789/CBDT. - Income Tax - 789/CBDT

INSTRUCTION NO. 789/CBDT Dated : November 14, 1974 Section(s) Referred: 30(b) ,37 ,57(iii) Statute: Income - Tax Act, 1961 Attention is invited to the decision of the Punjab Haryana High Court in Commissioner of Income-tax Vs Jai Hind Pictures Co.(87 ITR 218) wherein the Court held that property tax paid by cinema houses were not deductible in computation of business income. In coming to this conclusion, the Court relied upon the test laid down in the House of Lords decision in Strong Co Vs. Woodifield and followed the pronouncement of the Supreme Court in Travancore Titanium Products Ltd. Vs Commissioner of Income tax (60 ITR 277). 2. In the context of this decision of the Punjab Haryana High Court, the Board have re-examined the issues involved in allowing urban land-tax levied by some of the State Governments as deduction in computation of business income where property is put to use for business, etc. Divergence of judicial view has been existing in this regard. As has been observed, thought obiter, by the Chief Court of Sindh in Commissioner of Income-tax Vs. Jamnadas Devkishan Das (14 ITR 554), a local rate would mean a rate imposed for the benefit of the local authority or local area as distinct from tax forming part of the revenue of the provincial Government. In view of this and perhaps in the light of the Punjab High Court's decision cited above, urban tax may neither be a local rate nor land revenue to be allowed as deduction for the purposes of computing income under the IT Act. However, the Supreme Court have reviewed their pronouncement in the Travancore Titanium Products ltd. Vs. Commissioner of Income-tax and have held that their earlier view for a permissible deduction there must be a direct intimate connection between the expenditure and the business needs to be qualified by stating that if the expenditure is laid out by the assessee as owner-cum-trader and expenditure is really incidental to the carrying on of his business, it must be treated to have been laid out by him as a trader and as such is incidental to his business. In view of this review by the Supreme Court of their earlier decision in Tranvancore Titanium Products ltd. Vs. Commissioner of Income-tax, it would not be correct to rely upon that judgment as an authority. The views of the Supreme Court in Indian Aluminium Co.'s case which is on a specific item of liability of wealth-tax paid by an assessee would hold true with regard to other taxes in respect of which a deduction can be claimed under the rule laid down in the said case. Therefore, to the extent that urban land tax falls within the rule laid down by the Supreme Court in Indian Aluminium Co.s case (84 ITR 735) allowable deduction. Further attention is invited to the Supreme Court decision in the case of Dehradun Tea Co.Ltd. others vs CIT, UP (88 ITR 197). 3. In view of the above, the Board have decided in consultation with Ministry of law that urban land tax paid in respect of premises used for purposes of business or profession is allowable as deduction within the meaning of Section 37 and 57(iii) of the Income-tax Act,1961 and necessary instructions may be issued to all the officers working in your charge on the above lines for their guidance. 4. The Board also desires that appeals and references filed by the assessees on this point and appeals and references filed by the Department, if any, may be suitably regulated in the light of these decisions.