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P.V.G. Raju, Raja of Vizianagaram Vs. Commissioner of Expenditure-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 36 of 1968
Judge
Reported in[1972]86ITR267(AP)
ActsExpenditure Tax Act, 1957 - Sections 2, 5 and 6(1)
AppellantP.V.G. Raju, Raja of Vizianagaram
RespondentCommissioner of Expenditure-tax
Appellant AdvocateK. Subrahmanya Reddy, Adv.
Respondent AdvocateP. Rama Rao, Adv.
Excerpt:
(i) direct taxation - claim for exemption - sections 2, 5 and 6 (1) of expenditure tax act, 1957 - exemption claimed on amount purported to be spent on advancement of cause of assessee's political party - alleged that amount spend was actually loan not supported by material facts - amount shown in accounts as donation and actually spent towards party expenses - amount spent wholly and exclusively for purpose of occupation of assessee - held, items of expenditure are donations for purpose of occupation of assessee and is entitled to exemptions. (ii) taxable expenditure - sections 2 and 6 (1) of expenditure tax act, 1957 - expenditure tax payable by assessee claimed to be deductible under section 6 (1) (a) to arrive at taxable expenditure under section 2 (o) - provisions of section 6 do not.....kondaiah, j.1. the following two questions have been referred at the instance of sri p. v. g. raju, the rajah of vizianagaram (hereinafter referred to as 'the assessee') by the income-fax appellate tribunal, hyderabad bench, under section 25(1) of the expenditure-tax act, 1957 (27 of 1957) (hereinafter called 'the act'), for the opinion of this court:'whether, on the facts and in the circumstances of the case, the tribunal is right in holding that the items of expenditure of rs. 19,349, rs. 17,348 and rs. 4,750 in respect of the assessment years 1959-60 1960-61 and 1961-62, respectively, do not fall within section 5(a) or (j) of the act ? (2) whether, on a proper construction of section 6(1)(a) and 2(h) of the act, the assessee is entitled to deduct in the computation of his taxable.....
Judgment:

Kondaiah, J.

1. The following two questions have been referred at the instance of Sri P. V. G. Raju, the Rajah of Vizianagaram (hereinafter referred to as 'the assessee') by the Income-fax Appellate Tribunal, Hyderabad Bench, under Section 25(1) of the Expenditure-tax Act, 1957 (27 of 1957) (hereinafter called 'the Act'), for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the items of expenditure of Rs. 19,349, Rs. 17,348 and Rs. 4,750 in respect of the assessment years 1959-60 1960-61 and 1961-62, respectively, do not fall within Section 5(a) or (j) of the Act ?

(2) Whether, on a proper construction of Section 6(1)(a) and 2(h) of the Act, the assessee is entitled to deduct in the computation of his taxable expenditure for an assessment year the expenditure-tax that would be payable in respect of that assessment year on the estimated basis ?'

2. In or about the year 1952, the assessee had taken to politics and was elected as a member of the Andhra State Legislative Assembly in the general elections held in 1952 and 1955. He was the leader and chairman of the Andhra Pradesh branch of the Praja Socialist Party during the relevant previous years. He became a Minister in the State Cabinet in or about January, 1960, and continued to be so during the relevant time with which we are concerned in this reference. He incurred for the purpose of his occupation of politics substantial sums of money including the amounts in question in this reference by making periodical payments to the party as such and partly by issue of cheques in the names of persons said to be office-bearers of the party. In addition, some payments were made to a number of persons belonging to the assessee's political party. All the amounts expended have been claimed to have been spent for the purpose of advancement of the cause of the assessee's political party and they are sought to be exempted under Section 5(a) or (j) of the Act in computing the taxable expenditure of the assessee for the respective assessment years. The Expenditure-tax Officer, though he admitted the truth of the items of expenditure, refused to grant exemption claimed bythe assessee on the ground that the assessee's career in politics does not amount to vocation and there was no proof of the amounts being not given to those individuals as loans. The appeals to the Appellate Assistant Commissioner were without success. Further appeals to the Income-tax Appellate Tribunal were partly allowed. On a consideration of the material on record, the Tribunal held that the assessee's career of a politician could be considered as an occupation, but, however, his claim for exemption of the items of expenditure under Clause (a) of Section 5 was disallowed, holding that the expenditure was not incurred by the assessee wholly and exclusively for the purpose of his occupation. The Tribunal was of the opinion that some of the items could be treated as donations and the same have been exempted. The expenses incurred by the assessee for the Andhra Pradesh branch of the Praja Socialist Party and the amounts paid to the individuals who are said to be the office bearers of the party, have been disallowed. Hence this reference.

