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TMI Blog1968 (2) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... and Weaving Mills Ltd., an associate concern of the assessee-company. The guarantee commission was included in the total income of the assessee-company for the assessment year 1958-59, by the Appellate Assistant Commissioner as a result of disclosure by the assessee. The guarantee given by the assessee-company to the Central Bank of India Ltd. was supported by the security of a building called " Mercantile Building " which belonged to the assessee. Now, in respect of that building the assessee paid municipal taxes aggregating to Rs. 64,863, out of which Rs. 35,291 was allowed in determining the income under the head "property" under section 9 of the Income-tax Act. The assessee contends that the balance of Rs. 29,572 should be allowed as a deduction against the guarantee commission on the ground that the guarantee commission was earned by the assessee-company on the security of the said building. The contention is that in determining the income, profits and gains under section 12 all outgoings relating thereto should be allowed. Therefore, the assessee's case is that the taxes on the " Mercantile Building " had been paid by it for the purpose of making or earning the guarantee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on whether this sum can be allowed as a deduction under section 12(2) of the Income-tax Act. Mr. Mukherjee made a faint argument on the point that sub-section (2) of section 12 was not expressly mentioned and that it was a case under section 12(1), contending thereby that in calculating profits all outgoings should be deducted and the net profit should be calculated in order to determine that tax. That argument cannot hold good because that order of the Tribunal as quoted above was directly concerned with the question whether the municipal tax was paid by the assessee to earn the guarantee commission or not which can only be a question germane under section 12(2) of the Income-tax Act. Mr. Mukherjee in aid of his argument also referred to the Allahabad High Court decision in Deokinandan Shooshankarlal v. Commissioner of Income-tax. That is a case which says that : " If the High Court requires the Tribunal to refer a question of law which had not been raised before the Tribunal and which, consequently, the Tribunal was not bound to refer to the High Court under section 66(1), the High Court will be acting in excess of its jurisdiction and the procedure to be followed by the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the respondents contested their liability before the High Court was one which was within the scope of the question, and the High Court rightly entertained it." We have no hesitation in holding in the present reference before us that the question referred to was at issue before the Tribunal and the Tribunal decided it. In another Division Bench of this court, to which I was a party, in Commissioner of Income-tax Khetan Co. the same view was taken that : " While section 66 only confers jurisdiction on the High Court to permit a reference on a question of law arising out of the order of a Tribunal and does not confer jurisdiction on the High Court to decide a different question of law not arising from such order, nevertheless it is possible that the same question of law may involve different approaches for its solution, and the High Court may amplify the question to take in all the approaches. " That view was expressed by me following the decisions of the Supreme Court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax and Kusumben D. Mahadevia v. Commissioner of Income-tax at pages 174 and 175 of the report in Commissioner of Income-tax v. Khetan Co. Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mercantile Building. The dispute now is about the balance of the municipal taxes. What the assessee is trying to do is to wipe out the balance as a deduction now under section 12(2) of the Income-tax Act. This plainly he cannot do on the authority of a series of decisions which have settled the point more or less. The leading case on the point is the decision of the House of Lords in Mitchell v. Ross. Viscount Simonds at page 832 of the Law Report observed as follows : " I regard it as fundamental and well settled law that the Schedules to, the Income Tax Acts are mutually exclusive, and that the specific Schedules A,B,C E and the rules which respectively regulate them, afford a complete code for each class of income, dealing with allowances, deductions and exemptions relating to them respectively." There in deciding the point that was raised, namely, that the expenses incurred in earning the profits and gains assessable under Schedule E of the British Income Tax Act, so far as they were not allowed on that assessment were therefore not deductible for the purpose of assessment of Schedule D liability, Viscount Simonds approved of the famous observations of Lord Atkin in Fry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable to different heads of income under sections 6 to 11 of the Indian Income-tax Act such as salaries, interest on securities, income from profits, profits and gains of business, profession or vocation, income from other sources, capital gains, etc. These different heads in the Indian Income-tax Act are comparable to the different British schedules. The concept is the same. Indeed, the principles laid out in Fry v. Salisbury House Estats Ltd. have been followed by the Supreme Court in India in United Commercial Bank Ltd. v. Commissioner of Income-tax. At page 697 of that report, the Supreme Court observes: "We cannot treat anyone of the sections from sections 7 to 10 to be general or specific for the purpose of any one particular source of income. The language shows that they are all specific and deal with the various heads in which the item of income, profits and gains in the case of an assessee falls." Then, again, at page 702 the Supreme Court lays down : " Thus on this construction the various heads of 'income, profits and gains' must be held to be mutually exclusive, each head being specific to cover the item arising from a particular source. " The Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the mortgage by saying that the mortgage was used to earn the guarantee commission. That does not bring it within the expression " incurred solely for the purpose of making or earning such income " within the meaning of section 12(2) the Income-tax Act. The municipal tax was not paid solely to earn the guarantee commission. It was paid to keep the property of the assessee-company as its owner. Lastly, it cannot be solely incurred for the purpose of earning the guarantee commission in this case because the assessee-company mortgaged this property to secure an overdraft by the bank to its associate company. That means that the equity of redemption, which itself is property, remained with the assessee-company and tax was paid to preserve and keep that equity of redemption with the assessee-company. Therefore, such a tax could not be said to have been paid solely for the purpose of making or earning the guarantee commission. Reading section 12(2) of the Income-tax Act, it is plain that no allowance can be granted under this sub-section unless four basic conditions are satisfied, namely, (1) the expenditure must be incurred solely for the purpose of making or earning the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m forest produce, it could not be said that the expenditure aided the assessee in earning the income or that it was incurred for the purpose of earning the income from the forest produce. It came to the decision that the assessee was not therefore entitled to the deduction claimed. It quoted with approval the observations of Dawson Miller C.J., in the Full Bench decision of the Patna High Court in In re Raja Jyothi Prasad Singh stating : " The liability to pay cesses results from the income having been made and the payment of the cess can hardly be said to form a necessary part in the making of the income which must come into existence before the liability to cess arises. The payment of cess if a necessary expense arising in connection with the ownership of royalties but it is in no sense an expenditure incurred for any purpose incidental to the making of the income. " Here also, in the present reference before us, the assessee-company was paying the municipal tax as owner of the property and as such the liability for such expenditure was incurred from before as owner of the property and it was not incurred solely for the purpose of earning the guarantee commission by mortgagin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settled estate was assessable to tax under the Act in respect of income, profits and gains derived from his zamindari, subject however to exemption in section 4(3) of the Income-tax Act, 1922. It was held there that the assessment should be computed after making proper allowance under section 12(2) in respect of the jama assessed and paid. At page 240 this is what Lord Russell, delivering judgment of the Privy Council, observed : " Before leaving this part of the case their Lordships deem it right, in view of discussion in the course of the arguments before the Board, to make a further statement as to the liability of the appellant to pay income-tax upon the income derived from his zamindari. The tax is upon 'income, profits and gains'. It is not a tax on gross receipts. With this fact in view, each section which deals with one of the first five 'heads' specified in section 6 contains where proper, specific provisions for the necessary deductions and allowances to be made for the purpose of arriving at the taxable balance. Section 12, which deals with the general residuary group, is necessarily framed in general terms and authorizes the allowance of any 'expenditure (not being ..... X X X X Extracts X X X X X X X X Extracts X X X X
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