1970 (12) TMI 18 - HC - Income Tax

Whether the amount paid on account of professional tax was allowable as a deduction in the assessee s assessment

Summary

Issues:
- Allowability of deduction for professional tax paid by the assessee in the assessment.
- Interpretation of section 10(2)(xv) of the Indian Income-tax Act, 1922 regarding the deduction of professional tax.
- Application of section 10(4) of the Act in disallowing the deduction of the professional tax.
- Comparison of the nature of the profession tax with income tax for deduction purposes.
- Consideration of whether the profession tax is an expenditure incurred solely for the purpose of the profession.

Analysis:
The case involved the question of whether the amount of Rs. 250 paid by the assessee on account of professional tax was allowable as a deduction in the assessment. The assessee, a public limited company, claimed this deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Tribunal held it to be an allowable deduction, stating that the tax was necessary for carrying on the business. However, the revenue contended that the deduction cannot be claimed under section 10(4) of the Act, which restricts the allowance of sums paid on account of any tax levied on business profits.

The court analyzed the provisions of section 10(2)(xv) which allow deductions for expenditures laid out wholly and exclusively for the purpose of the business. It was emphasized that the tax should be an expenditure incurred exclusively for the running or betterment of the business to qualify for deduction. The court referred to a Full Bench decision of the Madras High Court, which held that profession tax is not an expenditure for the purpose of the profession but rather a contribution from the income of the taxpayer. This view was based on the nature of the tax as a payment made out of income, not an expenditure to earn income.

The judgment highlighted the distinction between taxes like income tax, which cannot be deducted as they are part of the income itself, and expenditures genuinely incurred for the purpose of earning income. The court concluded that the nature of the profession tax does not align with the criteria of being an expenditure solely for the profession. Therefore, the deduction claimed by the assessee for the professional tax was disallowed. The court answered the question referred in the negative, in line with the above analysis, and no costs were awarded.

In a concurring opinion, SANDHAWALIA J. agreed with the analysis and decision of the court, reinforcing that the profession tax cannot be considered an expenditure solely for the purpose of the profession based on the nature of the tax as a contribution from the taxpayer's income.