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Lakshmi Sugar and Oil Mills Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 87 of 1964
Judge
Reported in[1970]77ITR690(All)
ActsIncome Tax Act, 1922 - Sections 10(1) and 10(2)
AppellantLakshmi Sugar and Oil Mills Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateB.L. Gupta and ;Ashok Gupta, Advs.
Respondent AdvocateGopal Behari, Adv., ;Shanti Bhushan, Adv. General and ;R.R. Misra, Adv.
Excerpt:
- - an appeal to the appellate assistant commissioner against the consequential additions made by the income-tax officer proved unsuccessful. 41,430 paid by the assessee to the government for development of roads, the tribunal concurred with the income-tax authorities that the expenditure was clearly of a capital nature and it was not allowable in the computation of the business profits of the assessee. the claim was disallowed by the income-tax officer as well as by the appellate assistant commissioner and the appellate tribunal......brought assets of capital nature into existence. such expenditure must, therefore, be classed as capital expenditure. the tribunal was right in not treating the expenditure as permissible expenditure under section 10(2)(xv) of the act.' 7. the same observations are applicable to this case also and for the reasons mentioned in that judgment we are of opinion that the payment of rs. 41,430 for development of new roads was an expenditure of a capital nature. it is not, therefore, allowable under section 10(2)(xv) of the act. 8. the question now remains as to whether the expenditure may be allowed under section 10(1) of the act. sub-section (1) of section 10 runs as follows; ' the tax shall be payable by an assessee under the head profits and gains of business, profession, or vocation' in.....
Judgment:

T.P. Mukerjee, J.

1. This is a case stated by the Appellate Tribunal under Section 66(1) of the Income-tax Act, 1922, hereafter referred to as 'the Act'. The statement of the case relates to the assessment year 1959-60.

2. The assessee is a company limited by shares. In the assessment of its total income for the assessment year 1959-60, it claimed the amount ofwealth-tax paid by it for the same assessment year as an allowable deduction. The assessee also contributed in the relevant previous year a sum of Rs. 41,430 to the Government in pursuance of a scheme for development of roads in cane-growing rural areas. The assessee claimed deduction in respect of this amount on the ground that its business of manufacturing sugar depends chiefly on development of roads for transportation of sugar-cane into its manufactory. Hence, it was claimed that the expenditure in question must be considered to have been laid out wholly and exclusively for the purpose of its business. Both the claims were turned down by the Income-tax Officer. An appeal to the Appellate Assistant Commissioner against the consequential additions made by the Income-tax Officer proved unsuccessful.

3. The assessee then appealed to the Tribunal. The Tribunal held that there was no provision in the Wealth-tax Act or in the Income-tax Act for deduction of the amount of the wealth-tax paid by a company in the computation of its total income for assessment to income-tax. As regards the sum of Rs. 41,430 paid by the assessee to the Government for development of roads, the Tribunal concurred with the income-tax authorities that the expenditure was clearly of a capital nature and it was not allowable in the computation of the business profits of the assessee.

4. At the instance of the assessee the following two questions have been referred to this court for opinion:

' 1. Whether the wealth-tax paid by the assessee in the assessment year in question was an allowable deduction under the Income-tax Act

2. Whether, in the facts and circumstances of the case, the payment of Rs. 41,430 is an expense allowable under Section 10(1) or 10(2)(xv) of the Act?'

5. The first question must be answered in the negative in view of the decision of the Supreme Court in the case of Travancore Titanium Products Ltd. v. Commissioner of Income-tax, [1966] 60 I.T.R. 277 ; [1966] 3 S.C.R. 321 (S.C.). In that case it has been held that the amount of wealth-tax paid by an asseseee on his net wealth, under the Wealth-tax Act, 1957, is not a permissible deduction under Section 10(2)(xv) of the Indian Income-tax Act, 1922.

6. As regards the second question, the facts are almost identical with those of Dewan Sugar and General Mills Pvt. Ltd. v. Commissioner of Income-tax, [1970] 77 I.T.R. 572 (All.)(I.T.R. No. 835 of 1963 decided by this Bench on 12-9-1969). That case related to assessment years 1956-57 and 1957-58. During the corresponding previous years the assessee had paid two sums of Rs. 40,000 and Rs. 3,000, respectively, as contribution to the Cane Centre Roads Development Fund. The assessee then claimed these two amounts as deduction under Section 10(2)(xv) of the Act. The claim was disallowed by the Income-tax Officer as well as by the Appellate Assistant Commissioner and the Appellate Tribunal.On a reference, this court held that the deduction was not a permissible expenditure under Section 10(2)(xv) of the Act and observed :

' When new roads are constructed, a capital asset comes into existence. It may be that the land, on which roads in question were constructed, did not belong to the assesses. But that circumstance did not alter the fact that the contribution made by the assessee brought assets of capital nature into existence. Such expenditure must, therefore, be classed as capital expenditure. The Tribunal was right in not treating the expenditure as permissible expenditure under Section 10(2)(xv) of the Act.'

7. The same observations are applicable to this case also and for the reasons mentioned in that judgment we are of opinion that the payment of Rs. 41,430 for development of new roads was an expenditure of a capital nature. It is not, therefore, allowable under Section 10(2)(xv) of the Act.

8. The question now remains as to whether the expenditure may be allowed under Section 10(1) of the Act. Sub-section (1) of Section 10 runs as follows;

' The tax shall be payable by an assessee under the head Profits and gains of business, profession, or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. '

9. This sub-section relates to the taxability of profits and gains of business, profession or vocation. Such profits and gains have to be calculated after deducting from the gross receipts all outgoings which are incidental to the trade and are deductible on commercial principles apart from the expenditures specifically allowable under Section 10(2).

10. The scope of an allowance of an outgoing under Section 10(1) has been indicated by the Supreme Court in the case of Badridas Daga v. Commissioner of Income-tax, [1958] 34 I.T.R. 10 ; [1959] S.C.R. 690(S.C.).In that case, their Lordships have pointed out that while Section 10(1) of the Act imposes a charge on the profits or gains of a business, it does not provide how these profits are to be computed. Their Lordships have stated that profits and gains which are liable to be taxed under Section 10(1) are what are understood to be such in ordinary commerce including losses which are incidental to the trade carried on by the assessee. In the present case we have held that the sum of Rs. 41,430 expended by the assessee towards the construction of new roads for development of its business in the manufacture of sugar is an expenditure of capital nature. Under ordinary commercial principles no businessman will consider an outgoing of a capital nature as an allowable deduction in the computation of its business profits debitable in the profit and loss account. Hence, the payment of Rs. 41,430 cannot be allowed under Section 10(1) of the Act.

11. The result is that both the questions referred by the Tribunal must be answered in the negative and against the assessee. There will be no order as to costs.


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