Building tax on a hotel building is capital expenditure and not deductible as revenue expenditure under income-tax law.

Building tax paid under the Kerala Building Tax Act on a hotel building was held to be capital expenditure, as the levy was non-recurring and attached to the building as part of the capital asset. It was therefore not an outgoing laid out wholly and exclusively for business purposes and was not deductible as revenue expenditure under section 37(1) of the Income-tax Act. The claim also failed under section 30(b) because the tax was not shown to have been paid for the purposes of the business or profession. The deduction was disallowed and the issue was answered in favour of the Revenue.

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Issues: Whether building tax paid under the Kerala Building Tax Act, 1975, on a hotel building is deductible as revenue expenditure in computing business income under the Income-tax Act, 1961.

Analysis: The payment of building tax under the Kerala Building Tax Act, 1975 was held to be a non-recurring levy attached to the building itself and therefore part of the capital asset. Expenditure of this nature was treated as capital expenditure, not as an outgoing laid out wholly and exclusively for the purposes of the assessee's business. The claim also could not be sustained under section 30(b), because the tax was not shown to be paid for the purposes of the business or profession.

Conclusion: The building tax was not an admissible deduction and the question was answered in favour of the Revenue and against the assessee.

Ratio Decidendi: A non-recurring tax paid on construction of a building, which attaches to the capital asset and yields no business advantage apart from ownership, is capital expenditure and not deductible as revenue expenditure under section 37(1).

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