Dehra Dun Tea Co. Ltd. & ANR Vs.
Commissioner of Income Tax, U.P., Lucknow [1972] INSC 300 (12 December 1972)
HEGDE, K.S.
HEGDE, K.S.
REDDY, P. JAGANMOHAN
CITATION: 1973 AIR 1344 1973 SCR (3) 83 1973
SCC (4) 126
ACT:
Income-tax Act 1922 s. 10(2) (xv)-Deductible
expenditure-Tax paid by tea growers under U.P. Large Land Holdings Act XXI of
1957 whether deductible.
HEADNOTE:
The assessee companies were growers of tea.
Their income was taxed under s. 10 of the Income-tax Act 1922 but under Rule 24
of the Rules framed under the Act only 40% of their income was brought to tax.
The expenditure was also allowed to the extent of 40%. The companies claimed
that the tax paid by them under the U.P. Large Land Holdings Tax Act 1957 was
deductible under s. 10(2) (xv) of the Income-tax Act.
The claim was disallowed by the income-tax
authorities. in a reference under s. 66(1) the High Court, relying upon the
decision of this Court in Travancore Titanium Product Ltd.
v. C.I.T. Kerala (60 I.T.R. 277) answered the
question in favour of the' Revenue. in these appeals the companies relied on
the decision of this Court in Indian Aluminium Co.Ltd. v. Commissioner of
Income Tax, West Bengal (84 I.T.R. 735). It was contended on behalf of the
respondent that the decision in Indian Aluminium was inapplicable to the case
since the tax under the U.P. Act was laid on the companies as owners.
Allowing the appeal,
HELD : (i) Applying the ratio of the decision
in the Indian Aluminium case to the facts of the present case it was clear that
the lands owned by the assessee companies were their business assets and the
tax paid thereon under the U.P. Act XXXI of 1957 was an item of expenditure
laid out by the assessee companies as traders and as incidental to their
business. Consequently the same must be treated as an item of expenditure under
Section 10(2)(xv) of the Act. [84-H] The contention on behalf of the Revenue
that the decision in Indian Aluminium was inapplicable could not be accepted. A
tea-grower is considered under the Act read with Rules as an owner-cum-trader.
Therefore any item of expenditure incurred by him must be considered as an item
of expenditure incurred by a trader in connection with his business activity.
It is true that only 40 per cent of the net income of the tea-growers is
brought to tax under the Act;
but at the same time the tea growers will
also be entitled only to 40 per cent of the expenditure incurred by them.
[85CD] Travancore Titanium Product Ltd. v.
C.I.T. Kerala. 60 I.T.R.
277 referred to.
Indian Aluminium Co. Ltd. v., Commissioner of
Income Tax, West Bengal, 84 I.T.R. 735 applied.
(ii)Section 40 of the Income Tax Act 1961 as
amended in 1972 bad no bearing on the point arising for decision in this case.
[86A]
CIVIL APPELLATE JURISDICTION: Civil Appeals
No. 56 to 61 of 1970.
84 Appeals by special leave from the judgment
and order dated January 1, 1969 of the Allahabad High Court in I.T.R. No.198
and 199 of 1965.
M. C. Chagla, A. K. Verma, J. B. Dadachanji,
O. C. Mathur and R.Narain, for the respondents.
N. C. Kharkhanis, J. Ramamurthi and R. N.
Sachthey for the respondents.
The Judgment of the Court was delivered by
HEGDE, J. These are appeals by special leave. They are directed against the
decision of the High Court of Allahabad in a reference under Section 66(1) of
the Indian Income Tax Act 1922 (,to be hereinafter referred to as the Act). The
common question of law referred in these appeals was :
"Whether the tax paid by the assessee
company on the tea--garden lands under the U.P. Large Land Holdings Tax Act,
1957 (U.P. Act XXXI-of 1957) is liable to be deducted under Section 10(2) (xv)
?" The High Court answered this question in favour of the Revenue. It did
so following the decision of this Court in Travancore Titanium Product Ltd. v.
C.I.T. Kerala(1).
