TMI Blog1966 (1) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... . 235 of 1963 - - - Dated:- 17-1-1966 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SHAH J.---In computing the total earned income of the appellant-company for the calendar year 1959, the Income-tax Officer, Trivandrum, disallowed a claim for deduction of Rs. 80,255 in respect of liability for payment of tax under the Wealth-tax Act, 1957 (27 of 1957) incurred by the company for the calendar years 1957 and 1958. The order was confirmed by the Appellate Assistant Commissioner and by the Appellate Tribunal. On the following question referred by the Wealth-tax Appellate Tribunal, " Whether on the facts and circumstances of the case, the assessee-company is entitled to a deduction of Rs. 12,873 being the wealth-tax paid during the account year ended February 29, 1960, against the profits and gains of its business for the assessment year 1960-61 under section 10(2)(xv) of the Indian Income-tax Act ? ", the High Court of Kerala recorded an answer in the negative. The company has appealed to this court with special leave. The company claims that wealth-tax paid by it represented expenditure laid out wholly and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ains a tax charged upon the net wealth, and it is not made a tax related to or incidental to the carrying on of a business. The rules in the Schedule merely extend the exemption which is primarily declared in favour of a company of which the net wealth does not exceed Rs. 5 lakhs, to a company which has in the previous year made a loss, and grant a partial exemption if the company has made profits which are inadequate to meet wealth-tax liability at the prescribed rate. In computing the profits or gains of an assessee who carries on business certain allowances are permitted under section 10(2) from the business profits, and one such head is : "(xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." An allowance permissible under clause (xv) in the computation of taxable income is, therefore, expenditure incurred in the year of account in respect of a business carried on by the assessee; the expenditure must not be in the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th v. Lion Brewery Co. Ltd Usher's Wiltshire Brewery Ltd. v. Bruce and Harrods (Buenos Aires) Ltd. v. Taylor-Gooby. In the Lion Brewery Co.'s case a brewery company, who were owners or lessees of licensed premises acquired as part of their business as brewers and as a necessary incident to profitable exploitation, were held entitled to the allowance in the computation of their income under Schedule D of compensation fund charges imposed under the Licensing Act upon their tenants and which the tenants after paying recouped themselves by deduction from the rents payable to the company. In Usher's Wiltshire Brewery Ltd.'s case the claim of a brewery company as owners or lessees of licensed premises acquired in the course of and for the purpose of their business as brewers and as a necessary incident to the more profitable conduct of their business of certain expenses in connection with those licensed houses was allowed in the computation of their profits. In Harrods (Buenos Aires) Ltd.'s case Harrods (Buenos Aires) Ltd.---a company incorporated in the United Kingdom---carried on business of a retail store in Argentina and was liable to pay a tax known as "substitute tax" which was lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words ... appear to me to mean for the purpose of enabling a person to carry on and earn profits in the trade, c. I think the disbursements permitted are such as are made for that purpose. It is not enough that the disbursement is made in the course of, or arises out of, or is connected with, the trade or is made out of the profits of the trade." In Badridas Daga v. Commissioner of Income-tax Venkatarama Aiyar J. observed that whether the expenditure is admissible or not will depend upon whether it can be said to arise out of the carrying on of the business and be incidental to it, and this was reaffirmed by this court in a later judgment in Commissioner of Income-tax v. Abdullabhai Abdulkadar. In a recent judgment of this court in Commissioner of Income-tax v. Malayalam Plantations Ltd. certain amounts paid as estate duty under section 84 of the Estate Duty Act, 1953, by a resident company incorporated outside India on the death of shareholders not domiciled in India were sought to be deducted under section 10(2)(xv) as expenditure laid out or expended wholly and exclusively for the purposes of the business. Subba Rao J., speaking for the court, observed at page 150: "T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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