Jaipuria Samla Amalgamated Collieries
Ltd. Vs. Commissioner of Income Tax, West Bengal [1971] INSC 225 (31 August
1971)
ACT:
Income Tax Act, 1922, s. 10(4)--Cesses
imposed under-Bengal Cess Act, 1880 and Bengal (Rural) Primary Education Act,
1930 whether fall within mischief of section-Whether based on profits and gains
of business profession or vocation.
HEADNOTE:
The appellant was a public limited company.
It carried on the business of raising coal from coal mines and selling the
same. It had taken on lease several mines from the owners of the coal bearing
lands. As lessee of the mines the appellant incurred liability for payment of
(i) Road and Public Works cess under the Bengal Cess Act of 1880; (ii)
Education Cess levied under the Bengal (Rural) Primary Education Act, 1930. The
amounts payable by the assessee on account of the aforesaid cesses were claimed
by it as a deduction under s. 10 of the Income-tax Act, 1922. The Income-tax
authorities disallowed that claim relying on s.
10(4) of the Act. The Tribunal and the High
Court decided against the appellant. In appeal to this Court by special leave,
the question for determination was whether the cesses levied under the
aforesaid Bengal Acts fell within the mischief of s. 10(4) of the Act. It was
common ground that these cesses were not levied on the profits or gains of any
business, profession, or vocation but it was claimed on behalf of the Revenue
that the cesses were assessed on the basis of such profits and gains and
therefore they would be covered by the said provision.
HELD : (i) The words 'profits and gains of
any business, profession, or vocation which are employed in s. 10(4) can, in
the context, have reference only to profits or gains as determined under s. 10
and cannot cover the net profits or gains arrived at or determined in a manner
other than that provided by s. 10. The whole purpose of enacting sub-s. (4) of
s. 10 appears to be to exclude from the permissible deduction under cis. (ix)
and (xv) of sub-s. (2) such cess, rate or tax which is levied on the profits or
gains of any business profession or vocation or is assessed at a proportion of
or on the basis of such profits or gains. In other words sub-s. (4) was meant
to exclude a tax or a cess or a rate the assessment of which would follow the
determination or assessment of profits or gains of any business. profession or
vocation in accordance with s. 10 of the Act. [514 D-E] (iii) The road cess and
public works cess are to be assessed on the annual net profits under ss. 72 and
76 of the Cess Act 1880. The net annual profits have to be calculated on the
average of the net profits for the last three years of the mine or the quarry
and if the annual net profits of the property cannot be ascertained in the
aforesaid manner then it is left to the Collector to determine the value of the
property first in such manner as he considers expedient and determine 6 per
cent on that value which would be deemed to be the annual net profits.
The Cess Act of 1930 follows the same pattern
so far as the ascertainment of annual net profits is concerned. These profits
arrived at according to the provisions of the two Cess Acts can by no stretch
of reasoning be equated to the profits which are determined under s. 10 of the
Act. It is not possible to see, therefore, how s. 10(4) could be applicable at
all in the 511 present case. Thus on the language of the provisions both- of
the Act and the two Cess Acts the applicability of s.
10(4) cannot be attracted. [514 F-H]
Commissioner of Income-tax, Bengal v. Gurupada Datta 14 I.T.R. 100, applied.
Simbholi Sugar Mill Ltd. v. Commissioner of
Income-tax, U.P. & Rajasthan v. Banarsi Dass & Sons, 61 I.T.R. 414,
approved.
Commissioner of Income-tax, West Bengal v.
West, Bengal Mining Co. 67 I.T.R. 292, disapproved.
& CIVIL APPELLATE JURISDICTION: Civil
Appeals Nos. 1910 to 1912 and 2112 of 1968, and 1102 to 1105 of 1971.
Appeals by certificate/special leave from the
judgments and orders dated July 28, 1967, March 29, 1968, May 24, 1968 of the
Calcutta High Court in Income-tax References Nos. 170 of 1963. 40 of 1965 and 4
of 1967.
V. S. Desai, N. R. Khaitan, B. P. Maheshwari
and Krishna Sen. for the appellants (in all the appeals).
I B. Sen, K. S. Suri, R. N. Sachthey and B.
D. Sharma, for the respondent (in C.As. Nos. 1910 to 1912 of 1968, and 1102 to
1104 of 1971).
B. D. Sharma, for the respondent (in C.As.
Nos. 2112 of 1968 and 1105 of 1971).
The Judgment of the Court was delivered by
Grover, J. These appeals from judgments of the Calcutta High Court in
Income-tax References involve a common question.
We shall refer to the facts in the batch of
appeals of Jaipuria Samla Amalgamated Collieries Ltd.
