1963 (1) TMI 56 - HC - Income Tax

Wealth-tax not deductible as business expense; Extra depreciation allowance limited by five-year rule.

The court held that wealth-tax paid by companies is not an allowable expenditure under the Indian Income-tax Act as it is a charge on ownership and not ... - Issues Involved:1. Whether wealth-tax paid by a company is an allowable expenditure in the computation of its business income under the Indian Income-tax Act.2. Whether the claim of the assessee for extra depreciation allowance is justified.Issue-Wise Detailed Analysis:1. Allowability of Wealth-Tax as Deductible Expenditure:The primary issue in this batch of cases is whether the wealth-tax paid by various companies can be claimed as a deductible expenditure under the Indian Income-tax Act. The relevant section for this determination is Section 10(2)(xv) or alternatively Section 10(1).Nature and Incidence of Wealth-Tax:The Wealth-tax Act charges tax on the net wealth of individuals, Hindu undivided families, and companies. The charge is on the ownership or proprietary right over the assets, termed as 'net wealth.'Interpretation of Section 10(2)(xv):Section 10(2)(xv) allows for the deduction of any expenditure laid out or expended wholly and exclusively for the purpose of the business, provided it is not capital or personal in nature. The expenditure must be incidental to the business and incurred in the character of a trader.Judicial Precedents:- Strong & Co. v. Woodifield (1906): The payment of damages was not considered an expenditure for the purpose of trade. The expenditure must be for enabling a person to carry on and earn profits in the trade.- Moffatt v. Webb [1913]: The Australian High Court allowed the deduction of land tax paid by a grazier, as it was essential for carrying on the business.- Morgan (Inspector of Taxes) v. Tate & Lyle Ltd. [1954]: Expenses incurred to oppose nationalization were allowed as they were essential to preserve the business.Application to Wealth-Tax:The court concluded that wealth-tax is a charge on ownership and not incidental to the business. It does not fall on the assessee in the capacity of a trader but as an owner of the wealth. Therefore, wealth-tax paid cannot be claimed as a deductible expenditure under Section 10(2)(xv) or Section 10(1).Conclusion:The court answered the questions in T.C. Nos. 91, 92, 99, 102, 110, and question No. 1 in T.C. No. 111 of 1961 against the assessees, holding that wealth-tax paid is not an allowable expenditure under the Income-tax Act.2. Claim for Extra Depreciation Allowance:The issue in question No. 2 in T.C. No. 111 of 1961 pertains to the interpretation of Section 10(2)(via) of the Indian Income-tax Act. The assessee claimed an extra depreciation allowance for the financial year April 1, 1958, to March 31, 1959, in the assessment year April 1, 1959, to March 31, 1960.Interpretation of Section 10(2)(via):The provision allows for a further sum of depreciation for buildings newly erected or new machinery installed after March 31, 1948, in not more than five successive assessments following the previous year of erection or installation, within the period ending March 31, 1959.Court's Analysis:The court held that the term 'financial years' in this context means 'assessment years.' The scheme of the Indian Income-tax Act is to tax income of the previous year in the relevant assessment year. Therefore, the extra depreciation allowance cannot be claimed beyond the five-year limit ending March 31, 1959.Conclusion:The court answered question No. 2 in T.C. No. 111 of 1961 against the assessee, holding that the claim for extra depreciation allowance is not justified.Costs:The assessee in each case is directed to pay costs to the department, with counsel's fee fixed at Rs. 250 in each case.