1. Order OF REFERENCE BY THE INCOME-TAX APPELLATE TRIBUNAL.
2. The Commissioner of Income-tax, Bengal, by his petition dated 11th February 1942, has asked us to refer to the High Court the following question of law as arising out of the Order of the Appellate Tribunal in appeal R. A. A. No. 10 of Bengal of 1941-42.
Whether the rate imposed under the provisions of the Bengal Village Self-Government Act, 1919, on a person occupying a building within the union and using the same for the purpose of business is an allowable deduction in computing the profits of the business under Section 10, Income-tax Act.
3. The respondent was required by the rules of the Tribunal to file his reply to the application. He has filed his reply and he objects to the reference on the ground that the question of law formulated does not arise. In the arguments addressed to us at the time of hearing, the counsel appearing for the respondent tried only to justify our Order on the ground that the Order is legally right. The counsel failed to show why the question formulated is not a question of law. The question formulated is so obviously legal that we did not consider it necessary to hear the applicant under Rule 52 of the Tribunal Rules and a notice was issued to the respondent to file his objection, if any. By an Order dated 9th December 1941, this Bench of the Income-tax Appellate Tribunal decided that the sum of Rs. 84 claimed as an expense by the assessee was an allowable deduction in computing the profits. The necessary facts in connexion with this allowance may be mentioned:
4. Statement of the case. -- The respondent carries on business at Nalhati where there is levied a union board tax. The Income-tax Officer merely disallowed the claim of RS. 84 claimed by the respondent paid for the union board tax without recording any reason. The Appellate Assistant Commissioner, however, dealt with this matter in his Order dated 12th February 1941 and he mentioned that the claim made is not to be allowed as this is a tax on profits. He considered that the tax has been rightly disallowed by the Income-tax Officer. This Bench of the Income-tax Appellate Tribunal took the view that the tax paid to the union board for occupying the business premises is an allowable deduction. The reason stated by the Tribunal was that the tax paid to the union board is for occupying the business premises and for doing business in the premises within the jurisdiction of the union. The payment was considered to be for the purpose of the business. Section 37, Bengal Village Self-Government Act of 1919, Local Self-Government Department (Government of Bengal Union Board Manual, vol. I) deals with the imposition of the union rate and authorises the union board to impose yearly on persons who are owners or occupiers or owners and occupiers of buildings, within the union a rate stated therein. It reads as under:
The union board shall impose yearly on persona who are owners or occupiers or owners and occupiers of buildings, within the union, a rate amounting to-
(a) the sum required, after deduction of the contribution, if any, made by the Local Government in this behalf, for the salaries and equipment of the dafadars and chaukidars and the salaries of the establishment of the union board, and (b) the sum estimated to be required to meet the expenses of the board in carrying out any of the other purposes of this Act, if such estimate has been approved by more than half the total number of the members of the board at a meeting specially convened for the purpose,
together, with ten per cent, above such sums to meet the expenses of collections and the losses due to nonrealisation of the rate from defaulters.
Section 38 then deals with the nature of assessment. It mentions:
the rate to be imposed by a union board under Section 37 shall be an assessment according to the circumstances within the union and property within the union, if any, of the persons liable to the same.
5. Under Section 101 of the same Act, the Local Government was empowered to make rules to carry out the purposes of the said Act. Rules 1,2 and 3 of the rules made in pursuance of the powers noted in the Local Government regarding the assessment and collection of the union rate read as follows:
1. (1) After preparing the annual budget estimate if account Form No. 1 and not less than two months and a half before the first day of the year to which the budget relates, the union board at a meeting shall proceed to assess the union rate provided in the estimate according to the circumstanoes and the property within the union of the persons liable to assessment: Provided that the said period may, for reasons to be recorded in writing, be at any time altered by the District Magistrate. (2) When a union board is for the first time constituted in any union it may assess the union rate for a portion of the year in which it is so constituted or of the year next, following:
2. The union board shall first prepare, village by village and in Form No. 1 a list of all persons owning or occupying buildings, whether with or without land appertaining thereto, in the union, either permanently or temporarily showing their trade, business, etc., within the union, and the estimated annual income which they derive from buildings or other property or business within the union. All such persons shall be included in the list even if some are subsequently exempted.
3. The board shall, after considering his debts and liabilities, if any, determine the total assessable income of the person concerned, i.e., the income which he derives from business conducted, or from buildings or other property held, within the union.
6. The applicant has relied on Section 10 (4), Income-tax Act, for the proposition that the sum of Rs. 84 should not be allowed. Section 10 (4) reads as under:
Nothing in Clause (ix) or Clause (xii) of Sub-section (2) shall be deemed to authorise the allowance of any sum paid on aocount of any cess, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at proportion of or otherwise on the basis of any such profits or gains; and nothing in Clause (xii) of Sub-section (2) shall be deemed to authorise(a) any allowance in respect of a payment which is chargeable under the head 'salaries' if it is payable without British India and tax has not been paid thereon nor deducted therefrom under Section 18; or (b) any allowance in respect of any payment by way of interest, salary, commission or remuneration made by a firm to any partner of the firm; or (c) any allowance in respect of a payment to a provident or other fund established for the benefit of employees unless the employer has made effective arrangements to secure that tax shall be deducted at souroe from any payments made from the fund whioh are taxable under the head 'salaries.'
The allowance would not be admissible if it came within Section 10 (4). If the assessment of the Union Board tax was on the profit earned out of the business it is not to be allowed. In the view we have taken of the matter we held that it is not the tax on the income or on the basis of income but the levy is on the basis of the circumstances and property within the union. There are several matters to be considered in computing the assessable income of the assessment of the Union Board tax under Section 37, Union Board Act. The rules framed under this Act of the Bengal Village Self-Government Act of 1919, deal with the manner of assessment and there are several other circumstances than the income of the business to be taken into consideration in arriving at the amount of tax to be levied on each person. It is not in regard to income alone that the tax is levied. If the person within the union is in debt and not in good circumstances or has no property he may not be taxed. The tax, therefore, is not based on income from or profit of business but is a tax on circumstances and property and is not, in our opinion, covered by Section 10 9 (4), Income-tax Act. The question raised, however, being one of law, we have no hesitation to refer it to the High Court.
7. We, therefore, refer the following question to the High Court of Judicature at Fort William at Calcutta:
Whether the rate imposed under the provisions of the Bengal Village Self-Government Act, 1919, on a person occupying, a building within the union and using the same for the purpose of business is an allowable deduction in computing the profits of the business under Section 10, Income-tax Act.
8. The papers mentioned in the Index will form part of the reference.
Opinion of High Court
9. We have had the advantage of hearing Mr. Chakravarti argue the case on behalf of the Commissioner of Income-tax against the opinion, which has been expressed by the Appellate Tribunal. Notwithstanding that argument I am of the opinion that the opinion expressed by the Appellate Tribunal is the correct one and I agree with the reasons that they have given for that opinion. I do not propose to complicate the matter by adding other reasons.
10. In my opinion the question asked 'Whether the rate imposed under the provisions of the Bengal Village Self-Government Act, 1919, on a person occupying a building within the union and using the same for the purpose of business is an allowable deduction in computing the profits of the business under Section 10, Income-tax Act' should be answered in the following way-'yes.'
11. The reference being a matter of public importance the respondent in this matter will be awarded costs to the amount of seven gold mohurs inclusive of all costs.
12. I agree.