Building tax on construction held capital in nature and not deductible as business expenditure.

Building tax paid on construction under section 5 of the Kerala Building Tax Act, 1975 was treated as a one-time levy attached to the building as a capital asset, not as a recurring revenue charge. Because the tax formed part of the capital cost of the building, it could not be deducted as business or professional expenditure. The levy was therefore characterised as capital expenditure and as tax on the capital value of the building. The reference was answered against the assessee, with the payment held to be capital in nature and non-deductible.

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Issues: Whether building tax paid under section 5 of the Kerala Building Tax Act, 1975 was deductible as business expenditure or was capital in nature and whether such tax was levied on the capital value of the building.

Analysis: The payment was held to be a one-time levy arising on construction and not a recurring tax. As the tax attached to the building itself and formed part of the capital asset, the amount could not be treated as expenditure laid out for the purposes of business or profession. The charging provision under section 5 was treated as a levy on the building as capital asset rather than a revenue outgo.

Conclusion: The building tax was capital expenditure, not deductible as business expenditure, and was on the capital value of the building.

Final Conclusion: The reference was answered entirely against the assessee and the tax payment was held to be capital in character.

Ratio Decidendi: A one-time statutory levy that attaches to the acquisition or completion of a building and forms part of the capital asset is capital expenditure and is not deductible as business expenditure.

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