Wealth-tax deduction and charity rebate denied under the 1922 Income-tax Act where expenses and donated shares failed statutory conditions.

Wealth-tax paid on shares and investments was held not deductible under section 12(2) of the Indian Income-tax Act, 1922, because the provision allows only expenditure incurred solely for earning income, and payment of wealth-tax is a liability of ownership rather than a cost of earning dividends or interest. The value of shares donated to a charitable institution was also held not eligible for rebate under section 15B, because the shares were acquired from past savings and did not form part of the assessable income of the relevant year. Both questions were answered against the assessee and in favour of the Revenue.

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Issues: (i) Whether wealth-tax paid on shares and investments was an allowable deduction in computing income under section 12(2) of the Indian Income-tax Act, 1922. (ii) Whether the value of shares donated to a charitable institution was entitled to rebate under section 15B of the Indian Income-tax Act, 1922 when the shares were acquired out of past savings.

Issue (i): Whether wealth-tax paid on shares and investments was an allowable deduction in computing income under section 12(2) of the Indian Income-tax Act, 1922.

Analysis: The allowance under section 12(2) is confined to expenditure, not being capital expenditure, incurred solely for the purpose of making or earning the income. Wealth-tax is a statutory liability of the owner of assets and the dividends and interest from the investments would be earned irrespective of its payment. Payment of wealth-tax was therefore not expenditure incurred solely for earning the income, and expenditure for preserving assets did not qualify for deduction under the section.

Conclusion: The claim for deduction of wealth-tax was not allowable and the answer was against the assessee.

Issue (ii): Whether the value of shares donated to a charitable institution was entitled to rebate under section 15B of the Indian Income-tax Act, 1922 when the shares were acquired out of past savings.

Analysis: The rebate under section 15B was confined to sums assessable in the relevant accounting year and brought to charge. The donated shares had been acquired out of past savings and were not part of the assessable income of the relevant year. The value of such shares therefore did not satisfy the statutory requirement for rebate.

Conclusion: The value of the donated shares was not entitled to rebate and the answer was against the assessee.

Final Conclusion: Both referred questions were answered adversely to the assessee, and the reference was decided in favour of the Revenue.

Ratio Decidendi: Under section 12(2) of the Indian Income-tax Act, 1922, only expenditure incurred solely for earning the income is deductible, and a donation or transfer made out of past savings does not qualify for rebate under section 15B unless it forms part of the assessable income of the relevant year.

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