Deductibility of foreign business tax turns on whether the levy is on turnover, not income, under section 40(a)(ii).

Business tax paid in Thailand, being a levy on turnover rather than on income, was not hit by the disallowance in section 40(a)(ii) of the Income-tax Act, 1961. The provision applies only to taxes on income, so the statutory bar did not extend to the business tax payment. On the material before the Court, Thai corporate tax was treated as a tax on income, but the separate business tax was not. The business tax was therefore deductible, and the assessee was entitled to the claim.

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Issues: Whether business tax paid in Thailand, being a tax on turnover and not a tax on income, was disallowable under section 40(a)(ii) of the Income-tax Act, 1961.

Analysis: Section 40(a)(ii) disallows only taxes on income. The material before the Court showed that Thai corporate tax was a tax on income, but the business tax was levied on turnover. Since the business tax was not a tax on income, the statutory bar under section 40(a)(ii) did not apply to that payment.

Conclusion: The business tax paid in Thailand was deductible and the assessee was entitled to the claim.

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