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TMI Blog1967 (6) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 10(4) of the Indian Income-tax Act, which reads as follows : " Nothing in clause (ix) or clause (xv) of sub-section (2) 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 ; . . . ." The Appellate Assistant Commissioner, before whom the assessee appealed, dismissed the appeal with the observation : " The Income-tax Officer has disallowed Rs. 11,906 claimed on account of road and education cesses. The former was dependent on the profits earned while the latter had nothing to do with the appellant's business activities. The disallowance on these accounts has therefore been correctly made and as such it will not be interfered with. " The assessee preferred a second appeal before the Appellate Tribunal. It was contended before the Tribunal that the levy of road and education cesses had been made merely on the estimated net profits and since such estimated profits had no relationship with actual profits earned during the relevant period, it must be held that the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch estimated income worked out by the Cess Collector for the levy of the road and education cesses as in the case of the appellant cannot be said to be in the nature of the profits and gains of the business mentioned in sub-section (4) of section 10 of the Income-tax Act and as such the assessee will be entitled to claim such expenditure as deductible under section 10(2)(xv). " Aggrieved by the order of the Tribunal, the Commissioner of Income-tax obtained reference to this court on the following question of law : " Whether, on the facts and in the circumstances of the case and in view of section 10(4) of the Indian Income-tax Act, 1922, the sum of Rs. 11,906 paid on account of road and education cesses was an allowable expenditure under section 10(2)(xv) of the said Act ? " In order to answer the question referred to us, it is necessary to examine the scheme of the Cess Act, 1880, and the Bengal (Rural) Primary Education Cess Act, 1930. In the first mentioned Act the Preamble reads as follows : " Whereas it is expedient to amend and consolidate the law relating to rating for the construction, charges and maintenance of district roads and other means of communication, and of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and thereafter before the close of each year, the Collector of the district shall cause a notice to be served upon the owner, chief agent, manager or occupier of every mine quarry, tramway, railway and other immovable property not included within the provisions of Chapter II,..... such notice shall be in the form in Schedule E contained, and shall require such owner, chief agent, manager or occupier to lodge in the office of such Collector within two months a return of the net annual profits of such property calculated on the average of the annual net profits thereof for the last three years for which accounts have been made up..... 75. If such return be not furnished within the period of two months from the date on which such notice was served, or within any extended time allowed by the Collector of the district, or if such Collector shall deem that any return made in pursuance of such notice is untrue or incorrect, such Collector shall proceed to ascertain and determine by such ways or means as to him shall seem expedient the annual net profits of such property calculated as aforesaid. 76. If such Collector be unable to ascertain the annual net profits as aforesaid of any pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to the provisions of the Cess Act, 1880, shall be liable to the payment of a primary education cess. (2) The primary education cess shall be levied at the rate of three and a half pice on each rupee of annual net profits from mines and quarries and at the rate of five pice on each rupee of annual value of land and of annual net profits from tramways, railways and other immovable property as determined under the Cess Act, 1880. 30. (1) Except as otherwise provided in this Act the primary education cess shall be paid to the same persons in the same manner and at the same time as the road cess and public works cess are paid under the Cess Act, 1880. (2) Every holder of an estate shall yearly pay to the Collector the entire amount of the primary education cess calculated on the annual value of the lands comprised in such estate at the rate provided in sub-section (2) of section 29 less a deduction to be calculated at one and a half pice for every rupee of the revenue entered in the valuation roll of such estate as payable in respect thereof. " The provisions of the Cess Act are thus to be read with the provisions of sections 29 and 30 of the Bengal (Rural) Primary Education Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear the liability of paying the same. " The interpretation of the provisions of the Cess Act applies with equal force to the interpretation of the provisions of the Bengal (Rural) Primary Education Act, because the latter Act adopts the former Act. Keeping in view the above provisions of law, we have to see whether road, public works and education cesses are allowable as business expenditure under section 10(2)(xv) of the Indian Income-tax Act. Under section 10(1) of the Indian Income-tax Act, income-tax is payable by an assessee under the head "profits and gains of business" in respect of the profits or gains of any business carried