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TMI Blog1963 (1) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee from its business income in respect of the assessment year 1959-60. The claim was negatived by the department as well as by the Tribunal. The question that is referred is: "Whether the sum of ₹ 9,594 representing the wealth-tax paid by the assessee was an allowable expenditure under the Income-tax Act?" T.C. No. 92/1961.--The assessee is a public limited company owning a steel rolling and wire mill at Nagapattinam. For the assessment year 1959-60 corresponding to the previous year ending December 31, 1958, it returned an income of ₹ 1,43,262. In arriving at this figure of income it claimed as deduction a sum of ₹ 12,365 which was the tax levied under the Wealth-tax Act for the same year. The department and the Income-tax Appellate Tribunal have disallowed the claim and the following question stands referred: "Whether on the facts and in the circumstances of the case, the sum of ₹ 12,365 representing the wealth-tax paid by the assessee was an allowable expenditure under the Income-tax Act?" T.C. No. 99/1961.--The assessee is a private limited company carrying on business in re-treading and repairing tyres of motor ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 is a proper deduction in the computation of income?" (2) Whether the claim of the assessee for extra depreciation allowance of ₹ 1,08,988 for the assessment year 1959-60 is justified?" We shall deal with question No. 2 in T.C. 111/1961 separately later. The only question in this batch of tax cases, barring T.C. No. 111 of 1961 in which another question also has been raised, is whether payment of tax under the Wealth-tax Act in respect of the "net wealth" of the assessee companies which are all trading concerns can be claimed as a proper allowance in computing their taxable income under the Income-tax Act. We have first to ascertain the nature and the incidence of tax under the Wealth-tax Act. This Act brings to charge the net wealth of every individual, Hindu undivided family, and a company. The charging section is section 3 which is as follows: "Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 10(2) on the ground that the true profits of the business cannot be ascertained without deducting it. Now section 10(2)(xv) reads: "Such profits or gains shall be computed after making the following allowances, namely:-- (xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." The proper interpretation of this provision has come up for consideration in numerous decisions particularly because the assessees generally claim a particular expense or loss as falling within this omnibus provision, other provisions under section 10 being inapt. There does not however appear to be any difficulty in ascertaining the principle to be applied as illustrated in the decided cases: nor do we think there is much difficulty in applying these principles to these cases. A sustainable claim for deduction under section 10(2)(xv) in the computation of business profits would depend very largely on the facts and circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was claimed by the assessee in that case of an amount which he paid as damages and costs incurred by him in defending an action for injuries sustained by a guest in his business premises. The claim was disallowed. The following passage from the judgment of Lord Davey, which has been repeatedly quoted, has really shaped the course of subsequent judicial precedents: "I think that the payment of these damages was not money expended 'for the purpose of the trade'. These words are used in other rules, and appear to me to mean for the purpose of enabling a person to carry on and earn profits in the trade, etc. I think the disbursements permitted are such as are made for that purpose. It is not enough that the disbursement is made in the course of, or arises out of, or is connected with, the trade or is made out of the profits of the trade? It must be made for the purpose of earning the profits." The observation of Lord Chancellor (Lord Loreburn) in the same judgment emphasises that the expenditure or loss should fall upon the assessee in his character as a trader. The following is the passage at page 219: "In my opinion, however, it does not follow that if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed was inadmissible. This decision was reversed in the Court of Appeal by a majority of two Lord Justices, Kennedy Lord Justice dissenting. In the House of Lords the opinion was equally divided with the result that the judgment of the Court of Appeal was sustained. In the midst of this diversity of judicial opinion, it would not be safe to cull out any guiding principle as constituting an acceptable precedent. Even on the facts of the case it is fairly clear that the expenses of charges borne by the assessees were really incidental to the carrying on of the brewery business. We do not think that this case lends any assistance to the learned counsel for advancing his contention. The decision of the Australian High Court in Moffatt v. Webb [1913] 16 C.L.R. 120 (Aus.) is cited. The relevant provision of the Income-tax Act in that case was as follows: "All losses and outgoings actually incurred in Victoria by any taxpayer in production of income........shall be deducted from the gross amount of such taxpayer's income. 2. In estimating the balance of the income liable to tax no sum shall be deducted therefrom for.........(g) Any disbursements or expenses whatever not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he is entitled to deduct the annual value of his own land as owner of the land in precisely the same sense as he pays the federal land tax in respect of the same land as owner." The principle laid down by the Australian High Court in Moffat v. Webb 16 C.L.R. 120 (Aus.) is only this: if a trader pays a tax in respect of a business asset owned by him and if such an asset is indispensable for the carrying on of the business, any tax paid by him on that asset would be a proper debit in the computation of the income under the Income-tax Act. Mr. Swaminathan referred us to various passages in the decision of the House of Lords in Morgan (Inspector of Taxes) v. Tate & Lyle Ltd. [1954] 26 I.T.R. 195. There, a company was engaged in sugar refining and had incurred expenses in a propaganda campaign to oppose the threatened nationalisation of the industry. The Commissioners for the General Purposes of the Income Tax found that the sum in question was money wholly and exclusively laid out for the purposes of the company's trade and was an admissible deduction from its profits for income-tax purposes. It was held by the majority of the learned Law Lords, two Law Lords expressing diss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the taxable profits Under the rating law of Scotland rates are treated as a charge on the ownership of property. The following observation of Lord Macmillan pertaining to the point now in issue may be quoted: "The owner's rates in the present case would be payable by the company whether it carried on any trade in the premises or not or if it chose to let them....The obligation to pay owner's rates is similarly incidental to the ownership of the property, irrespective of how he may use it." It is true that a capital asset of a trading company is an essential requisite for the carrying on of the business. It is also true that such capital asset would fall within the ambit of the Wealth-tax Act. But this circumstance by itself would not be sufficient to claim the wealth-tax paid as an allowance under section 10(2)(xv) or even under section 10(1). It cannot be said that payment of wealth-tax is incidental to the carrying on of the business nor can it be said that the tax falls upon the assessee, who owns the wealth and who carries on the business, in his character as a trader or businessman. Payment of wealth-tax is as a result of a charge on the ownership of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years, and that therefore the extra depreciation allowance in respect of the financial year April 1, 1958, to March 31, 1959, can be claimed in the assessment year April 1, 1959, to March 31, 1960. In our opinion this contention is wholly unsustainable. We have no doubt that in the context of this provision the words "financial years" mean and can only mean "the assessment years". The words used are "financial years next following the previous year in which such buildings are erected". The scheme of the Indian Income-tax Act is only to tax income of the previous year in the relevant assessment year. If the contention of the learned counsel were to be accepted, it would mean that for the special purpose of allowing extra depreciation allowanced, it is not the previous year that would be relevant but the financial year. This is opposed to the whole scheme and tenor of the provisions of the Indian Income-tax Act. The decision of the Tribunal holding that the assessee is not entitled to relief under section 10(2)(via) is well founded. This question is answered against the assessee. The assessee in each of these cases will pay costs to the department. Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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