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Therefore, if the State has sold only the property in respect of which loan was taken, the purchaser defendant No. 12 is not prejudiced by the, principle of lis pendens. Ratio |
Therefore, the direction of the High Court was right insofar as it directed the Trial Court to separate the properties for the improvement of which the loans under the Land Improvement Loans Act were taken, from the other properties. Ratio |
In the result the appeal fails and is dismissed. RPC |
G C. Appeal dismissed. RPC |
Nos. 1694 and 1730 of 1968. FAC |
Appeals from the judgment and order dated August 11, 1967 of the Calcutta High Court in Income tax Reference Nos. 106 and 215 of 1963. FAC |
section R. Banerjee, N. N. Goswamy and section N. Mukherjee, for the appellant (in both the appeals). FAC |
V. section Desai, R. N. Sachthry and B. D. Sharma, for the respondent (in both the appeals). FAC |
A. K. Sen, T. A. Ramachandran and D. N. Gupta, for the intervener (in both the appeals). FAC |
The Judgment of the Court was delivered by Sikri C.J. RLC |
Beg J. gave a concurring but a separate opinion. FAC |
These appeals have been referred by a Division Bench of this Court 'to a larger Bench as the Division Bench felt :that the decision of this Court in Travancore Titanium Product ,Ltd. vs Commissioner of Income Tax(1) might require reconsideration. FAC |
The only point involved in these appeals is whether the Wealth Tax paid by the assesse, a 'trading company is deductible as an expenditure under section 10 ( 1 ) and section 10 (2) (xv) of the Income tax Act, 1922. FAC |
The facts in both the appeals are similar. FAC |
They relate to two separate accounting and assessment years and two assessment orders have been challenged. FAC |
We may give a few facts in one appeal The Indian Aluminium Co. Ltd., in respect of the year of assessment 1959 60 (accounting period Calendar year 1958), paid Rs. 1,59(630/ as Wealth Tax and, claimed to deduct this amount as expense from their assessable income. Ratio |
Income Tax Officer allowed the deduction but the Appellate Assistant Commissioner held that the Company was not entitled to the deduction of Wealth Tax as an expense. RLC |
The Appellate Tribunal upheld the order of the Appellate Assistant Commissioner. RLC |
On the application of the assessee, the following question was referred to the High Court : "Whether on the facts and circumstances of case the sum of Rs. 1,59,630/ paid by the assessee as wealth tax legally deductible as a business expense in computing the assessee 's income from business?" The High Court, following t... |
Having obtained certificate of fitness from the High Court, the assessee has appealed to us. FAC |
Basing himself on Keshav Mills Co. Ltd. vs C.I.T.(2) it was contended by the learned counsel for the Revenue that we should not review our decision in Travancore Titanium case(1). ARG |
Gajendragadkar, C.J., speaking, for the Court, had observed in that 'case that "it is not possible or desirable, and in any case it would be inexpedient to lay down any principles which should govern the approach of the Court in dealing with the question of reviewing and revising its earlier decisions. Ratio |
" He further observed "It would always depend upon several relevant considerations : What is the nature of the infirmity or error on which a plea for a review and revision of the earlier view is based ? On the earlier occasion, did some patent aspects of the question remain unnoticed, was the attention of the Court not... |
We are all of the opinion that the decision was erroneous. Ratio |
The decision will affect numerous assessees. Ratio |
In the circumstances we think we should review the decision. Ratio |
Section 10 (1) of the Indian Income tax Act, 1922, reads: "10(1) The tax shall be payable by an assessee under the he, id profits and gains of business, profession or vocation in respect of the profit or gains of any business, profession or vocation carried on by him." Section 10(2) provides : "Such profits or gains sh... |
" The language seems to be simple enough but it has engendered judicial conflict not only in India but also in England Eminent Judges halve striven to formulate correct tests to determine whether an expenditure has been laid out or expended wholly and exclusively for the purposes of business or not, but no one has been... |
It seems to us therefore essential that in each case, the Courts must always keep in mind language of the section. Ratio |
One of the tests which have been laid down and applied by some of the Judges in England is whether the expenditure has been made in the capacity of a trader or an owner. Ratio |
One of the earliest cases in which this test was suggested was Strong and Company of Romsey Ltd. vs Woodfield(2). PRE |
In that case the Brewing Company, which also owned licensed houses in which they carried on the business of lnnkeepers, incurred damages and costs on account of injustice caused to a visitor staying at one of their houses by the falling in of a chimney. PRE |
The House, of Lords (1) [1066] 3 S.C.R. 321 (2) ; 21 held that the damages and costs were not allowable as a deduction in computing the Company 's profits for Income Tax purposes. PRE |
