LexTRAVANCORE TITANIUM PRODUCTS LTD. versus COMMISSIONER OF INCOME-TAX, KERALA
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ā¢ ā¢ > ā¢ ā¢ A TRAVANCORE TITANIUM PRODUCTS LTD. v. COMMISSIONER OF INCOME-TAX, KERALA January 17, 1966 [K. SUBBA RAo, J.C. SHAH AND S.M. Snoo JJ.] B Income Tax Act, 1922 (11 of 1922), s. 10(2) (xv)-Wea/th-tax paid c D E F G H on assets owned for purpose of business-Whether a pennissib/e deduc- tion. In computing the total earned income of the appellant company for the calendar year 1959, the Income Tax Officer disallowed a claim for deduc- tion of Rs. 80,255 in respect of liability for payment of tax under the Wealth Tax Act, 27 of 1957 incurred by the company. Tho order of the Income Tax Officer was confirmed in appeal by the Appellate Assist- ant Commissioner, the Tribunal and, on a reference, by the High Court. It was contended by the appellant company that since the company held the assets on which tax was levied for the purpose of its business and profits were earned by the use of those assets, tax paid in respect of those assets was expenditure laid out wholly and exclusively for the purpose of the business and on that account was a permissible allowance under s. 10(2) (xv) of the Income-tax Act, 1922. HELD : The amount of tax paid on the net wealth of an as.50SSCO under the Wealth Tax Act is not a permissible deduction under o. 10(2) (xv) of the Income-tax Act, for tax iā¢ imposed under the Wealth Tax Act on the owner of the assets and not on any commercial activity, The charge of tax is the same, whether the asset are part of or used in the trading organization of the owner or are merely owned by him. [326 G-HJ For expenditure to be regarded as being for the purpose of the assessee's business within the meaning of s. 10(2)(xv), the nature of the expenditure of outgoing must be adjudged in the light of accepted com- mercial practice and trading principles. The expenditure must be inciden- tal to the business and must be necessitated or justified by commercial ex- pediency. It must be directly and intimately connected with the business and be laid out by the tax payer in his character as a trader. To be a permissible deduction, there must be a direct and intimate connection bet- ween the expenditure and the business i.e. between the expenditure and the character of the assessce as a trader. and not as owner of assets, even if they are assets of the business. [326 F] Case law discussed. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 235 of 1963 ~" -"""--" ~""""~--~--------~c~--- Appeal by special leave from the judgment and order dated August 26, 1963 of the Kerala High Court in Income-tax Referred Case No. 29 of 1962. G. B. Pai, T. A. Ramachandran and 0.C. Mathur, for the appellant. A. V. Viswanatha Sastri, N. D. Karkhanis, R. H. Dhebar and R. N. Sachthey, for the respondent. 3Z2 SUPREME COURT REPORTS (1966) 3 S.C.R. The Judgment of the Court was delivered by Shah, J. In computing the total earned income of the appellant Company for the calendar year 1959, the Income-tax Officer, Trivandrum, disallowed a claim for deduction of Rs. 80,255/- in respect of liability for payment of tax under the Wealth Tax Act 27 of 1957 incurred by the Company for the calendar years 1957 and 1958. The order was confirmed by the Appellate Assistant Commis- sioner and by the Appellate Tribunal. On the following question referred by the Wealth Tax Appellate Tribunal, "Whether on the facts and circumstances of the case, the assesscc Company is entitled to a deduction of Rs. 12,873/- being the wealth tax paid during the account year ended 29-2-1960 against the profits and gains of its busi- ness for the assessment year 1960-61 under Sec. 10 (2)(xv) of the Indian Income-tax Act ?" the High Court of Kerala recorded an answer in the negative. The Company has appealed to this Court with special leave. The Company claims that wealth-tax paid by it represented expenditure laid out wholly and exclusively for the purpose of its business, and on that account is a permissible allowance under s. 10(2)(xv) of the Income-tax Act. In determining the admissi- bility of this claim, it is necessary to ascertain the true character of the liability for payment of tax under the Wealth Tax Act. Tax is charged under s. 3 of the Wealth Tax Act, 1957, for every financial year in respect of the net wealth of every individual, Hindu undivided family and Company at the rate or rates specified in the Schedule to the Act; and 'net wealth' under the Act means the amount by which the agg
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