1972 (12) TMI 1 - SC - Income Tax

Whether the tax paid by the assessee-company on the tea-garden lands under the U.P.LargeLand Holdings Tax Act 1957 (U.P. Act XXXI of 1957) is liable to be deducted u/s 10(2)(xv) - question referred to the HC is answered in favour of the assessees. In other words the answer to the question is that the tax paid under the U.P.LargeLand Holdings Tax Act 1957 is an admissible deduction from the taxable income of the assesse-companies

Summary

Issues:
1. Whether the tax paid by the assessee-company on the tea-garden lands under the U.P. Large Land Holdings Tax Act, 1957 is liable to be deducted under section 10(2)(xv) of the Indian Income-tax Act, 1922?

Analysis:
The Supreme Court heard appeals regarding the deductibility of tax paid by an assessee-company on tea-garden lands under the U.P. Large Land Holdings Tax Act, 1957. The High Court had ruled in favor of the revenue, citing a previous decision in Travancore Titanium Products Ltd. v. Commissioner of Income-tax. The assessee companies, taxed under section 10 of the Indian Income-tax Act, are tea-growers conducting business activities. The key question was whether the tax paid under the U.P. Act is an allowable expenditure under section 10(2)(xv) of the Act.

In Indian Aluminium Co. Ltd. v. Commissioner of Income-tax, a significant ruling was made by a five-judge Bench, stating that if an expenditure is incidental to a trader's business activities, it should be considered as laid out by the trader. Applying this principle, the Supreme Court concluded that the lands owned by the assessee companies are business assets, and the tax paid under the U.P. Act is an expenditure incurred as traders and incidental to their business, making it deductible under section 10(2)(xv) of the Act.

The revenue contended that tea-growers are both owners and traders, assessed on 40% of their net income under Rule 24 of the Act. They argued that the tax under the U.P. Act is on owners, not traders, making the previous ruling inapplicable. However, the Court disagreed, stating that tea-growers are considered owner-cum-traders, and any expenditure incurred should be viewed as a trader's business expense. The Court clarified that only 40% of the net income is taxed, and correspondingly, only 40% of the expenditure can be claimed.

Regarding the Income-tax (Amendment) Act, 1972, the revenue argued that the amendment disallows deductions for tax payments. However, the Court held that this amendment does not apply to the case at hand, as it pertains to wealth-tax and other specified taxes, not relevant to the tea-growers' situation. Consequently, the appeals were allowed, overturning the High Court's decision, and ruling in favor of the assessees. The tax paid under the U.P. Large Land Holdings Tax Act, 1957 was deemed an admissible deduction from the taxable income of the assessee-companies. The appellants were awarded costs for the appeals in both the Supreme Court and the High Court, with a single hearing fee.