1971 (8) TMI 20 - SC - Income Tax

Business of raising coal from coal mines and selling the same to its constituents - As lessee of the mines the assessee incurred liability for payment of Road and Public Works cess & Education cess - Profits arrived at according to the provisions of the two cess Acts could not be equated to the profits which were determined under s. 10 of Indian Income-tax Act 1922. Therefore s. 10(4) was not attracted

Summary

Issues:
Interpretation of section 10(4) of the Indian Income-tax Act, 1922 regarding the deduction of cesses paid by a public limited company for road and public works under the Bengal Cess Act of 1889 and education cess under the Bengal (Rural) Primary Education Act, 1930.

Detailed Analysis:

The judgment delivered by the Supreme Court involved appeals from the Calcutta High Court concerning the deduction of cesses paid by a public limited company under the Indian Income-tax Act, 1922. The company, engaged in coal mining, sought to deduct road and public works cess as well as education cess under sections 10(2)(ix) and 10(2)(xv) of the Act, but the income-tax authorities disallowed the claim based on section 10(4) of the Act. The main issue revolved around whether the cesses were assessed on the profits or gains of the business, as per the provisions of section 10(4) of the Act. The High Court ruled against the assessee, leading to appeals before the Supreme Court.

The Supreme Court analyzed the relevant sections of the Indian Income-tax Act, 1922, particularly section 10(4, which restricts the allowance of sums paid on account of any cess, rate, or tax levied on the profits or gains of any business. The Court scrutinized the nature of the cesses levied under the Bengal Cess Act of 1889 and the Bengal (Rural) Primary Education Act, 1930, to determine if they fell within the purview of section 10(4). The Court emphasized that for section 10(4) to apply, the cesses must be assessed based on the profits or gains of the business, not merely on the basis of such profits.

The Court examined the assessment mechanisms under the Bengal Cess Act of 1889 and the Bengal (Rural) Primary Education Act, 1930, which calculated the annual net profits for determining the cess amounts. The Court concluded that the method of assessing these cesses did not align with the determination of profits under section 10 of the Income-tax Act, 1922. Referring to precedents, including a Privy Council decision, the Court emphasized that section 10(4) was intended to exclude taxes or cesses assessed based on the profits or gains of a business as determined under section 10, which was not the case with the cesses in question.

Ultimately, the Supreme Court allowed the appeals by special leave, overturning the High Court's decision. The Court held that the road and public works cess and education cess paid by the assessee were allowable deductions under section 10(2)(ix) and 10(2)(xv) of the Indian Income-tax Act, 1922. The Court's decision favored the assessee, granting them costs and discharging the answers returned by the High Court. Additionally, appeals with defective certificates were dismissed.