The Lord Chancellor observed: "In my opinion, however, it does not follow that if a loss is in any sense connected with the trade, it must always be allowed as a deduction; for it may be only remotely connected with the trade or it may be connected with something else quite as much as or even more than with the trade. ... |
I think only such losses can be deducted as are connected with it in the sense that they are really incidental to the trade itself. PRE |
They cannot be deducted if they are mainly incidental to some other Vocation, or fall on the trader in some character other than that of trader. PRE |
The, nature of the trade is to be considered. PRE |
To give an illustration, losses sustained by a railway company in compensating passengers for accident in travelling might be deducted. PRE |
on the other hand, if a man kept a grocer 's shop, for keeping which a house is necessary and one of the window shutters fell upon and injured a man walking. PRE |
in the street, the loss arising thereby to the grocer ought not to be deducted. PRE |
Lord Davey did not apply this test and put the matter thus: I think that the payment of these damages was not money expended "for the purpose of the trade". PRE |
These words are used in other rules, and appear to me to mean for the purpose of enabling a person to carry on and earn profits in the trade, &c. PRE |
I think the disbursements permitted are such as are made for that purpose. PRE |
It is not enough that the disbursement is made in the course of, or arises out of, or is connected with, the trade or is made out of the profits of the trade. PRE |
It must be made for the purpose of earning the p rofits." PRE |
Lord Chancellor 's observations in Woodfield 's case were not accepted by Lord Atkinson in Smith vs Lion Brewery Com pany(1). PRE |
The Brewery_ Company were the owners or lessees of a number of licensed premises which they had acquired as part of their business as brewers and as a necessary incident of its profitable exploitation. PRE |
The licensed premises were let to tenants, who were "tied" to purchase their beers from the company. PRE |
Under the Licensing Act, 1904, compensation Fund Charges were levied in respect of the excise "on" licences held by the tenants who paid the charges and recouped themselves by (1) 22 deduction from the rents which they paid to the company. PRE |
It was claimed by the company that in computing their, profits for assessment to Income Tax they should be allowed to deduct the sum of the amounts ultimately borne by them in respect of the Compensation Fund Charges. PRE |
The Court of King 's Bench held that the deduction claimed was inadmissible. PRE |
This decision was reversed in the Court of Appeal (Kennedy, L.J., dissenting), and opinions in the House of Lords being equally divided the judgment of the Court of Appeal was sustained. PRE |
Earl Halsbury, in holding in favour of the Brewery, observed that "lie (trader) must if he carries on that business or that trade pay this tax; it is the act of the Legislature which makes him pay it and it is not a thing that is open to his own will or option." Lord Atkinson observed "Again,, it is urged that the land... |
That, no doubt, is so, but in the present case the Company have become landlords and thus liable to pay the charge, for the purpose solely and exclusively of setting up the tied house system of trading. PRE |
If the Company took under lease a plot of land to enlarge their brewery or took similarly premises in which to establish a depot to sell their beer through an agent, the same criticism might be applied with equal force to the payment of the rent reserved by the lease. PRE |
They would pay it as lessees, not as brewers. PRE |
They would pay it whether they continued to brew or not. PRE |
Yet under the provisions of the very rule relied upon in this case, they would be entitled to deduct the rent from the profits earned, and that, too, utterly irrespective of whether the receiver of the rent used it to pay for his support or for his pleasure or even to set up a rival brewery. PRE |
Indeed, even in a contract made for the purchase of material such as hops or malt, the Company would have to pay for the commodity supplied, not because they are brewers, but because they were contracting parties, utterly irrespective of whether they carried on their trade or had abandoned it. PRE |
Yet it can hardly be suggested that the price paid for the hops or malt under the contract should not be deducted from the receipts. PRE |
There is, therefore, in my opinion, nothing in this ob jection." PRE |
In Usher 's Wiltshire Brewery Ltd vs Bruce(1) a brewery company were the owners or lessees of a number of licensed premises which they had acquired solely in the course of and for the purpose of their business as brewers and as a necessary incident to the more profitably carrying on of their said business. PRE |
The licensed premises were let to tenants who were "tied" to purchase their beers, etc. from the Company. PRE |
The Company claimed that in the computation of their profits for assessment under Schedule D, the following expenses incurred in connection with these tied houses should be allowed (A) repairs to tied houses; (B) differences between rents of leasehold houses or Schedule Assessment of freehold houses on the one hand and... |