3. For a proper appreciation of the respective contentions on question No. 1, it is profitable to read the provisions of Clauses (a) and (j) of Section 5 of the Act:

'5. No expenditure-tax shall be payable under this Act in respect of any such expenditure as is referred to in the following clauses; and such expenditure shall not be included in the taxable expenditure of an assessee-

(a) any expenditure, whether in the nature of a revenue expenditure or capital expenditure, incurred by the assessee wholly and exclusively for the purpose of the business, profession, vocation or occupation carried on by him or for the purpose of earning income from any other source;...

(j) any expenditure incurred by the assessee by way of, or in respect of, any gift, donation or settlement on trust or otherwise for the benefit of any other person.'

4. We shall first proceed to examine the claim of the assessee under Section 5(j) of the Act. The contention of Sri Subramanya Reddy, the learned counsel for the assessee, that the Tribunal erred in holding that the amounts of expenditure disallowed by it are not proved to be donations exempt under Section 5(j) of the Act for the purpose of computation of total taxable expenditure, is resisted by Sri P. Rama Rao, the learned standing counsel for the income-tax department, contending, inter alia that those items are not donations within the meaning of Section 5(j) and, in any event, the finding of the Tribunal that the amounts are not donations within the meaning of Section 5(j) is one of fact and it is binding on this court. Whether a particular item of expenditure is or is not permissible to be exempted under Section 5(a) or (j) of the Act, is not a pure question of fact, but one of law as the answer to it turns upon the provisions of Clauses (a) and (j) of Section 5 and their application to the facts of the case. However, the question whether or not an item of expenditure incurred by an assessee in the previous year amounts to gift, donation or settlement on a trust within the meaning of Section 5(j) is a mixed question of fact and law as it depends upon the concept and content of and the context in which the expressions 'gift', 'donation' or 'settlement' have been used therein.

5. We shall, therefore, first advert to the question whether the items of expenditure sought to be exempted under Section 5(j) are or are not donations within the meaning of Section 5(j) of the Act. The term 'donation' has not been denned in the Act. Hence, we may refer to the meaning of 'donation' as given in the Concise Oxford Dictionary and Corpus Juris Secundum.

'Donation thing presented, gift, (esp. of money given to institution ....' (The Concise Oxford Dictionary, page 357),

6. Donation means 'an act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another without any consideration; a gift or grant in gratuity ...' (Corpus Juris Secundum, vol. 28, page 53).

7. However, the expression 'donation' is not equivalent to gift and it is of wider import. The distinction between donation and gift has been succinctly brought out by the following passage in Corpus Juris Secundum:

'The term 'donation' .... is often used as equivalent in meaning to gift; but a donation.... need not have all of the essentials of a gift. Thus a gift must be without a consideration, but a donation may be for a consideration; and a gift must be entirely executed, while a donation need not be. The term 'donation' is more aptly used to describe that which is given to a public cause or charity than to indicate a bounty to an individual.' (Corpus Juris Secundum, vol. 38, page 783).

8. The word 'donation' used in Section 5(j) of the Act, therefore if construed in the light of the meaning referred to above in the Corpus Juris Secundum, must be held to take in items of expenditure to a public cause or charity either with or without consideration, though in some respects, it is analogous to gift. The donor may not expect for the donations any return in the form of money or money's worth ; however, he may expect popularity, goodwill of the people, name and fame which can be termed consideration in this regard. Hence, any transfer of property, movable or immovable, with or without consideration, by the assessee to a public cause or charity must be held to be a donation within the meaning of Section 5(j) of the Act, If the donation relates to movable property, no document, much less a registered deed, is necessary. The mere handing over of a cheque or a sum of money or any movable by the donor to the beneficiary or to any one for and on behalf of the donee would satisfy the requirements of the transaction of 'donation' within the meaning of Section 5(j). The use of the words 'by way of, or in respect of 'preceding the words 'gift, donation or settlement' in Section 5(j) of the Act indicates that any amount of money or money's worth gifted, donated or settled on trust or otherwise for the benefit of any other person by an assessee as well as any amounts expended or incurred in connection with or incidental to those gifts, donations or settlements must be held to be exempted or deducted under Section 5(j) from the computation of the total taxable expenditure. The aforesaid expressions would also support the view that even though the transactions do not strictly amount to gifts, donations or settlements, still they are permissible to be exempted under Section 5(j) if they are in substance analogous or equivalent to gifts, donations or settlements.

