1971 (8) TMI 75 - HC - Income Tax

Whether the property tax levied by the Punjab Government on the cinema houses was admissible as a deduction - only when the expenditure has intimate connection with the carrying on of the business that it can be claimed as a deduction

Summary

Issues:
Whether property tax levied by the Punjab Government is admissible as a deduction under the Income-tax Act, 1922.

Analysis:
The case involved a private limited company deriving income from motion picture exhibition owning two cinema houses. The company paid property tax on these cinema houses during the relevant assessment years. The Income-tax Officer disallowed the deduction claimed by the company, stating that property tax was not covered under allowable deductions as per the Income-tax Act, 1922. The Appellate Assistant Commissioner upheld this decision, stating that the tax was on the ownership of property and not incurred for business purposes.

The company appealed to the Tribunal, which allowed the deduction. The Tribunal considered property tax payment as incidental to the business of running cinemas, necessary for carrying on the business. The Tribunal held that disallowing the deduction was unjustified, contrary to the revenue authorities' view.

The High Court analyzed the nature of the property tax under the Punjab Urban Immovable Property Tax Act, 1940, emphasizing that the tax was on the ownership of property. The Court examined whether the property tax could be allowed as a deduction under section 10(2)(xv) of the Income-tax Act, 1922. Referring to legal precedents, including the Strong and Company case and the Travancore Titanium Products case, the Court emphasized that deductions must be directly connected to the business and incurred wholly and exclusively for business purposes.

The Court also referenced the Commissioner of Income-tax v. Kawasaki Kisen Kaisha Ltd. case, highlighting the lack of direct connection between property tax payment and business activities. Additionally, the Court cited the Commissioner of Income-tax v. Saraswati Industrial Syndicate case, emphasizing that taxes imposed due to carrying on a business are not necessarily deductible under section 10(2)(xv).

Ultimately, the High Court ruled against the company, stating that property tax was not directly connected to the business of exhibiting films. The Court held that the property tax could not be claimed as a permissible deduction under section 10(2)(xv). The Court disagreed with the Tribunal's decision, stating it was superficial and not sustainable on principle or authority.

In conclusion, the High Court answered the question in the negative, favoring the department and rejecting the company's claim for deduction of property tax.