The assessee is a public limited company
incorporated under the Indian Companies Act 1913. It carried on the business of
raising coal from coal mines and selling the same to its constituents. It had
taken on lease several coal mines from the owners of the coal bearing lands. As
lessee of the mines the assessee incurred liability for payment of (i) Road and
Public Works cess under the Bengal Cess Act of 1880; (ii) Education cess levied
under the Bengal (Rural) Primary Education Act, 1930., The amounts payable by
the assessee on account of the aforesaid, cesses were claimed by it as
deduction under s. 10 of the Income-tax Act, 1922, hereinafter referred to as
the "Act", in the computation of ,.its profits. The income tax
authorities disallowed that claim relying on s. 10 (4) of the Act. The assessee
went up, in appeal to the 512 Appellate Tribunal which agreed with the orders
of the departmental authorities. The questions which were submitted by the
Tribunal with the statement of the case relating to the assessment years
1954-55, 1955-56 were as follows :- "(1) Whether, on the facts and in the
circumstances of the case, the Road, the Public Works and the Education Cesses
were levied either on the profits or gains of the business or were assessed at
a proportion of or otherwise on the basis of any such profits within the
meaning of s. 10(4) of the Income tax Act, 1922 ? (2) Whether, on the facts and
in the circumstances of the case, the amounts provided for or paid by the
assessee company, as Road and Public Works Cess and the Education Cess was
allowable as a deduction under s. 10 (2) (ix) or 10 (2) (xv) of the Indian
Income tax Act, 1922, read with s. 10(4) of the said Act ?" , The High
Court answered the questions against the assessee.
The assessee filed appeals to this Court
after obtaining a certificate of fitness but the same was found defective owing
to want of any reasons or grounds in the order granting the certificate.
Instead of getting the matters remitted to the High Court for giving reasons
petitions for special leave were filed before us and leave was granted.
We have heard the appeals by special leave on
the printed record of the appeals by certificate. It may be mentioned that this
position obtains in all the appeals by certificate before us.
Section 10(1) of the Act provides that tax
shall be payable by an assessee under the head "profits and gains of
business, profession or vocation" in respect of the profits and gains of
any business profession or vocation carried on by him. Sub-section (2) says
that such profits or gains shall be computed after making the allowances set
out therein. Clauses (ix) and (xv) of this subsection are as follows :-
"(ix) any sums paid on account of land revenue, local rates or municipal
taxes in respect of such part of the premises as is used for the purpose of the
business, profession or vocation." "(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." Sub-section (4) of s. 10 to the extent
It is material is in the following terms :
513 (4) Nothing in clause (ix) or clause (xv)
of subsection (2) shall be deemed to authorise the allowance of any sum paid on
account of any cess, rate or tax levied on the profits or gains of any
business, profession or vocation or assessed at a proportion of or otherwise on
the basis of any such profits or gains The essential question that has to be
determined is whether the cesses levied under the aforesaid Bengal Acts fell
within the mischief of s. 10(4) of the Act. It is common ground that these
cesses are not levied on the profits or gains of any business, profession or
vocation but it has been claimed on' behalf of the Revenue and that contention
was accepted throughout that the cesses are assessed on the basis of such
profits or gains and therefore they would be covered by the said provision.
According to the preamble to the Bengal Cess
Act 1880, the road and works cesses were levied on immovable property interalia
to provide for the construction and maintenance of roads and other works of
public utility. Under s. 5 all immovable property with certain exceptions was
to be liable to the payment of road cess and public works cess. Section 6 laid
down that these cesses were to be assessed on the.
annual value of lands and until provision to
the contrary was made by the Parliament on the annual not profits from mines,
quarries, tramways, railways and other immovable property on such rates as were
to be determined in the manner prescribed. Under S. 72 the Collector of the
district had to serve a notice upon the owner etc. of every mine, quarry and
immovable property requiring him to lodge a return of the net annual profits of
such property cal- culated on the average of the annual net profits thereof for
the last three years for which accounts had been made up.
Section 75 provided for a contingency where a
return was not furnished within the prescribed period. The Collector in that
case or if he found that the return made, was untrue or incorrect was to
proceed to ascertain and determine by such ways or means as seemed expedient
the annual net profits of such property calculated as aforesaid. If the
Collector was unable- to ascertain the annual net profits he could ascertain
and determine the value of the property and thereupon determine 6% of such
value to be the annual net profits thereon (s. 76). The scheme of the Bengal
(Rural) Primary Education Act 1930 may next be referred to. The preamble to
that Act was as follows:-- "Whereas it is expedient to make better
provision for the progressive expansion and for the management and control of
primary education in rural. areas in Bengal so as to make it available to all
children and with a view to make it compulsory within ten years 514 According
to s. 29 all immovable property on which the road and public works cesses were
assessed were to be liable to the payment of primary education cess. The rates
on which the education cess was to be levied varied according as the property
,consisted of mines and quarries or of tramways, railways and other immovable
property. As regards mines and quarries it was to be levied at the rate of
three and a half piece on each rupee of annual net profits.