9. In the light of the aforesaid discussion, we shall proceed to examine the contentions advanced by Sri P. Ramarao appearing for the department. The submission of Sri P. Ramarao that the amounts in question expended by the assessee by issuing cheques to the individuals concerned are only loans, is not supported by any material on record. The amounts in question have been admittedly spent by the assessee as evidenced by the cheques issued in favour of the parties and the counterfoils and accounts maintained by the assessee. It may be noticed that in the accounts maintained by the assessee, the payments to the individuals as well as towards party expenses have been shown as donations and they have been debited to his personal account. The accounts have not been doubted by the Expenditure-tax Officer or by the Tribunal and, in fact, some of the amounts have been exempted by the Tribunal as donations and others have been disallowed by it without any valid and justifiable grounds. The only reason given by the Tribunal was that the assessee was only advancing the monies towards the expenses of the party as and when required and there was nothing on record to show that those amounts were given as donations to the party. This inference drawn by the Tribunal must be held to be without any material. Except the surmise of the departmental authorities that the amounts might be loans to the individuals concerned, there is not an iota of evidence in support of such A conclusion. Indisputably, all the amounts in question have been spent by the assessee during the relevant previous years for the purpose of the Praja Socialist Party and its advancement. There is no material to think that the amounts have been paid either as loans or have been returned by those donees to the assessee at any time subsequently.

10. We are also not impressed with the submission of Sri P. Ramarao that the items of expenditure are unilateral acts. The cheques have been issued by the assessee either in favour of the party or to the individuals who are working for the party and the amounts have been received and spent by the very office-bearers of the Praja Socialist Party. From those facts, it can safely be inferred that the amounts have been accepted by the office bearers of the party for and on behalf of the party, the donee. The office bearers of the party have in fact spent the monies after cashing the cheques, towards party expenses and, hence, it cannot be said that the transactions in the present case are unilateral and that there was no acceptance by the donees. It may be noticed that, as far as the individuals are concerned, the cheques have been issued by the assessee in their favour and, hence, it must be held that there was acceptance by the donees in respect of those donations. Hence, there is no merit in this submission of Sri P. Ramarao. In the circumstances, we have no hesitation to hold that the finding of the Tribunal that the amounts in question are not donations within the meaning of Section 5(j) of the Act is erroneous, illegal and is not supported by any material. For all these reasons, the items of expenditure, in our considered opinion, are donations and the assessee is entitled to have the same exempted under Section 5(j) of the Act.

11. Even assuming for the sake of argument that the items of expenditure in question are not donations permissible to be exempted under Section 5(j) of the Act, it then falls for decision whether they are admissible expenditure under Section 5(a) which we shall presently consider. As pointed out earlier, this claim of the assessee was rejected on the ground that there was no proof that the expenditure had been incurred by the assessee wholly and exclusively for the purpose of his occupation. We shall proceed to examine how far the view of the Tribunal is valid and justified. The word 'occupation' is not defined under the Act. The meaning of the word 'occupation' given in the Concise Oxford Dictionary is 'What occupies one, means of filling one's time, temporary or regular employment, business, calling, pursuit'. The following passage in Corpus Juris Secundom (vol. 67, page 76) may usefully be referred to in this context :

'The word 'occupation' has reference to the principal or regular business of one's life, or that to which one devotes his time and attention, such as trade, profession, or other vocation or calling, or that which principally takes up one's time, thought and energy, especially one's regular business or employment, or whatever one follows as a means of making a livelihood. ..... the term does not include an isolated or semi-vocational and temporary adventure in another line of endeavour......'

