Business-premises municipal tax held deductible because it was not a levy on profits or gains.

A municipal professional tax linked to the valuation and use of business premises, rather than to profits or gains, was held deductible in computing business income. The statutory bar on allowance of cess, rate or tax levied on profits or gains did not apply because the levy was not assessed by reference to business profits. The payment was therefore treated as a business-related municipal tax falling within the allowance for tax paid in respect of premises used for business, and the assessee's claim was accepted.

---

---

Issues: Whether the professional tax paid to the municipality under the Bihar and Orissa Municipal Act, 1922, was deductible in computing business income under the Indian Income-tax Act, 1922, and was not barred by the prohibition against allowance of taxes levied on profits or gains.

Analysis: The municipal levy was imposed on trades, professions and callings with the amount linked, in the relevant category, to the valuation of the business premises rather than to the profits or gains of the business. The statutory bar in Section 10(4) applies only to cess, rate or tax levied on profits or gains or assessed with reference to profits or gains. The payment was therefore regarded as a municipal tax in respect of the premises used for business within the meaning of Section 10(2)(ix), and the phrase "in respect of" was treated as wider than a tax directly on the premises themselves.

Conclusion: The amount paid as professional tax was deductible as a business allowance and was not disallowed by Section 10(4); the answer to the reference was in the affirmative, in favour of the assessee.

Ratio Decidendi: A municipal tax linked to the use or valuation of business premises, and not levied on profits or gains, is deductible under the business allowance provision and is not hit by the prohibition against taxes assessed on profits or gains.

---