It may be noted that the assessee companies
(there are two companies) are taxed under Section 10 of the Act. Their income
is considered as business income.. The assessee companies are tea-growers and
the activity they carry on is a business activity. Therefore, the question is
whether the tax paid by them under the U.P. Act XXXI of 1957 is an item of
expenditure coming within the scope of Section 10(2) (xv) of the Act. In Indian
Aluminium Co. Ltd. v. Commissioner of Income Tax, West Bengal(2), a Five-Judge
Bench of this Court modified the decision of this Court in Travancore Titanium
Products case (supra) holding that if the expenditure laid out by the assessee
is as an owner-cum-trader and the 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 incidental to his business. On the basis of that rule it came
to the conclusion that the wealth tax paid by a trader on his business assets
is liable to be deducted under Section 10(2) (xv) of the Act. Applying the
ratio of that decision to the facts of the present case it is clear that the
lands owned by the assessee companies are its business assets and the tax paid
thereon under the U.P. Act XXXI of 1957 is an item of expenditure laid out by
the assessee companies as traders and as incidental to their business.
Consequently the same must be (1) 60 I.T.R. 277.
(2) 84 I.T.R. 735.
85 treated as an item of expenditure under
Section 10(2) (xv) of the Act.
Mr. Karkhanis appearing for the Revenue contended
that so far as tea-growers are concerned they are both the owners of lands as
well as traders. It is for that reason they are assessed only on 40 percent of
their net income, applying Rule 24 of the Rules framed under the Act. According
to him the tax paid under the U.P. Act XXXI of 1957 is a tax levied on the
owners and not on the traders. Consequently the ratio of the decision of this
Court in Indian Aluminium Company's case (supra) is inapplicable. We are unable
to accept this contention as correct. A tea-grower is considered under the Act,
read with Rules as an owner-cum- trader. Therefore, any item of expenditure
incurred by him must be considered as an item of expenditure incurred by a
trader in connection with his business activity. It is true that only 40 per
cent of the net income of the tea-growers are brought to tax under the Act;
but, at the same time, the tea-growers will also be entitled only to 40 per
cent of the expenditure incurred by them. Under Rule 24, only 40 per cent of
the net income is brought to tax. Hence we are unable to accept the contention
of Mr. Karkhan is that the ratio of the decision of this Court in the Indian
Aluminium Company's case (supra) is inapplicable to the facts of this case.
Lastly, Mr. Karkhanis contended that in view of the Income-tax (Amendment ) Act
1972, an assessee company is not entitled to claim any deduction in respect of
the tax paid by them. In this connection he relies on Section 2 of the
Amendment Act of 1972. That section reads :
"2. Amendment of Section 40. In Section
40 of the Income- tax Act, 1961 (43 of 1961) (hereinafter referred to as the
principal Act), after sub-clause (ii) of clause (a), the following sub-clause
shall be, and shall be deemed always to have been, inserted, namely:- "(iia)
any sum paid on account of wealth-tax." Explanation:-For the purposes of
this sub- clause, "wealth-tax" means wealth-tax chargeable under the
Wealth-tax Act, 1957 (27 of 1957), or any tax of a similar character chargeable
under any law in force in any country outside India or any tax chargeable under
such law with reference to the value of the assets of, or the capital employed
in, a business or profession, carried on by the assessee, whether or not the
debts of the business or profession are allowed as a deduction in computing the
amount with reference to which such tax is charged, but does not include any
tax chargeable with reference to the value of any particular asset of the
business or profession;".
86 We are unable to accept the connection of
Mr. Karkhanis is that this Section has any bearing on the point arising for
decision in this case. Herein we are not dealing with Wealth-tax, i.e. a tax on
net assets nor with any of the taxes referred in the explanation.
In the result these appeals are allowed and
the answer given by the High Court is revoked and the question referred to the
High Court is answered in favour of the assessee. In other words, the answer to
the question is that on the facts and in the circumstances of the case the tax
paid under the U.P. Large Land Holdings Tax Act, 1957, is an admissible
deduction from the taxable income of the assessee companies.
The appellants are entitled to the costs of
these appeals in this Court as well as in the High Court but there will be only
one hearing fee.
G.C. Appeals allowed..
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