Business tax on property used in operations may be deductible when incidental to carrying on trade.

A statutory tax on land and buildings used in a manufacturing business may qualify as business expenditure under section 37(1) where the assessee is liable as occupier and the payment is incidental to carrying on the business. The text applies the owner-cum-trader principle, treating a levy on the property interest as deductible when incurred for business purposes, and notes that the earlier narrower requirement of a direct and intimate connection with ownership was not followed after later Supreme Court authority. The tax was therefore treated as an allowable deduction.

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Issues: Whether the tax paid under the Uttar Pradesh (Nagar Kshettra) Bhumi Aur Bhawan Kar Adhiniyam, 1962 on land and buildings used for the assessee's business was deductible as business expenditure under section 37(1) of the Income-tax Act, 1961.

Analysis: The tax was levied on lands or buildings in an urban area and could be recovered from the owner or occupier. The assessee used the premises in the course of its manufacturing business and was liable to pay the tax as occupier. Applying the principle that where an assessee acts in a dual capacity as owner-cum-trader, a payment imposed on the estate or interest in property is deductible if it is incidental to carrying on the business, the expenditure was treated as business-related. The prior narrower view based on a direct and intimate connection with ownership was not followed in light of the later Supreme Court authority.

Conclusion: The tax was an allowable deduction under section 37(1) and the answer to the reference was in favour of the assessee.

Ratio Decidendi: A statutory tax on property used in the business is deductible as business expenditure if, for an assessee acting as owner-cum-trader, the payment is incidental to and incurred for the purposes of carrying on the business.

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