1968 (1) TMI 8 - HC - Income Tax

Payment made to Municipality as professional tax under s. 150A - held that sum payable by the assessee is allowable under the IT Act, 1922.

Summary

Issues:
- Deductibility of professional tax under the Indian Income-tax Act, 1922
- Interpretation of provisions of the Bihar and Orissa Municipal Act, 1922
- Application of section 10 of the Indian Income-tax Act, 1922

Analysis:

The judgment pertains to the deductibility of professional tax under the Indian Income-tax Act, 1922. The case involved a taxpayer engaged in wholesale business who claimed a deduction of Rs. 125 paid as professional tax to the Deoghar Municipality under section 150A of the Bihar and Orissa Municipal Act, 1922. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the deduction, but the Income-tax Appellate Tribunal allowed it under section 10(1) of the Act. The central issue was whether this tax payment was allowable under the Income-tax Act.

The relevant provisions of the Bihar and Orissa Municipal Act, 1922 were examined, specifically section 82(1)(ff) and section 150A, which empower the municipality to levy taxes on trades, professions, callings, and employments based on specified criteria. The Fourth Schedule of the Municipal Act outlined different classes of taxes based on factors such as the valuation of business premises and total yearly income. The taxpayer fell under the category of serial (b) in the Fourth Schedule, which determined the tax based on the valuation of business premises.

The judgment analyzed section 10 of the Indian Income-tax Act, 1922, particularly sub-sections (2)(ix) and (4), which govern the deductibility of certain payments. Sub-section (4) prohibits the allowance of sums paid on account of any tax levied on profits or gains of a business. However, it was established that the professional tax paid by the taxpayer was not based on profits or gains but on the valuation of business premises. Therefore, it did not fall under the restriction of sub-section (4) and was deductible under section 10(1) of the Act.

The court further clarified that the payment of professional tax under section 150A of the Municipal Act was essentially a municipal tax in respect of the business premises, aligning with the provisions of clause (ix) of sub-section (2) of section 10 of the Income-tax Act. Consequently, the taxpayer was entitled to the deduction of Rs. 125 paid as professional tax. The judgment concluded by affirming the decision of the Appellate Tribunal and awarding costs to the taxpayer.

In summary, the judgment resolved the issue by affirming the deductibility of the professional tax payment under the Indian Income-tax Act, 1922, based on the specific provisions of the Municipal Act and the Income-tax Act.