1969 (11) TMI 19 - HC - Income Tax

Wealth-tax paid - held that the amount of wealth-tax paid by an assessee on his net wealth under the Wealth-tax Act 1957 is not a permissible deduction under section 10(2)(xv)

Summary

Issues:
1. Allowability of wealth-tax paid by the assessee as a deduction under the Income-tax Act.
2. Allowability of the payment made for development of roads as an expense under section 10(1) or 10(2)(xv) of the Act.

Analysis:
The judgment pertains to a case where the assessee, a limited company, claimed deductions for wealth-tax paid and a contribution made for road development in the assessment year 1959-60. The Income-tax Officer and the Appellate Assistant Commissioner rejected both claims. The Tribunal also denied the deductions, stating that wealth-tax is not deductible under the Income-tax Act and the road development expenditure was of a capital nature, hence not allowable as a business expense.

Regarding the first issue, the court referred to a Supreme Court decision in Travancore Titanium Products Ltd. v. Commissioner of Income-tax, which established that wealth-tax paid by an assessee is not a permissible deduction under section 10(2)(xv) of the Income-tax Act. Consequently, the wealth-tax paid by the assessee was not allowed as a deduction.

On the second issue, the court compared the case with Dewan Sugar and General Mills Pvt. Ltd. v. Commissioner of Income-tax, where a similar claim for road development expenditure was disallowed. The court emphasized that the expenditure for road construction was of a capital nature, creating capital assets, and hence not deductible under section 10(2)(xv) of the Act. The court further analyzed the allowance of the expenditure under section 10(1) of the Act.

The court examined the scope of section 10(1) in light of the Supreme Court decision in Badridas Daga v. Commissioner of Income-tax, which highlighted that profits and gains taxable under section 10(1) are those recognized in ordinary commerce, excluding capital expenditures. The court concluded that the road development expenditure of Rs. 41,430 was of a capital nature and not deductible under section 10(1) either. Consequently, both questions were answered in the negative against the assessee, and no costs were awarded.

In summary, the judgment clarified that wealth-tax paid by the assessee is not deductible under the Income-tax Act, and the expenditure for road development, being of a capital nature, is not allowable as a deduction under either section 10(2)(xv) or section 10(1) of the Act.