12. Therefore, occasional acts or single transaction does not constitute occupation. The activity termed as 'occupation' is of wider import than vocation or profession. It is also distinct from a hobby which can be resorted to only in leisure hours, for the purpose of killing time. Occupation, therefore, is that with which a person occupies himself either temporarily or permanently or for a considerable period with continuity of activity. It is analogous to a business, calling or pursuit. A person may have more than one occupation in a previous year. The occupations may be seasonal or for the whole year. We shall, therefore, have to examine whether 'politics' can be termed to be an 'occupation' with which we are concerned in the instant case. 'Politics', according to Corpus Juris Secundum (vol. 72, page 223), means 'the science and art of government; the science dealing with the organisation, regulation and administration of a State, in both its internal and external affairs; political science'. Politics, therefore, is a political science concerned with the organisation, regulation and administration of internal as well as external affairs of a State. In P. Krishna Menon v. Commissioner of Income-tax, : [1959]35ITR48(SC) . it has been held by the Supreme Court that the teaching of Vedantha is an activity which can be termed as vocation and any receipts from and out of such vocation by the person who professes such vocation are income and arc liable to be taxed. In the light of the aforesaid discussion, we are clear in our minds that politics is an occupation within the meaning of Section 5(a) of the Act. The assessee, in the instant case in the circumstances, must undoubtedly be held to be a person who had taken to the occupation of political science during the relevant previous years with which we are concerned in this reference.

13. It is contended by the learned counsel for the revenue that the use of the expression 'whether in the nature of revenue expenditure or capital expenditure' in Section 5(a) indicates that the words 'business, profession, vocation or occupation' used therein must be construed in the same sense in which the words 'business, profession and vocation' have been used under the Income-tax Act. In other words, it is argued that Section 5(a) contemplates only such business, profession, vocation or occupation carried on by the assessee either for the purpose of earning any income or with profit motive. This submission of the learned counsel cannot be acceded to for reasons more than one. Firstly, there can be a business, profession, vocation or occupation without any profit motive or on 'no profit no loss basis'. To illustrate, co-operative societies or mutual insurance companies may carry on business without earning any income or without any profit motive. The vocation or occupation to do social service of various kinds for the uplift of the people would also come under this category. The profit motive or earning of income is not an essential ingredient to constitute the activity termed as business, profession, vocation or occupation. As early as in the year 1888, it was held in Commissioners of Inland Revenue v. Incorporated Council of Law Reporting, [1888] 3 T.C. 105, 113 (Q.B.) that 'it is not essential to the carrying on of trade that the people carrying it on should make a profit, nor is it even necessary to the carrying on of trade that the people carrying it on should desire or wish to make a profit'. The aforesaid dictum has been approved by the Supreme Court in P. Krishna Menon's case referred to above. In that case, the learned judge, Sarkar J. (as he then was), speaking for the court, observed thus :

'It is well established that it is not the motive of the person doing an act which decides whether the act done by him is the carrying on of a business, profession or vocation. If any business, profession or vocation in fact produces an income, that is taxable income and none-the-less because it was carried on without the motive of producing any income . . . ....If that were not so a person carrying on what otherwise would be a business, may say that he did not carry on a business because it was not his intention to make any income out of it. That would, of course, be absurd. The question is, whether the activity has actually produced an income and it matters not whether that activity is called by the name of business, profession, vocation or by any other Dame or with what intention it was carried on.'

14. The aforesaid decisions are authorities for the proposition that there may be and are businesses, professions or occupations which can be carried on by persons without any profit motive and it is not the activity of the person doing an act that is material, but whether the activity has produced any income or not for being taxed under the Income-tax Act that matters. We may at this stage notice the following passage in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, : [1955]27ITR34(SC) on which strong reliance has been placed by Sri P. Ramarao in support of his contention :

'If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure.'

