1962 (11) TMI 87 - HC - Income Tax

Court Rules Mining Company's Royalty Payments Deductible, But Cess Not Allowed Under Income Tax Act

Samla Collieries Ltd. Versus Commissioner of Income Tax.

The court held that the road and P. W. D. cess, education cess, and royalty payments made by a mining company were not deductible under the Income Tax ... - Issues:Deduction of road and P. W. D. cess, education cess, and royalty payments under the Income Tax Act.Analysis:The case involved the Samla Collieries Ltd., which carried on coal mining business and incurred expenses for road and P. W. D. cess, education cess, and royalty payments. The Appellate Tribunal allowed deduction for royalty payments but excluded cess amounts due to section 10(4) of the Income Tax Act, which prohibits allowance for sums paid as cess on profits or gains of any business. The relevant sections of the Bengal Cess Act and the Bengal (Rural) Primary Education Act were cited, outlining the imposition of road and P. W. D. cess and education cess on annual profits from mines and other immovable properties.The Income Tax Act's section 10(2) provides for allowances, including section 10(2)(ix) for land revenue, local rates, or municipal taxes, and section 10(2)(xv) for revenue nature expenses. However, section 10(4) explicitly disallows deductions for sums paid as cess, rate, or tax on business profits or gains. The court held that the cess paid by the mining company was excluded under section 10(4) as it was assessed on profits derived from mining operations, falling outside the scope of allowable deductions under section 10(2).The argument made by the assessee's counsel to distinguish between profits from coal extraction and profits from the mining business was rejected. Reference to a Supreme Court case emphasized that profits from mining operations, even if not directly sold but used in manufacturing, are still considered business profits. The court concluded that the cess imposed on the company's mining profits was not allowable under section 10(2) as it was based on profits or gains of the business, as per section 10(4).Additionally, the judgment highlighted a Division Bench case precedent where cess was held applicable not only to the occupier but also to the owner of the property generating profits. The court affirmed that the cess under the Acts had to be paid by the mining company due to the profits earned, but such payments were not deductible under section 10(2) because of the restrictions in section 10(4. The final decision was that the cess amounts were not allowable as deductions under the Income Tax Act.