Cess linked to representative business profits is non-deductible under section 10(4) where it is levied on profits or gains.

Road and education cesses under the Cess Act, 1880 and the Bengal (Rural) Primary Education Act, 1930 were treated as levies based on objectively ascertained representative profits, not as rough estimates divorced from business income. The statutory machinery used returns, notices, valuation and, where required, assessment by the Collector to link the cess to annual net profits. On that basis, a cess calculated on profits or on a proportion of profits falls within section 10(4) of the Indian Income-tax Act, 1922 and is excluded from deduction under section 10(2)(xv).

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Issues: Whether road and education cesses paid under the Cess Act, 1880 and the Bengal (Rural) Primary Education Act, 1930 were allowable as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, or were barred by section 10(4) as cesses levied on profits or gains of business.

Analysis: The cesses were imposed under a statutory machinery that assessed annual net profits from mines and other property on an objective basis, using returns, notices, valuation, and, where necessary, ascertainment by the Collector. The Court distinguished cesses based on ascertainable representative profits from taxes that merely proceed on rough guesswork. It held that the statutory scheme under the Cess Act and the Education Cess Act did not resemble the local rates considered in the authorities relied upon by the assessee, because the cess was linked to net profits and not to an arbitrary estimate divorced from profits and gains. The Court further held that an average of past profits still represents profits and gains, and that section 10(4) excludes cess levied on profits or gains or assessed on a proportion of or otherwise on the basis of such profits or gains.

Conclusion: The cesses were hit by section 10(4) and were not deductible as business expenditure under section 10(2)(xv); the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: A cess calculated on representative or objectively ascertained profits of business is a cess levied on profits or gains, or on the basis of such profits or gains, and is therefore excluded from deduction by section 10(4) of the Indian Income-tax Act, 1922.

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