15. The aforesaid passage has no connection and relevancy to the point with which we are concerned. That case arose under the Income-tax Act, 1922, wherein it fell for consideration whether the expenditure in question was a revenue or capital expenditure. If the amount of expenditure was proved to be of revenue nature, it was deductible. Hence, the aforesaid passage only points out the difference and distinction between a revenue and capital expenditure and it has no application to the present controversy. In our opinion, the use of the expression 'whether in the nature of revenue expenditure or capital expenditure' is only descriptive of the words 'any expenditure' preceding it. The expenditure must undoubtedly be either revenue or capital in nature. If the expenditure is made for acquiring or bringing into existence an asset or enduring benefit to the business, profession or occupation, it must be held to be of capital nature. But, where the amounts have been spent for the day to day expenses of the occupation, vocation or business, it is undoubtedly of revenue nature. The use of the expression 'any expenditure' in Section 5(a) indicates that the framers of the Act did not wish to leave it vague or ambiguous giving scope for being misconstrued in any other way. They made it explicit and clear. Simply because the words 'capital expenditure' and 'revenue expenditure' have been used in Section 5(a) it must not be construed that they have been used only in such a sense that they import the meaning of profit motive or for the purpose of earning income. That apart, if really what Mr. Ramarao contends for were the intention of Parliament, the wording of Section 5(a) would have been different. In such a case, the legislature should have used the words 'for the purpose of earning income from business, profession or vocation or occupation' and not merely the words 'for the purpose of the business, profession, vocation or occupation'. The use of the words 'for the purpose of' instead 'for the purpose of earning income from' before the words 'business, profession, vocation or occupation' manifests that such a construction as sought to be placed by the counsel for the revenue was neither intended by the legislature nor permissible on the language of Section 5(a). Further, the use of the words 'for the purpose of earning income from any other source' in the latter part of Section 5(a) amply supports the aforesaid view of ours. If any authority is needed, we find it in Commissioner of Expenditure-tax v. Mrs. Manorama Sarabhai, [1966] 59 I.T.R. 262 (Guj.) wherein it was held that the educational activities of the assessee amounted to an occupation within the meaning of Section 5(a) and that no profit motive is necessary to treat an activity as a vocation or occupation within the meaning of Section 5(a). For all these reasons, we must negative this submission of Mr. Ramarao relating to the interpretation of the words 'business, profession, vocation or occupation' in Section 5(a) of the Act.

16. It is next contended by Sri Ramarao that there is no proof that the amounts in question have been expended wholly and exclusively for the purpose of the occupation of the assessee and on that account, the assessee is not entitled for exemption under Section 5(a) of the Act. True, as contended by Mr. Ramarao, that the assessee has not stated that he had any profit motive. However, it is pertinent to notice that when he became a member of the Cabinet, he was receiving the salary and other allowances which are undoubtedly exigible to tax under the Income-tax Act. Any amounts spent by the assessee wholly and exclusively for the purpose of carrying on his occupation must be held to be a permissible deduction under Section 5(a). In the instant case, it cannot be said that there is absolutely no material for the Tribunal to hold that the amounts in question have not been expended wholly and exclusively for the purpose of the occupation of the assessee. The expenditure incurred by the assessee was admittedly for the purpose of his occupation. He was the leader and chairman of the Praja Socialist Party. He had to set up candidates on behalf of his party and also work for their success. In fact, he had spent the amounts in question for the purpose of the advancement of his party whose policies are considered by him as his. On a consideration of the entire material and on the facts and in the circumstances, it has been found by the Tribunal that the assessee's career in politics was an occupation in the relevant previous years and the amounts have been spent towards the party expenses and some payments have been made to the office-bearers of the party. On those facts, it is not possible for as to agree with the finding of the Income-tax Appellate Tribunal that there was no material to hold that those amounts have been spent wholly and exclusively for the purpose of the occupation of the assessee. In fact, no material contract has been placed before the Tribunal, nor is it the case of the department that the amounts given by the assessee to the party have been spent in any other way except surmising that they might have been given as loans to the party members. There is not an iota of evidence on record in support of such surmise. For all these reasons, we must hold that the assessee is entitled to have these items of expenditure exempted under Section 5(a) of the Act as they have been spent wholly and exclusively for the purpose of his occupation of politics. The question No. 1, therefore, is answered in the affirmative and in favour of the assessee.

17. We shall now turn to question No. 2. The assessee claims the tax payable under the Act for the relevant previous years to be deducted under Section 6(1)(a), which reads as follows :

'6. Deductions to be made in computing the taxable expenditure,--(1) The taxable expenditure of an assessee for any year shall be computed after making the following deductions and allowances, namely :--

(a) any taxes, including the expenditure-tax payable under this Act, duties, cesses, rates or fees paid to the Government or a local authority...'

