Deductibility of municipal tax on business premises upheld where the levy was linked to premises use, not profits or gains.

Professional tax paid for business premises was treated as deductible where the levy was linked to valuation of the premises used for business and not to profits or gains. Section 10(4) did not bar the deduction because it excludes only taxes levied on profits or gains, or assessed by reference to them, and the municipal charge had a sufficient nexus with the premises rather than business income. The phrase "in respect of" in section 10(2)(ix) was interpreted broadly enough to cover this type of municipal tax, even though it was not a direct tax on the premises themselves. The payment was therefore deductible and not hit by the statutory exclusion.

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Issues: Whether the professional tax paid under section 150A read with section 82(1)(ff) of the Bihar and Orissa Municipal Act, 1922, for premises used for business was deductible under section 10(2)(ix) of the Indian Income-tax Act, 1922, or was barred by section 10(4).

Analysis: The tax was linked to the valuation of the business premises and not to the assessee's profits or gains. It was payable as a condition for carrying on the business in the relevant premises, and thus had a sufficient nexus with the premises used for business purposes. Section 10(4) excludes only taxes levied on profits or gains, or assessed with reference to them, which was not the character of the impugned payment. The expression "in respect of" in section 10(2)(ix) was treated as wide enough to include a municipal tax of this nature, even though it was not a direct tax on the premises themselves.

Conclusion: The payment was deductible under section 10(2)(ix) and was not hit by section 10(4); the question was answered in the affirmative in favour of the assessee.

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