1969 (1) TMI 8 - HC - Income Tax

Tea Company - sum being large land holdings tax are not admissible deductions while computing the business income of the assessee-company - tax paid by the assessee in respect of the tax due from the assessee under the U.P. Large Land Holdings Tax Act, 1957, is not allowable u/s 10(2)(xv) of the IT Act, 1922

Summary

Issues:
1. Deductibility of large land holdings tax paid by the assessees under section 10(2)(xv) of the Indian Income-tax Act, 1922.
2. Relationship between the large land holdings tax and the business activities of the assessees.

Detailed Analysis:
The judgment delivered by the High Court of ALLAHABAD involved two cases concerning the deductibility of large land holdings tax paid by the assessees under the Indian Income-tax Act, 1922. The two assessees in question were the Dehra Dun Tea Company Ltd. and the East Hope Town Estate Co. Ltd., both located in Dehra Dun. The Dehra Dun Tea Company Ltd. was assessed large land holdings tax for the years 1959-60, 1960-61, and 1961-62, while the East Hope Town Estate Co. Ltd. was taxed for the year 1959-60, 1960-61, and 1961-62 as well.

The assessees claimed the large land holdings tax paid as deductible expenditure under section 10(2)(xv) of the Act. However, the Income-tax Officer, the Appellate Assistant Commissioner, and the Tribunal did not accept this claim. The Tribunal dismissed the appeals filed by the assessees, leading to the references being made to the High Court.

The main contention raised on behalf of the assessees was that the tax paid was related to the business activities they conducted on the land. However, the Court held that the large land holdings tax was a tax on the holdings themselves and not on the individuals or entities holding the land. The tax liability existed irrespective of whether the land was cultivated or not, indicating no direct nexus between the tax and the business activities carried out by the assessees.

The Court referred to relevant case law, including Strong & Co. of Romsey Ltd v. Woodifield and Travancore Titanium Products Ltd. v. Commissioner of Income-tax, to emphasize that for an expenditure to be deductible, it must be incurred in the character of a trader and be directly connected to the business activities. The Court concluded that there was no direct and intimate connection between the large land holdings tax paid and the business activities of the assessees, as the tax was imposed on the holdings and not on the assessees as traders.

Therefore, the Court ruled against the assessees, holding that the large land holdings tax paid was not admissible as a deduction while computing the business income. The assessees were directed to pay costs to the department in both cases.