18. On the language of Section 6(1)(a) of the Act, it is urged by the counsel for the assessee that the expenditure-tax payable under the Act is one of the items of deductions permissible under Section 6(1)(a) in order to arrive at the taxable expenditure within the meaning of Section 2(o). This submission of the assessee at first sight appears to be attractive, but on second thoughts and on a careful reading of the section with the material provisions of the Act and the intendment thereof, we have no hesitation to hold that it has no legs to stand for reasons more than one. Firstly, the expression 'including the expenditure-tax payable under this Act' occurring after the words 'any taxes' is only descriptive of the word 'taxes' which is comprehensive enough to take in the expenditure-tax payable under the Act. Parliament did not wish to leave the matter relating to the construction of the words 'any taxes' for any doubt. It has made clear that 'any taxes' include the expenditure-tax payable under the Act. This provision has to be' construed in the light of the other provisions of the Act. Expenditure-tax is chargeable under Section 3 in respect of the expenditure incurred by any individual or Hindu undivided family in the previous year at the rate or rates specified in the Schedule. 'Expenditure' is defined under Section 2(h) as 'any sum in money or money's worth, spent or disbursed or for the spending or disbursing of which a liability has been incurred by an assessee, and includes any amount which under the provisions of this Act is required to be included in the taxable expenditure'. The ' taxable expenditure' is defined under Section 2(o) as the ' total expenditure of an assessee liable to tax under this Act '. A combined reading of Sections 2(h), 2(o) and 3(1) manifests that any sum in money or money's worth spent or disbursed or for the spending or disbursing of which a liability has been incurred by an assessee, including any amount due and payable under the Act in respect of the taxable expenditure is subjected to tax as per the provisions of Section 3(1), The taxable expenditure of an assessee liable to tax under Section 3(1) has to be computed by arriving at the total gross expenditure within the meaning of Section 2(h) and deducting therefrom all the exemptions and deductions permissible under Sections 5 and 6 of the Act, as the provisions of the charging section are subject to the other provisions of the Act. In computing the total expenditure of an assessee for any year, any taxes, duties, cesses, rates or fees paid to the Government or a local authority have to be deducted under Section 6(1)(a), The provisions of Section 6(1)(a) are attracted only when any of the taxes, duties, cesses, rates or fees have in fact been paid to the Government or a local authority in the respective previous year, otherwise not. Such an interpretation gains strength from the use of the word 'paid' in Section 6(1)(a). Unless and until actually the amounts had been paid to the Government or a local authority towards any taxes, duties, cesses, rates or fees, it is not permissible to the assessee to claim any allowance or deduction under Section 6(1)(a). Such a construction is in accord with the intendment and object of enacting the Act. The intendment of the Act was to discourage extravagant personal expenditure and promote thrift and saving which is really in public and national interest. To achieve such an object and purpose, the legislature has enacted the Act and prescribed the tax payable on the taxable expenditure at 10% on the first Rs. 10,000, at 20% on the next Rs. 10,000, 30% on the next Rs. 10,000, 40% on the next Rs. 10,000, 60% on the next Rs. 10,000, 80% on the next Rs. 10,000 and 100% thereafter. As pointed out earlier, the words 'including the expenditure-tax payable under this Act' are referable to 'any taxes' and they are only descriptive. In the same way, the expression 'includes any amount which under the provisions of this Act is required to be included in the taxable expenditure in Section 2(h)' must be held to be only descriptive in nature. Not only the liability which has been incurred by an assessee for the spending or disbursing of any sum of money or money's worth but also the liability relating to the amount payable under the Act has to be included in computing the total expenditure within the meaning of Section 2(h). Expenditure, therefore, means any sum of money or rnoney's worth spent or disbursed or incurred in discharging the liability accrued on account of the spending or disbursing of any amount including any amount required to be paid by an assessee under the Act. The crux of the matter is that a sum in money or money's worth must have been spent or disbursed or incurred by an assessee so as to include such items for computing the expenditure under Section 2(h). Thereafter, by deducting the permissible exemptions and deductions provided under Sections 5 and 6 respectively, the taxable expenditure within the meaning of Section 2(o) has to be arrived at. It is the taxable expenditure that is chargeable to tax under Section 3(1) of the Act. It is pertinent to notice the use of the word 'incurred' in Clauses (b) and (d) of Sub-section (1) and Sub-section (4) of Section 61. The use of the expression 'incurred' by the assessee in the aforesaid provisions would, clearly show that the intendment of the legislature was to give a deduction thereunder only if the amount was actually spent or incurred by the assessee, but not otherwise. This view gains support from the use of the word 'incurred' in Clauses (a) to (j) of Section 5 which provides for the exemptions from the expenditure-tax. All those amounts actually spent or incurred by the assessee specified in Clauses (a) to (j) of Section 5 are exempted from being included in the taxable expenditure of an assessee. We are, therefore, satisfied that the provisions of Section 6(1)(a) will not, in any way, support the contention of the assessee that he is entitled to deduct the expenditure-tax payable under the Act for the relevant previous years in computing the total taxable expenditure. If what the assessee contends for is given effect to, it will not only lead to anamolies but such a construction is contrary to the very intendment and object of the Act. To illustrate, take the case of an assessee whose taxable expenditure within the meaning of Section 2(o) was arrived at Rs. 5,00,000 in respect of a previous year. The tax payable under the Act would undoubtedly be Rs. 4,61,000 as the rate of tax has been fixed at 100% beyond Rs. 60,000 If the amount of tax payable under the Act is deducted, the taxable expenditure chargeable to tax under Section 3(1) would invariably be less than Rs. 60,000 and, in no case, it can exceed Rs. 60,000, which is undoubtedly not the intendment and object of the very enactment. Thereafter, on Rs. 60,000 the assessee had to pay the tax. That tax again has to be deducted as per the construction sought to be placed by the assessee. The process will be an endless one which, if given effect to, would lead to not only anomalies but absurdity.

