M. S. MENON J. - This is a reference by the Income-tax Appellant Tribunal, Madras Bench 'B', under section 66(I) of the Indian Income-tax Act, 1922. The question referred is :
'Whether, on the facts and in the circumstances of the case, the estate duty paid by the company under section 84 of the Estate Duty Act is a revenue expenditure deductible in computing the assessees business income for the assessment years in question ?'
The assessment years concerned are 1955-56 and 1956-57. The estate duty paid and claimed as a deduction for 1955-56 amounts to Pounds 2,605-9-4 and for 1956-57 to Pounds 3,809-1-6.
Sub-section (1) of section I0 of the Indian Income-tax Act, 1922, provides that the tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation carried on by him, and sub-section (2), that such profits or gains shall be computed after marking the allowances specified in that sub-section. The last of the allowances specified therein - the allowance specified in section 10(2)(xv) - is :
'any expenditure (not being an allowance of the nature described in any of the clauses (i) 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.'
According to the assessee the duty paid in pursuance of sub-section (1) of section 84 of the Estate Duty Act, 1953, is an expenditure expended wholly and exclusively for the purpose of the assessees business. According to the Department it is not, and that is the only controversy agitated before us.
Sub-section (1) of section 84 of the Estate Duty Act, 1953, as it stood on the relevant dates - that is, prior to the amending Act of 1958 - provided :
'Where a company incorporated outside India carries on business in the territories to which this Act extends and has been treated for the purposes of the Indian Income-tax Act, 1922(XI of 1922), as resident for two out of the three completed assessments immediately preceding, such company shall, within three months of the receipt of intimation of the death of a member dying after the commencement of this Act, furnish to the Controller such particulars as may be prescribed in respect of the shares of the deceased member in the company, and shall be liable to pay estate duty at the rates mentioned in Part III of the Second Schedule, on the principal value of the shares held by the deceased in the company except in cases where the deceased member was a person domiciled in India and the person accountable has obtained a certificate from the Controller showing that either the estate duty in respect thereof has been paid or will be paid or that none is due, as the case may be.'
And sub-section (3) of that section :
'Any company which fails to comply with the provisions of sub-section (I) or sub-section (2) shall be liable to a penalty of one thousand rupees or a sum equal to double the amount of the estate duty payable according as the Controller may direct :
Provided that the Controller may reduce the penalty in any particular case.'
It is common ground that the assessee was liable to pay the duty it actually paid under sub-section (1) of section 84 and that failure to do so would have entailed a penalty under sub-section (3) of that section.
If the estate duty paid can be considered as an expenditure expended for the purpose of the assessees business, there can be no doubt that it was expended wholly and exclusively for the purpose of that business. The only question that really arises for decision is whether the duty paid can be considered as an expenditure expended for the purpose of the assessees business.
For the purpose of a business should mean for the purpose of carrying it on in conformity with the laws of the place where the business is carried on. The payment of the estate duty under section 84 is a statutory obligation imposed on the assessee and we see no reason why any payment in the discharge of such an obligation should not be considered as an expenditure expended for the purpose of the assessees business.
Under section 5 of the Estate Duty Act, 1953, the duty is levied upon the principal value of the property which 'passes' on the death of a person. Under section 21 of the Act movable property in foreign territory at the time of the death will not be property passing on the death of the deceased unless the deceased was domiciled in India at the time of his death, and in cases where the deceased was a life tenant, the settlor was so domiciled on the date the settlement took effect.
Sub-section (2) of section 21 provides that the Board may make rules regulating the manner in which the nature and locality of different classes of assets shall be determined for the purpose of that section. Under rule 8 of the Estate Duty Rules, 1953, shares in a company should be deemed to be situated at the place where the company was incorporated. In view of these provisions the shares with which we are concerned do not apparently 'pass' under section 5 of the Estate Duty Act, 1953.
Paragraph (1) of article III of the agreement the Government of India and the Government of the United Kingdom for the avoidance of double taxation and the prevention of fiscal evasion with respect to duties on the estates of deceased persons provides that subject to paragraph (2) of that article duty shall not be imposed in India on the death of a person who was not domiciled at the time of his death in any part of India but was domiciled in some part of Great Britain, on any property situate outside India. There is a proviso to that paragraph; but that proviso is not material to this case. Paragraph (2) of article III is in the following terms :
'Nothing in the present Agreement shall affect any provision of the law of India imposing duty on shares in or debentures of a company incorporated outside India which carries on business in India and which has been treated for the purposes of the Indian Income-tax Act, 1922(XI of 1922), as resident in India for two out of the three completed assessment immediately preceding the death; nor shall anything in the present Agreement be considered to confer a right to a credit against duty so imposed for any duty imposed in Great Britain on any such shares or debentures.'
Section 76 of the Estate Duty Act, 1953, provides :
'If a person accountable under section 53 pays any part of the estate duty in respect of any property not passing to him, it shall, where occasion requires, be repaid to him by the trustees or owners of the property.'
Section 53 speak of legal representatives, trustees, guardians and persons in whom the property passing may become vested. It does not seem to cover the assessee, and out attention has not been drawn to any provision of the Act by which the assessee is entitled to recover the duty it has paid under section 84 of the Act.
In the light of what is stated above we cannot but hold that the Tribunal was right in its conclusion and answer the question referred in the affirmative. Judgment accordingly. As the case is one of first impression uncovered by specific decision or commentary, we make on order as to costs.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by section 66(5) of the Indian Income-tax Act, 1922.
Question answered in the affirmative.