1967 (6) TMI 7 - HC - Income Tax

Supreme Court upholds cess on mining concessions for manufacturing, ruling it falls under income tax act

The Supreme Court upheld the imposition of cess on the assessee, holding mining concessions, even though no ore was sold but used for manufacturing ... Cess paid under the Bengal Cess Act, 1880, by an assessee carrying on the business of manufacturing pig iron, cast iron and iron and steel goods from the ores recovered from its mines - amounts paid by the appellant as cess to the Govt. of Bihar are not permissible allowances in the computation of the income of the assessee Issues Involved:1. Liability of the assessee to pay cess under the Cess Act.2. Deductibility of the cess paid as business expenditure under section 10(2)(xv) of the Indian Income-tax Act.3. Applicability of sub-section (4) of section 10 of the Indian Income-tax Act.4. Whether the cess paid can be deducted under section 10(1) of the Indian Income-tax Act.Issue-wise Detailed Analysis:1. Liability of the Assessee to Pay Cess Under the Cess Act:The assessee, holding mining concessions for iron and manganese ores, was levied cesses by the Cess Deputy Collector based on estimated annual profits from the mines. The assessee objected to this imposition, arguing that since it did not sell any ore, it did not make any profit from the mines as per section 6 of the Cess Act, 1880. However, this objection was dismissed by the Cess Deputy Collector, and subsequent appeals to the Deputy Commissioner, Commissioner at Ranchi, and the Board of Revenue were also unsuccessful. The High Court at Patna rejected the writ petition filed by the assessee. The Supreme Court, in a related case, Tata Iron & Steel Co. Ltd. v. State of Bihar, upheld the imposition of cess, establishing that profit could result from mining activities even if the ore was not sold but used for manufacturing finished products.2. Deductibility of the Cess Paid as Business Expenditure Under Section 10(2)(xv) of the Indian Income-tax Act:The assessee claimed the cess amounts as deductions in the computation of its income for the assessment years 1958-59 and 1959-60. The Income-tax Officer disallowed the claim, and the Appellate Assistant Commissioner dismissed the appeals. The Appellate Tribunal, hearing the second appeals, was divided on whether sub-section (4) of section 10 barred the cess from being allowed as business expenditure under section 10(2)(xv). The Judicial Member opined that the assessee did not make a profit from mining operations as the ores were used in its factories, and thus, the cess was not levied on profits or gains of business. Conversely, the Accountant Member believed that the cess was related to the net profits of the business, thus falling under the prohibition of section 10(4).3. Applicability of Sub-section (4) of Section 10 of the Indian Income-tax Act:The Tribunal referred the matter to its President, who agreed with the Accountant Member, stating that the final profit of the assessee's integrated mining and metallurgy business was attributable to both operations. The President reasoned that profits from mining were ascertainable and not notional, and the cess was based on such mining profits, thus falling under the prohibition of section 10(4). The Tribunal, following the majority opinion, overruled the assessee's claim for deduction of the cess under section 10(2)(xv).4. Whether the Cess Paid Can Be Deducted Under Section 10(1) of the Indian Income-tax Act:The assessee argued that even if section 10(4) barred the application of section 10(2)(ix), the cess should be allowed as a deduction under section 10(1), citing the Supreme Court's observation in Badridas Daga v. Commissioner of Income-tax. However, the court held that the payment of cess did not depend on accepted commercial practice or trading principles and was originally claimed as business expenditure under section 10(2)(xv). Thus, invoking section 10(1) was irrelevant, and this argument was overruled.Conclusion:The High Court, adopting the reasoning from the West Bengal Mining Co. case and the Supreme Court's judgment in Tata Iron & Steel Co. Ltd. v. State of Bihar, concluded that the cess was levied on profits and gains of business and thus fell within the prohibition of section 10(4). The question referred to the court was answered in the negative, and the assessee was ordered to pay costs to the Commissioner of Income-tax.