospective legislative provision.