THE INDIAN ALUMINIUM CO. LTD. versus THE C.I.T., WEST BENGAL, CALCUTTA

Citation: [1973] 1 S.C.R. 15 · Decided: 29-03-1972 · Supreme Court of India · Bench: S.M. SIKRI · Disposal: Appeal(s) allowed

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Judgment (excerpt)

. 1 
A 
THE INDIAN ALUMINIUM CO. LTD. 
v. 
THE C.I.T., WEST BENGAL, CALCUTTA 
March 29, 1972 
15 
[S. M. SiKRI, C.J., A. N. GROVER, A. N. RAY, D. G. PALBKAll 
B 
· 
AND M. H. BEG, JJ.J 
c 
D 
Income Tax Act, (1.1 of 1922), $. 10(1) and (2)(xv)-AsseSlt'e a 
trading company-Payment of weal.~1 tax-If could be deducted in com-
puting inconze for purposes of income tax. 
The assossee, a trading company, paid wealth tax and sought to cbduct 
it as a business expense under s. 10(1) and s. 10(2) (xv) of t'ie Income 
Tax Act, l 922, in computing its assessable incom'~ from business for the 
puroo es of the Income Tax Act. The High Court held against the as-
sesSee followirig the decision of this Court in Travancore Titanium Pro· 
duct Ltd. v. C.I.T., [1966] 3 S.C.R. 321. The test adopted by this Court 
in the Travancore Titanium case was that "to b~ a permissible deduction, 
there must te a direct and intimate connection between the expenditure 
and the business, that is, between the expenditure and the character of the 
assessee as a trader, and not as an owner of the assets, even if they _are 
the assets of the business". 
Allowing the appeal to this Court, 
HELD : The Court is unanimous that the t"'t laid down in the de-
Cision in: the Travancore Titanhun case should be 1nodified. [20A, 3981 
(Per S.M. Sikri, C. 1., A. N. Grover, A. N. Ray and D. G, Palekar, 
JJ.) : (I) Cert•1n important a peels of the qcestion were not brought 
E 
to the attention of this Court when· the earlier case was decided. 
Jf that 
decision is modified as erroneous, it is not likely to cause any public in-
convenience hard"'hip or mischief; and numerous assessees 
would 
be 
affected oy the decision. [20A-B] 
Ke"hav Mill" Co. Lid. v. C.1.T. [1965] 2 S.C.R. 908, 922, followed. 
(2) There 's no doubt that in one sense when rate.s and taxes on 
. property are paid by a trader he pays them as owner or occupier, be· 
F 
cause taxes are either on possession of p'roperty or on its ownership. 
>< 
But when a person has the dual capacity of a trader·cum-owner, and he 
µays tax in 1•'8p·,ct of property which is used for the purpose of trade, 
the payment must be taken to be in. the capacity of a trader according 
to ordinary commercial principles, [25A-B; C-D] 
G 
j 
H 
Moffatt v. Webb, [,1913] 16 C.L.R., 120 applied (Not cited in the 
Travancore Titanium else. 
Smith v. Lion Brewery Company, 5 T.C. 568, Usher's Wiltshire Bre-
wery Ltd. v. Bruce, 6 T.C. 399, Tlarrods (Buenos Ayres) Ltd. v. Taylor-
Goobv, 41 T.C. 450 and observations of Lord Davey in Strong and Co. 
Romsey Ltd, case (5 T.C. 215), referred to. 
(3) Jn the case <•f " trading comuany all the assets are owned and 
the liabilities are. in"urrd for the purpose of trading, as outlined in its 
memorandum of assoc;ation. If all the assets are owned and used for the 
purpose of trade, the net weal•h would also be owned and used for the 
purpose of trade. The net wealth is as much an instrument of trade as 
the capital value of assets. 
Therefore. the test la'd down in the earlier cas: 
should bo qualified by stating that, if the expenditure is laid out by the 
16 
SUPREME COURT REPORTS 
(1973] 1 S.C.R. 
asscssee as owner-cum-trader, and the expenditure is really incidental to 
A 
the carrying on of his business, it must be treated as having be>n laid out 
by him as a trader and as incidental to his business. f29F-H, 30A-C] 
( 4) It may be difficult for the Revenue to allow the deduction of 
wealth tax in respect of individuals who have both business assets and 
debts, and non-business assets and debts. But the wealth tax return form 
itself requires the assessee to show what are bminess assets and liabilities 
ancl what are the non-business assets and liabilities. 
At any rate, it 
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should not ba difficult to evolve a principle or frame statutory rules to 
find out the proportion of the tax whin is really incidental to the carry-
ing on of the trade. f30C·E) 
(Per M. H. Beg, J.) : (I) One of the tests laid ·down in Keshav 
Mills co's case ([1965]/2 S.C.R.908), for decidh1g whether a ·pre\~OUI 
erronwus view should be set right by this Court, is whether any R<ni-
ble advantage to public msulting from doing so would be outweighed 
C" 
by the mischief or harm a revision may cause. [38E-F) 
The Wealth Tax Act was not intended to strike at or check expan-
sion of commercial activities by either 
individuals or 
companies. 
It; 
underlying purpo~! is the removal of disparifes of individual Or person3! 
we

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