Business cess paid on mining profits was not deductible because it was levied by reference to business gains.

Road, public works and education cesses paid by a coal mining business were held not deductible under section 10(2)(ix) or section 10(2)(xv) read with section 10(4) of the Indian Income Tax Act. The cesses were imposed in relation to the mining operations and were charged on, or by reference to, the business profits or gains, so they did not qualify as land revenue, local rates or municipal taxes. Section 10(4) also barred deduction of any cess, rate or tax levied on or assessed with reference to business profits or gains. The suggested distinction between coal extraction profit and mining-business profit was rejected on the facts.

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Issues: Whether road, public works and education cess paid by a coal mining company was allowable as a deduction under section 10(2)(ix) or section 10(2)(xv) read with section 10(4) of the Indian Income Tax Act.

Analysis: The cesses were levied in relation to the assessee's mining operations and were payable on the profits or gains arising from that business or were assessed at a proportion of those profits or gains. Such payments did not fall within the allowance for land revenue, local rates or municipal taxes under section 10(2)(ix). They were also excluded from the residuary allowance under section 10(2)(xv) by section 10(4), which bars deduction of any cess, rate or tax levied on, or assessed by reference to, business profits or gains. The distinction suggested between profit from extracting coal and profit from the mining business was rejected on the facts.

Conclusion: The cess payments were not allowable deductions.

Ratio Decidendi: A cess levied on, or assessed with reference to, the profits or gains of a business is excluded from deduction under the business allowance provisions and cannot be claimed as an allowable revenue expenditure.

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