Capital expenditure creating new roads is not deductible, and wealth-tax on net wealth is also not an income-tax deduction.

Wealth-tax paid on net wealth is not a permissible deduction in computing income under the Income-tax Act, 1922. The text also states that expenditure on development of roads in cane-growing rural areas created a capital asset, so it was capital in nature and not deductible as business expenditure under section 10(2)(xv) or as an outgoing under commercial principles in section 10(1). On that basis, both referenced questions were answered against the assessee.

---

---

Issues: (i) Whether wealth-tax paid by the assessee for the assessment year 1959-60 was an allowable deduction in computing its income under the Income-tax Act, 1922; and (ii) whether the payment of Rs. 41,430 made towards development of roads in cane-growing rural areas was allowable as business expenditure under section 10(1) or section 10(2)(xv) of the Income-tax Act, 1922.

Issue (i): Whether wealth-tax paid by the assessee for the assessment year 1959-60 was an allowable deduction in computing its income under the Income-tax Act, 1922.

Analysis: The claim for deduction of wealth-tax stood covered by the binding principle that wealth-tax paid on net wealth is not a permissible deduction in computing income under the Income-tax Act, 1922.

Conclusion: The issue was answered in the negative, against the assessee.

Issue (ii): Whether the payment of Rs. 41,430 made towards development of roads in cane-growing rural areas was allowable as business expenditure under section 10(1) or section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The contribution brought into existence a capital asset in the form of new roads. Expenditure of a capital nature is not allowable as a business deduction under section 10(2)(xv), and it also cannot be treated as an outgoing deductible on commercial principles under section 10(1).

Conclusion: The issue was answered in the negative, against the assessee.

Final Conclusion: The reference was decided entirely against the assessee, and both referred questions were answered in the negative.

Ratio Decidendi: Expenditure that brings into existence a capital asset is capital expenditure and is not deductible either as an allowance for business expenditure or as an outgoing computed on commercial principles.

---