Property tax on business premises is not deductible unless directly connected with carrying on the trade.

Property tax on cinema houses was held not deductible in computing business income because the levy attached to ownership of the immovable property, not to the carrying on of the film exhibition business. The governing test was whether the outgoing was laid out wholly and exclusively for business and had a direct and intimate connection with trading operations; a deduction is available only when the expense is incurred in the assessee's capacity as trader, not merely as owner of business assets. On that basis, the tax was treated as attributable to ownership rather than business expenditure, and the deduction was denied.

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Issues: Whether property tax levied by the Punjab Government on cinema houses owned by the assessee was an admissible deduction in computing business income under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The tax was imposed on ownership of property under the Punjab Urban Immovable Property Tax Act, 1940, and was payable by the owner of the buildings and lands. The decisive test was whether the expenditure was laid out wholly and exclusively for the purposes of business and whether it had a direct and intimate connection with the carrying on of the business. The Court applied the settled principle that a deductible outgoing must be incidental to the trade itself and incurred by the assessee in its character as trader, not merely because it owned business assets. The tax here was not a condition precedent to carrying on the business of exhibiting films and was attributable to ownership of the cinema property rather than to the business operations themselves.

Conclusion: The property tax was not an allowable deduction under section 10(2)(xv) of the Income-tax Act, 1922, and the question was answered in the negative, in favour of the department and against the assessee.

Ratio Decidendi: A tax levied on the ownership of business property is deductible only if it is directly and intimately connected with the carrying on of the business and is incurred wholly and exclusively for business purposes in the assessee's capacity as trader.

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