Retrospective tax amendment bars wealth-tax deduction, but related professional fees remain deductible under the law then in force.

Retrospective amendment under the Income-tax (Amendment) Act, 1972 barred deduction of wealth-tax paid in computing business income for assessment years from 1957-58 onwards, so the assessee could not claim that deduction for the year in question. However, professional fees incurred in connection with the wealth-tax assessment were allowed because, when incurred, the then prevailing law still treated the underlying wealth-tax payment as deductible and the expenditure was justified in resisting that assessment. The reference was therefore answered partly against the assessee and partly in its favour.

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Issues: (i) Whether wealth-tax paid by an assessee for the relevant assessment year was allowable as a deduction in computing business income. (ii) Whether professional fees incurred in connection with the wealth-tax assessment were allowable as a deduction.

Issue (i): Whether wealth-tax paid by an assessee for the relevant assessment year was allowable as a deduction in computing business income.

Analysis: The earlier Supreme Court view permitting such deduction was displaced by retrospective legislative intervention. Section 4 of the Income-tax (Amendment) Act, 1972 was held to operate retrospectively and to bar any deduction of wealth-tax paid in computing income under the specified heads for assessment years from 1957-58 onwards. As the assessment year in question fell within that period, the statutory bar applied.

Conclusion: The first question was answered in the negative and against the assessee.

Issue (ii): Whether professional fees incurred in connection with the wealth-tax assessment were allowable as a deduction.

Analysis: The claim for professional fees stood on a different footing. At the time when the assessment orders were made, the then prevailing legal position treated wealth-tax paid on business assets as deductible. The subsequent retrospective amendment nullifying the deduction of wealth-tax itself did not alter the fact that, at the relevant time, the assessee was justified in incurring professional fees for resisting or dealing with the wealth-tax assessment.

Conclusion: The second question was answered in the affirmative and in favour of the assessee.

Final Conclusion: The reference was answered partly against the assessee and partly in its favour, with the wealth-tax deduction disallowed but the related professional fees held deductible.

Ratio Decidendi: A retrospective amendment may bar deduction of wealth-tax for prior assessment years, but it does not necessarily disallow professional fees incurred in connection with that assessment where the expenditure was justified under the law as it stood when incurred.

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