on by him. Sub-section (2) of section 10 provides for computation of such profits or gains after allowing certain deductions. Under clause (ix) of sub-section (2), any sum paid on account of land revenue, local rates or municipal taxes in respect of such part of premises as is used for the purpose of business are allowable deductions. Under clause (xv) of sub-section (2) any expenditure not being an allowance of the nature described in any of the clauses (i) to (xiv) and not being in the nature of capital expenditure or personal expenses of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty held within the Union,' the board have before them the information prepared under rule 2, which shows the buildings occupied or owned in the Union, permanently or temporarily, and also '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.' It will be noted that, in the absence of the necessary powers and machinery, which are not provided by the Act, the estimate of the annual income from business can only proceed on a rough guess, which is in no way comparable with the ascertainment of profits and gains under the Income-tax Act, and, in the opinion of their Lordships, the inclusion of this element of business income as part of the 'circumstances' of the assessee with a view to the imposition of the Union rate does not fall within sub-section (4) of section 10 of the Income-tax Act. It is conceded that the Union rate is not 'levied on the profits or gains' which clearly implies an ascertainment of such profits and gains, and the words 'assessed..... on the basis of any such profits or gains' in the later part of the sub-section must also be so limited. No such ascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the District Boards Act is to be prepared and objections are to be invited against such list before finalising the amount of tax payable but it is nowhere laid down in the Act or the rules that, when such objections are filed, it would be necessary for the assessing authority to determine the actual income of the taxpayer. The income, therefore, on which tax is payable under the District Boards Act is income arrived at by pure guesswork without applying any principles for determining that estimated income. Such income cannot be said to be at all in the nature of profits and gains of of the business mentioned in sub-section (4) of section 10 of the Income-tax Act." Unless, therefore, cesses leviable under the Cess Act and the Bengal (Rural) Primary Education Act are of the nature of District Board rates in U.P., they will not become allowable deductions and cross the prohibition in sub-section (4) of section 10. What is then the real nature of the cesses that we have to consider ? Under section 5 of the Cess Act, all immovable properties, except those mentioned in section 2 of the Cess Act, are liable to the payment of cesses. In cases of mines, section 6 of the Cess Act prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s calculated on the basis of actual profits or gains, say, as under the Indian Income-tax Act, and not the type of profit as ascertained under the Cess Act. We are unable to uphold the reasonings of Dr. Pal. The main fallacy in his argument lies in minimising the value of average. An average is obtained by adding all the items together and dividing the sum by the number of items, as contrasted to the expression "mean", which is the figure midway between two extremes (vide United Dairies (Wholesale) Ltd. v. Lemon per Lord Wright). An average when arrived at has a good representative value or a typical value. It is true, that under the Cess Act the annual net profit, on which cess is assessed, is not the annual net profit for the year of assessment but the average of the last three years' annual profit. But, nevertheless, that is the representative annual net profit, typical of the annual net profit. That is not a rough guess. Where, however, the average even is not available, the Collector is to proceed under sections 75 and 76, according to his best judgment, which, however, is not subjective or arbitrary but has to be objectively arrived at. The words "by such ways and means as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of the profit will depend on the facts of each case. Mr. Mitter's argument was, in brief that we should make a distinction between profit made by raising the coal and the profit made in the business of mining. In our opinion, there is no ground or basis for making this distinction in the facts and circumstances of this case. That being so, it seems to be clear that the profit enjoyed by the assessee as a result of the mining business was liable for the payment of cess under both the Acts mentioned above .... It is quite clear to me that the cess under the Acts has to be paid because the assessee-company carried on mining operations and enjoyed the profit. Such payments, however, are not allowable under section 10(2) because of the provisions of sub-section (4) of section 10. If it was a kind of cess that is contemplated under clause (ix) of sub-section (2) then it would have been allowed. But since it is a cess payable on the profits or gains of any business or calculated at a proportion on the basis thereof, it is excluded by the provisions of sub-section (4) of section 10. " It was not contended before us that the coal mining business of the assessee was making no pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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