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TMI Blog1968 (6) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of Rs. 8,000 was paid in the preceding year and was allowed by the Income-tax Officer as a deduction for the assessment year 1961-62 ; the assessee paid the balance of Rs. 16,000 and claimed the amount as a deduction under section 10(2)(xv) of the Act. In respect of the assessments for the years 1948-49 to 1953-54 Messrs. K. C. Bose & Co. conducted the cases on behalf of the assessee before the Income-tax Officer, while the appeals before the Appellate Assistant Commissioner and the Tribunal were conducted by an advocate of this court to whom separate fees were paid. For the assessment years 1954-55 to 1956-57 Messrs. K. C. Bose & Co. appeared before the Income-tax Officer and also conducted the appeals filed on behalf of the assessee before the Appellate Assistant Commissioner, but there were no further appeals to the Tribunal. With regard to the assessment years 1957-58 to 1959-60 Messrs. K. C. Bose & Co. conducted the cases before the Income-tax Officer and also the appeals before the Appellate Assistant Commissioner and the Tribunal The Income-tax Officer held that, as Messrs. K. C. Bose & Co. had not only appeared before the Income-tax Officer but also appealed to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a few which appear to be strictly relevant. In Smith's Potato Estates Ltd. v. Bolland, the company was a subsidiary company of Smith's Potato Crisps (1929) Ltd. The parent company was assessable to excess profits tax in respect of the profits of its subsidiary. The Commissioner of Inland Revenue, acting under section 32 of the Finance Act, 1940, disallowed in the computation of profits of the subsidiary company for the period ending March 31, 1941, the excess over pound 3,500 of the remuneration paid to one Mr. Young, the general manager of the subsidiary company. Both companies appealed to the Board of Referees and were successful in getting the sum of pound 3,500 increased to pound 5,800. The subsidiary company incurred legal and accountancy costs in the preparation and prosecution of that appeal and claimed to deduct them in computing its profits for income-tax purposes. The claim of the subsidiary company as well as the claim by the parent company to deduct the said costs in computing the profits of the subsidiary company for purposes of excess profits tax came on appeal ultimately to the House of Lords. There were differences of opinion between the learned law Lords which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd exclusively laid out for the purposes of his trade." Viscount Simon and Lord Oaksey did not agree with this view. Viscount Simon has stated: " It seems to me that it is essential for the proper carrying on of a trade that the trader should know what portion of his profits in a given year is left to him after the revenue has taken its share by taxation. If, therefore, he considers that the revenue seeks to take too large a share and to leave him with too little, the expenditure which the trader incurs in endeavouring to correct this mistake is a disbursement laid out for the purposes of his trade. If he succeeds he will have more money with which to earn profits next year. It is true that the result of his success is to reduce the tax he has to pay alternatively, one may say that the result is to show that the profit of the year's trading left to him after paying tax is greater than the revenue was willing to admit but to my mind the purpose was a trading purpose and nothing else. The trade is not to be regarded as extending over twelve months and no more ; indeed as I have already pointed out, excess profits tax is liable to be adjusted in the light of subsequent trading resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that such expenses are not deductible, what is to be said of the costs of audit which the Companies Acts make necessary, or of that part of the cost of book-keeping which is used in the preparation of such an audit, or of accounts for taxation ? They are not incurred for the purpose of earning the profits of the trade in the limited sense contended for by the Crown." It is clear, therefore, that one point of view is that expenses incurred in conducting proceedings connected with the assessment of tax are not deductible expenses inasmuch as such expenses are incurred by the assessee not wholly and exclusively for the purpose of his trade but partly, if not mainly, as a taxpayer. And the other point of view is that this expenditure is incurred for the purpose of carrying on and earning profits in the trade, for a reduction in the amount of tax increases the fund in the trader's hands after tax is paid and promotes the carrying on of his trade and the earning of his trading profits. We have given our most anxious consideration to both the points of view and have reached the conclusion that the view expressed by Viscount Simon, with whom Lord Oaksey had concurred, should be acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in Travancore Titanium Products Ltd. v. Commissioner of Income-tax. In this case the question arose as to whether the amount of wealth-tax paid by an assessee was business expenditure deductible under section 10(2)(xv) of the Wealth-tax Act, 1957. The Supreme Court expresses the view that the nature of the expenditure or outgoing must be adjudged in the light of accepted commercial practice and trading principles ; the expenditure must be incidental to the business and must be necessitated or justified by commercial expediency ; it must be directly and intimately connected with the business and must be laid out by the taxpayer in his character as a trader ; and to be a permissible deduction, there must be direct and intimate connection between the expenditure and the business, ie., between the expenditure and the character of the assessee as a trader, and not as owner of assets, even if they are assets of the business. Mr. Mukherjee, learned counsel for the Commissioner, contends that this judgment of the Supreme Court ought to be considered as an authority for the proposition that taxes are paid by an assessee not in his capacity as a trader but in his character as a taxpayer. ..... 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