Local rate on business premises held deductible as a business expense, not a tax assessed on profits or gains.

A union board rate imposed on premises occupied for business was treated as a local rate referable to the business premises, not as a cess, rate or tax assessed by reference to profits or gains. On that basis, it was outside the bar in Section 10(4) of the Indian Income-tax Act, 1922, and was allowable as a business deduction under Section 10(2)(ix). The assessment machinery under the Bengal Village Self-Government Act, 1919 was regarded as a rough estimate based on circumstances and property within the union, not an income-tax style ascertainment of profits. The deduction was therefore upheld.

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Issues: Whether the union board rate imposed under the Bengal Village Self-Government Act, 1919, on premises occupied for business was an allowable deduction in computing business profits under Section 10 of the Indian Income-tax Act, 1922, and whether it was barred by Section 10(4) as a cess, rate or tax levied on or assessed by reference to profits or gains.

Analysis: The rate was imposed only on owners or occupiers of buildings within the union, while the assessment machinery under the Bengal Village Self-Government Act, 1919 treated the assessee's circumstances and property within the union as the basis of assessment. The assessment of business income under that Act was described as only a rough estimate and not an ascertainment of profits or gains comparable to income-tax assessment. On that footing, the levy was not a rate assessed on the basis of profits or gains within Section 10(4) of the Indian Income-tax Act, 1922. The Court further proceeded on the footing that the entire sum of Rs. 84 related to the premises used for the Nalhati business, and since the union rate was a local rate, it fell within the allowance in Section 10(2)(ix).

Conclusion: The union board rate was not hit by Section 10(4) and was an allowable deduction under Section 10(2)(ix) of the Indian Income-tax Act, 1922.

Final Conclusion: The deduction was allowed and the assessee succeeded, so the revenue's appeal failed.

Ratio Decidendi: A local rate imposed on occupation of business premises is deductible under the business-allowance provision where it is referable to those premises and is not a levy assessed on the basis of profits or gains.

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