Cess on mining profits is not deductible where the levy is treated as one on business profits and expressly barred by statute.

Cess computed on annual net mining profits is treated as a levy on profits or gains of business, even where profits are ascertained on an objective or averaged basis. The reasoning recognises that mining profit may arise in law even when ore is not sold as ore but is consumed in the assessee's own manufacturing process, and that such profit can be separated from final business profit. Once the cess is linked to those mining profits, it falls within the statutory bar and is not deductible in computing business income. A fallback claim for allowance as a general business deduction also failed because the payment did not arise from ordinary commercial practice or trading principles and was expressly prohibited by the Act.

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Issues: Whether cess paid under the Cess Act was allowable as a deduction in computing business income, or whether it was hit by the prohibition against allowance of any sum paid on account of cess levied on profits or gains of business or assessed on that basis.

Analysis: The Court applied the earlier reasoning that cesses computed on the annual net profits of mines are levied on profits or gains of business, even if the profits are ascertained on an objective or averaged basis. It accepted the Supreme Court's view that mining profit can arise in law even where the ore is not sold as ore but is used as raw material in the assessee's own manufacturing process, and that such profit may be disintegrated from the final business profit. Once cess is shown to be linked to such mining profits, it falls within the statutory prohibition and cannot be allowed as business expenditure. The alternative plea that the payment should be allowed as a general business deduction was also rejected, because the payment of cess did not arise from accepted commercial practice or trading principles and was expressly barred by the Act.

Conclusion: The cess was not an allowable deduction under the income-tax provisions and the answer to the referred question was in the negative, against the assessee and in favour of the Revenue.

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