Now it is quite clear that the aforesaid
cesses would be allowable deductions either under clause (ix) or clause (xv) of
sub-s. (2) of S. 10 unless they fell within S. 10(4). We have already referred
to the provisions of both Acts under which the cesses are levied which show
that their assessment is not made at a proportion of the profits of the
assessee's business. What has to be determined is whether the assessment of the
cesses is made on the basis of any such profits. The words "profits and
gains of any business, profession or vocation" which are employed in S. 10(4)
can 'in the context, have reference only to profits or gains as determined
under S. 10 and cannot cover the net profits or gains arrived at or determined
in a manner other than that provided by s.10 The whole purpose of enacting
sub-s. (4) of S. IO appears to be to exclude from the permissible deductions
under clauses (ix) and (xv) of sub-s. (2) such cess, rate or tax which is
levied on the profits or gains of any business, profession or vocation or is.,
assessed at a proportion of or on the basis of such profits or gains. In other
words sub-s. (4) was meant to exclude a tax or a cess' or rate the assessment
of which would follow the determina- tion or assessment of profits or gains of
any business, profession or vocation in accordance with the provisions of S. 10
of the Act.
The road cess and public works cess are to be
assessed on the annual net profits under ss. 72 to 76 of the Cess Act 1880. The
net annual profits have to be calculated on the average of the net profits for
the last three years of the mine or the quarry and if the annual net profits of
the property cannot be ascertained in the aforesaid manner then it is left to
the Collector to determine the value of the property first in such manner as he
considers expedient and determine 6 per cent on that value which would be
deemed to be the annual net profits: The Cess Act of 1930 follows the same
pattern so far as the ascertainment of annual net profits is concerned. These
profits arrived at according to the provisions of the two Cess Acts can by no
stretch of reasoning be equated to the profits which are determined under S. 10
of the Act. It is not possible to see, therefore, how S. 10(4) could be
applicable at all in the present case. Thus on the language of the provisions
both of the Act and the two Cess Acts the applicability of s. 10(4) cannot be
attracted. But even according to the decided cases 515 such cesses cannot fall
within s. 10(4). The Privy Council in Commissioner of Income tax, Bengal v.
Gurupada Dutta & Others(1) had to consider whether the rate imposed under
the provisions of the Bengal Village Self Government Act 1919 on a person
occupying a building and using the same for the purpose of business was an
allowable deduction in computing the profits of the business under s. 10 of the
Act. Their Lordships laid down the law in the following words : .
"It will be noted that, in the absence
of the necessary powers and machinery, which are not provided by the Act, the
estimate of the annual income from business can only proceed on a rough guess,
which is in no way comparable with the ascertainment of profits and gains under
the Income-tax Act, an d, in the opinion of their Lordships, the inclusion of
this element of business income as part of the "circumstances" of the
assessee with a view to the imposition of the union rate does not fall within
sub-section (4) of Section 10 of the Income tax Act. It is conceded that the
union rate is not "levied on the profits or gains", which clearly
implies an ascertainment of such profits and gains, and the words "
assessed.......... on the basis of any such profits or gains" in the later
part of the sub-section must also be so limited. No such ascertainment of the
profits and gains of the business can be undertaken for the purposes of the union
rate.,, The main argument for the Crown, therefore fails." In our judgment
this decision is quite apposite and fully covers the points under
consideration. It has been followed by the Allahabad High Court in Simbholi
Sugar Mills Ltd. v. Commi ssioner of Income tax, U.p. & V.p.(2) in which
the question related to the deductibility of tax payable under the U.P.
District Boards Act 1922 which was imposed on persons assessed according to
their circumstances and property. Similarly in Commissioner of Income tax, Delhi
and Rajasthan v. Banarsi Dass & Sons(3), the Punjab High Court held that a
tax imposed under the U.P. District Boards Act on circumstances and property
could be legitimately claimed as an allowance and the above-decision of the
Privy Council was followed. In the Income tax Act 1961, s. 28 relates to the
income which shall be chargeable to income tax under the head "profits and
gains of business or profession'. Section 30(b) (ii) is equivalent to cl. (ix)
of s. 10(2) of the Act, Section 40 (a) (ii) corresponds to s. 10 (4) of the
Act. It is significant that in spite of the decision of the Privy Council in
(1) 14 I.T.R. 100.
(3) 61 I.T.R. 414.
(2) 45 I.T.R. 125.
516 Gurupada Dutta's case(1) the Parliament
did not make any change in the language of the provisions corresponding to s. 10(4).
It can, therefore, legitimately be said that the view of the Privy Council with
regard to the true scope and ambit of s. 10(4) of the Act was accepted. We are
unable to concur in the reasoning or the conclusion of the Calcutta High Court
in Commissioner of Income tax, West Bengal, v. West Bengal Mining Co.(2) in
which it was held that the two cesses being related to profits would attract S.
10(4) of the Act.
In the result Civil Appeals Nos. 1102 to 1105
of 1971 which are by special leave are allowed and the answers returned by the
High Court are discharged. The questions referred shall stand answered in
favour of the assessees and against the Revenue. The assessee shall be entitled
to their costs in this Court.
Civil Appeals Nos. 1910 to 1912 of 1968 and
2112 of 1968 in which the certificates are defective and have to be revoked
shall stand dismissed.
G.C. Ordered accordingly.
(1) 14 I. T. R. 100. (2) 67 I.T.R. 292.
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