19. This problem may be viewed from another angle. If such a construction of the provisions of Section 6(1)(a) is possible, the same construction has to be placed upon the provisions of Section 2(h) in computing the expenditure. If any amount that is required to be paid under the provisions of the Act has to be included in arriving at the expenditure under Section 2(h), the net result would be not beneficial to the assessee. In such a case, the amount of expenditure under Section 2(h) would be Rs. 5,00,000 actually incurred or spent by the assessee during the previous year, plus Rs. 4,61,000 payable or required to be paid under the Act, which would enhance the total expenditure to Rs. 9,61,000. Thereafter, under Section 6(1)(a), if the tax of Rs. 4,61,000 payable under the Act is deducted, the net result would be that the taxable expenditure will once again revolve to only Rs. 5,00,000. Hence, this submission of the assessee, even if accepted, will have no practical benefit to him as pointed out above.

20. For these reasons, we are clear in our mind that unless the taxes, be it under any enactments including the present Act, are actually paid during the relevant previous years, the assessee is not entitled to have the same deducted under Section 6(1)(a) on the ground that such taxes are payable by him though not actually paid. The basis for the argument of Sri Subrahmanya Reddy is that the expenditure-tax has accrued to be paid by the assessee by the end of the accounting year and, therefore, he is entitled to have the same deducted under Section 6(1)(a). This theory appears to have been based on the principle that income-tax accrues by the end of the accounting year in respect of any receipt of income by an assessee. However, it may be noticed that under the Indian Income-tax Act, the amounts either received or accrued or arisen to the assessee during the accounting year are income. In the instant case, Section 6(1)(a) did not specify that the taxes payable under the Act are deductible. Suffice it to point out that the use of the word 'paid' in Section 6(1)(a) puts an end to such a theory beyond controversy and there is no ambiguity about the same, The predicate 'paid' in Section 6(1)(a) governs the words 'any taxes', including the expenditure-tax payable under this Act, duties, cesses, rates or fees'. If what the learned counsel contends for were the intention of the legislature, the wording would have been different. In that event, Parliament would have used the words 'paid, accrued, arisen or payable' instead of the only expression 'paid' in Section 6(1)(a). In the circumstances, no other construction except the one which we have adopted is possible on the language of Section 6(1)(a) read with Sections 2(h), 3(1), 5(a) and (j), 6(1)(b) and 4 of the Act and the intendment thereof.

21. The relevant previous years for the assessment years 1959-60, 1960-61 and 1961-62 under reference ended with June 30, 1958, June 30, 1959, and June 30, 1960, respectively. The expenditure-tax assessments for those years were completed only in July, 1961, November, 1961, and January, 1963. Hence, in none of the respective previous years, any amounts of tax under the Act have been paid by the assessee. The payments have, in fact, been made subsequent to the relevant periods in question. If any amount has been paid by the assessee towards the tax under the Act in any previous year, he would certainly have to include that amount in computing the total expenditure which is ultimately deducted under Section 6(1)(a) by which the assessee will not be gaining any benefit. Section 6(1)(a) only exempts the assessee from being taxed for the amount of taxes actually paid by him under the Act. That has been made explicit by the framers of the Act. Judged from any angle, we are clear in our minds that there is absolutely no substance in this submission of the assessee and the same should be rejected. The question No. 2, therefore, is answered in the negative and against the assessee.

22. As the parties have partly succeeded and partly failed, there shall be no order as to costs. In the circumstances, we fix the advocate's fee at Rs. 400.


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