RAY J. - The assessee company is incorporated in India and has its registered office at Calcutta. It carries on business at several places in India and has a sales depot at Rangoon in Burma. The assessee was assessed for the assessment year 1948-49 as a resident and ordinarily resident Indian company on the profits of the accounting year ending December 31, 1947. In adding the profits of the Rangoon branch to the taxable income, the Income-tax Officer disallowed an item of Rs. 50,157 deducted by the assessee as business profits tax paid in Burma under the Burma Business Profits Tax Act. An appeal was filed before the Appellate Assistant Commissioner. The assessee contended that the Burma business profits tax, namely, Rs. 50,157, ought to have been allowed as a deduction under section 10(2)(xv) of the Indian Income-tax Act. The assessees contention was not accepted. The assessee preferred an appeal before the Appellate Tribunal and contended that the Burma business profits tax should have been deducted before adding Burma income to the Indian income for income-tax purposes. The assessee contended that the Burma profits can only amount to the income earned in Burma less the amount of the business profits tax paid in Burma. The Appellate Tribunal came to the conclusion that the income in Burma was the total income earned there irrespective of the income-tax or the business profits tax to which the income was chargeable in Burma.
On these facts the following question of law has been referred :
'Whether, in computing the total income of the assessee for the purpose of section 4(1)(b)(ii) of the Indian Income-tax Act, the income, profits or gains accruing or arising in Burma should be taken to be the profits of the business in Burma without deducting therefrom the business profits tax paid in Burma ?'
Counsel on behalf of the assessee contended first that in making an assessment regarding profits and gains under section 10 of the Indian Income-tax Act, if on general commercial principles profits were determined after deducting an expenditure or a business loss, then it did not matter that such a deduction was not contained in any of the sub-clauses of sub-section (2) of section 10. Thus it was contended that, though a deduction might not be categorically mentioned in the various clauses of sub-section (2) of section 10, yet in the ascertainment of profits of a business, it was open to the assessee to contend that the payment of business profits tax in Burma should be allowed as a deduction in the determination of the real profits of the assessee, inasmuch as profits and gains are ordinarily those sums which are received less expenditure. Counsel for the assessee submitted that in Burma the tax which is payable on business profits is neither received nor receivable by the assessee as a receipt because of the overriding provisions of the Burma statute and the amount paid by way of tax in Burma was diverted in the beginning at the source. Counsel for the assessee, secondly, contended that income-tax has all along been treated as an application of the income after the income is received, whereas the business profits tax is allowed under the Business Profits Tax Act in India as a proper deduction for income-tax purposes. Therefore, counsel for the assessee contended that since business profits tax is allowable as a deduction under the Indian Business Profits Tax Act, 1947, it should follow that a similar deduction should be permitted and allowed it determining the Burmese income of the assessee.
Counsel for the Commissioner contended that but for the Business Profits Tax Act in India the amount paid by way of business profits tax would not be allowed as a deduction in this country and business profits tax paid under the Indian Act is not allowed as a deduction under section 10, sub-section (2). Therefore, counsel for the Commissioner contended that business profits tax paid in Burma was also not deductible under the provisions of sub-section (1) of section 10 of the Indian Income-tax Act. Counsel for the Commissioner referred to the provisions contained in sub-section (4) of section 10 of the Indian Income-tax Act, where it is enacted that nothing in clause (ix) or clause (xv) of sub-section (2) of section 10 shall be deemed to authorise the allowance of any sum paid on account of any cess, rate or tax levied on the profits or gains of any business, profession or vocation or assessed at a proportion of or otherwise on the basis of any such profits or gains and contended that if business profits tax paid in a foreign country by a company resident in India was allowed as and by way of deduction on general principles in the ascertainment of profits under section 10, sub-section (1), there would be discord and disharmony between the sub-sections of section 10.
