1969 (6) TMI 9 - HC - Income Tax

Allowability of property tax paid by the assessee in Japan on its vessels as deduction u/s. 10(2)(xv)

Summary

Issues:
Interpretation of whether property tax paid by a non-resident shipping company in Japan on its vessels is allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis:
The case involved a reference under section 66(2) of the Indian Income-tax Act, 1922, regarding the deductibility of property tax paid by a non-resident shipping company in Japan on its vessels. The Income-tax Officer initially rejected the deduction claim, stating that the tax incidence fell on the assessee as the owner of properties, not as a trader. However, the Appellate Assistant Commissioner allowed the deduction, reasoning that the property tax in Japan was leviable on assets used exclusively for business purposes, making it an allowable expenditure under section 10(2)(xv) of the Act.

The Tribunal upheld the Appellate Assistant Commissioner's decision, emphasizing that the Japanese property tax was attracted when there was actual use of depreciable assets in a business. The Tribunal compared this tax to the Indian wealth-tax, stating that the payment of wealth-tax was not allowable as a business expenditure. However, they found that the property tax in Japan was allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922, due to its connection to the business operations of the assessee.

The High Court analyzed the relevant provisions of the Japanese statute and compared them to the principles laid down by the Supreme Court in a similar case involving wealth-tax. The Court concluded that the property tax in Japan was levied on property owned by the assessee, not on the actual business activity. Therefore, the tax payment did not have a direct and intimate connection with the business itself, rendering it non-deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922.

The Court rejected the argument that the Tribunal should not have accepted the provisions of the Japanese statute without proper proof, stating that proof of foreign law is a factual matter. Since the revenue department did not raise any objections to the correctness of these provisions before, the Court declined to delve into this issue. Ultimately, the Court ruled in favor of the revenue, denying the deduction claim for the property tax paid by the assessee in Japan on its vessels.

In conclusion, the High Court's decision centered on the interpretation of the Japanese property tax provisions and their alignment with the principles established by the Supreme Court regarding the deductibility of taxes under the Indian Income-tax Act. The judgment clarified that for a tax to be deductible under section 10(2)(xv), there must be a direct and intimate connection between the expenditure and the business itself, which was not established in this case concerning the property tax paid in Japan.