M.S. Menon, C.J.
1. This is a reference fey the income-tax Appellate Tribunal, Madras Bench, under Section 66 (1) of the Indian Income-tax Act, 1922, The assessment year concerned is 1960-61; and the accounting period, the twelve months ended 29-2-1960, The question referred is:
'Whether on the facts and circumstances of the case, the assessee 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 business for the assessment year 1960-61 under Section 10 (2) (xv) of the Indian Income-tax Act'?
2. The liability to pay wealth tax arises from the Wealth Tax Act, 1957. The substantive provisions of that Act are Sections 3 to 7. Of these, Section 3 is the charging section, it follows closely the language adopted for the charge of income-tax in Section 3 of the Indian Income-tax Act, 1922, and reads as follows:
'Subject to the other provisions contained in this Act, there shall be charged for every financial year' commencing on and from the first day of April, 1967, a tax hereinafter referred to as wealth tax In respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule,'
3. According to Sampath Iyengar's commentary on the Wealth Tax Act, 1957, the wealth tax paid under that Act Is not a deductible item. He says:
'Section 12 (1) of the Excess Profits Tax Act, 1940, and Section 10 of the Business Profits Tax Act, 1947, authorise the deduction of the amount of excess-profits tax and business-profits-tax in the computation of the 'total Income' for the purposes of the income-tax Act. A similar provision is lacking in this Act, in consequence, no deduction is permissible in respect of wealth tax paid, in calculating 'total Income' for the purpose of the income-tax Act.' (The Three new taxes, Page 10).
4. Section 10 (1) of the Indian Income-tax Act, 1922, provides that the tax shall fee 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, and Sub-section (2) that such profits or gains shall be computed after malting the allowances specified in that sub-section. Allowance No. (xv) is worded as follows:
'Any expenditure (not being an allowance of the nature described in any of the Clauses (1) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.'
The question for determination is whether the wealth tax paid can be considered as laid out or expended wholly and exclusively for the purpose of the business of the assessee. We have come to the conclusion that it cannot be so considered, and that as a result the question referred must be answered in the negative and against the assessee.
5. The governing words are 'for the purpose of such business, profession or vocation' qualified by the adverbial expression 'wholly and exclusively.' The celebrated dictum of Lord Davey regarding the words 'for the purposes of the trade' in Strong and Co. Ltd. v. Woodlfiled, 1906 A. C. 448 has now held the field for over half a century. The dictum is:
'It is not enough that the disbursement is made in the course of, or arises out of, or is connected with the trade, or is made out of the profits of the trade, it must fee made for the purposes of earning the profits.'
6. A determined attempt to upset the dictum was made before the House of Lords in the Smith's Potato Estates v. Holland, (1948) 2 All ER 367. The attempt did not succeed.
7. One of the ways of finding out whether an expenditure was laid out or expended wholly and exclusively for the purpose of a business In the case of an owner-trader is to find out the character in which the expenditure was Incurred by him. Was it in his capacity as an owner? Or was it in his capacity as a trader? If the expenditure was incurred in his capacity as a trader, then, and then alone, will the expenditure constitute an admissible deduction under Section 10 (2) (xv) of the Indian income-tax Act, 1922,
8. The wealth tax is payable whether an assesses carries on a business or not. The obligation to pay that tax stems from the ownership of property and not its user. It is not possible to say that it is paid in the capacity of a trader and not that of an owner.
9. The question whether the wealth tax paid is an admissible allowance under Sections 10 (1) and 10 (2) (xv) of the Indian income-tax Act, 1922, came up for consideration before the High Court of Madras in Tax Case Nos. 91, 92, 99, 102, 110 and 111 of 1961.
That Court said:
'It is true that a capital asset of a trading company is an essential requisite for the carrying on of the business, it is also true that such capital asset would fall within the ambit of the Wealth Tax Act. But this circumstance by Itself would not be sufficient to claim the wealth tax paid as an allowance under Section 10 (2) (xv) or even under Section 10 (1). It cannot be said that payment of wealth tax is incidental to the carrying on of the business nor can it be said that the tax falls upon the assessee, who owns the wealth and who carries on the business in his character as a, trader or business man. Payment of wealth tax is as a result of a charge on the ownership of the assets and however necessary or compelling it may be that a trader should own and possess wealth It would be difficult to contend that payment of tax on such ownership would constitute a business expense, that is an expense Incurred in the regular course of business as a necessary step in the conduct of such business. We are therefore unable to uphold the contention of the assessees that the amount of wealth tax paid would be a proper allowance under Section 10 (2) (xv) or under Section 10 (1).'
10. We are not called upon to decide whether the assessee is entitled to any relief under Section 10 (1) of the Act, and we express no opinion on that point, The reference is answered as stated in paragraph 4 above; but without any order as to costs.
11. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunalas required by Sub-section (5) of Section 66 of the Indian income-tax Act 1922.