It is indisputable that business profits tax paid under the Business Profits Tax Act in India is deductible as an expense only under the provisions of the Business Profits Tax Act. The Burma Excess Profits Tax Acts is a foreign law. Counsel for the Commissioner rightly contended that foreign law had to be proved as a fact and there is nothing on record as to what the provisions of the Burma Excess Profits Tax Act are. It is manifest that the assessee can claim deduction only under the provisions of the Indian Income-tax Act and the Indian Business Profits Tax Act does not apply to business profits tax paid in Burma.
In the case of Commissioners of Inland Revenue v. Dowdall OMahoney & Co. Ltd. [(1952) 33 Tax Cas. 259.] a similar question arose as to whether a company managed, controlled and resident in Eire, where it carried on the business of margarine manufactures and butter merchants, and had two branches in England, where it conducted a general grocery business, could contend that in computing the profits of the English branches it was entitled to deduct that proportion of the Irish taxes which was attributable to those profits. The Commissioners held that it was a necessary expense for the company in carrying on part of its trade as branches in England to incur Irish taxes. The Crown preferred an appeal. Counsel for the assessee relied on the observations of Somervell L.J. at page 269 of the report that the Irish taxes could and should be regarded as a disbursement laid out for the purposes of trade in England. The case went up to the House of Lords. Lord Oaksey said at page 274 of the report that the authorities established that the payment of such taxes by a trader is not a disbursement wholly and exclusively laid out for the purposes of his trade and that this is so whether such taxes are United Kingdom taxes or foreign or Dominion taxes. Lord Oaksey further said that taxes like these are not paid for the purpose of earning the profits of the trade : they are the application of those profits when made and not the less so that they are exacted by a Dominion or foreign Government. Lord Reid said at page 282 of the report that there is not and never was any right under the principles applicable... to deduct income-tax or excess profits tax, British or foreign, in computing trading profits. Lord Radcliffe at page 285 of the report said that, once it is accepted that the criterion is the purpose for which the expenditure is made in relation to the trade of which the profits are being computed, no material distinction could be found between a payment to meet such taxes abroad and a payment to meet a similar tax at home.
Counsel for the assessee relied on the decision in Ratilal B. Daftari v. Commissioner of Income-tax [ 36 I.T.R. 18.] in support of the proposition that in ascertaining real income every part of that income which may seem to be income is not income if that part has been diverted and never constituted the real income. In that case the assessee contended that the assessee was a partner in a partnership consisting of 16 partners and he was assessed at Rs. 14,661. The assessee contended that the whole sum did not belong to him but only 2/5th of the amount and relied upon an agreement between himself and four others which provided that the five parties who had contributed the diverse sums were to share profits and losses in proportion to their individual contributions. It was held that the real income was what remained after deducting the amount which might be said to have been diverted and never constituted the real income. The ratio of the decision was that the sub-partnership among the five persons determined the real income of the assessee after the other sub-partners had taken their respective shares. In my opinion, the principle in Ratilal Daftaris case [ 36 I.T.R. 18.] does not apply in the present case for the reason that the assessee here is assessable on his world income and he can claim a deduction only if the expense is for the purpose of earning profits in the business. The decision in Dowdall OMahoneys case [(1952) 33 Tax Cas. 259.] is, in my opinion, an authority for the proposition that foreign taxes are not paid for the purpose of earning profits and, therefore, they are not deductible. Lord Normand said in Smiths Potato Crisps case [ A.C. 508; 30 Tax Cas. 267.] '.. a payment out of profits after they have been earned is not within the purposes of the trade carried on by the taxpayer. But excess profits tax also is levied on profits after they are earned and, apart from the statutory provision, is in pari passu with income tax.' I am therefore of opinion that business profits tax paid in Burma is not deductible as a business expense under the Indian Income-tax Act nor is it deductible under the Income-tax Act on the analogy of the Business Profits Tax Act in India. The question is therefore answered in the affirmative. The assessee is to pay the costs. Certificate for two counsel.
G.K. MITTER J. - I agree.
Question answered in the affirmative.