In this case, Horridge, J. held that "on the facts found the Fire and Licence insurance Premiums, the Rates and Taxes and the Gas and Water were all expenditure essential to the earning of the profits, and I think they also are governed by Smith vs The Brewery Company(1) and are proper deductions. PRE |
" The Court of Appeal, regarding Rates and Taxes, said "The next head is "D., Rates and Taxes pound 3 8 7s. PRE |
" These are sums which the tenants were under a legal obligation to pay pursuant to their covenant in the tenancy agreement. PRE |
The Company, however, did not, for the reasons stated under A in the Case enforce the tenants ' covenants to pay, and consequently paid the rates and taxes themselves. PRE |
These reasons have been stated and appear in the Case, and need not be repeated; in brief; They are commercial interest and expediency, and avoidance of inconvenience. PRE |
I am of opinion that these rates and taxes so paid are in no sense deductions which are allowable from the Company 's profits. PRE |
" (1) (2) 24 The ' House of Lords, however, allowed these items. PRE |
Lord Atkinson at page 422 of the report said "Stated broadly, I think that that doctrine amounts to this, ,hat where a trader bona fide creates in himself or acquires a particular estate or interest in premises wholly and exclusively for the purposes of using that interest to secure a better market for the commodities ... |
I concur, however, with Mr. Justice Horridge in thinking they ought to be allowed." PRE |
Lord Parker observed: "My Lords, the Appellants claim deductions under three other heads : (1) Fire and licence insurance premiums, (2) Rates and taxes, and (3) Legal and other costs. PRE |
The Attorney General did not object to these deductions being allowed, and indeed having regard to what I have already said and to the facts ad mitted in the Supplementary Statement, p. 7, of the Appendix, it would be difficult to contend that they were not proper and necessary deductions in ascertaining the balance of... |
" Lord Summer observed "The remaining items, rates and taxes, premiums and costs call for no special observation. PRE |
In my view, the case means to find them all to be disbursements and money "wholly and exclusively expanded for the purposes of the trade,", and that being so in fact, I ,think there is no reason why they may not be so in law. PRE |
They are accordingly covered by the decision on the rent and the repairs." PRE |
It may be mentioned 'that there was no express statutory provision for deduction of rates and taxes in the English Income Tax Act and yet they were allowed as a necessary deduction for the 'purpose of carrying on trade. Ratio |
There is no doubt that in one 25 sense when rates and taxes on property are,, paid by a trader he pays them as owner or occupier because taxes are either on possession of property or on its ownership. Ratio |
But when the assessee has a dual capacity, i.e., he is owner cum trader, why should it be not deductible when according to ordinary commercial principles he would be treated as paying it as trader. Ratio |
Take the case of taxation on a motor vehicle. Ratio |
The tax is levied under the Motor Vehicles Act on the possession or owner ship of a motor car, When a owner cum trader pays the tax in respect of a vehicle used solely for the purpose of trade, nobody doubts, and the, learned counsel for the Revenue did not contest the position, that the tax would be deductibles as an ... |
Now, why is it deductible ? The only rational explanation seems to us to be that when a person has a dual capacity, of a tradercum owner, and he pays tax in respect of property which is used for the, purpose of trade, the payment must be taken to be in the capacity of a trader according to ordinary commercial principle... |
This aspect is also clearly brought out in Moffatt vs Webb(1), which was not cited before this Court then. Ratio |
The taxpayer was a grazier, and during the year '1911, carried on business, and was still carrying on ' business as such in Victoria upon lands of the fee simple, of which he was during the said year and still was the owner. Ratio |
The, said lands comprised 17,970 acres or thereabouts, and their unimproved value had for the purposes of the Land Tax Assessment Act 1910 of the Commonwealth of Australia been assessed at pound 44,924. Ratio |
He paid Commonwealth land tax amounting to pound 3 87 on the unimproved value of the Said lands. Ratio |
The taxpayer claimed to deduct this tax from his income as an outgoing incurred by him "as a disbursement" or expenditure being wholly and exclusively laid out or expanded for the purpose of his trade. Ratio |
The High Court of Australia held that the tax was properly deductible either as an outgoing actually incurred by him in production of income or a disbursement of money wholly and exclusively laid out or expanded for the purpose of trade. Ratio |
Griffith, C.J., summed up the argument as follows : "The, possession of land is necessarily incident to carrying on the business of a grazier the payment of land tax is it necessary consequence of the possession of land of tax, able value, whether the land is freehold or leasehold; the payment of land tax is therefore ... |
The case therefore, seems to me to come within the exact words of the first paragrapher sec.9." (Sec. 9 is substantially similar to section 10(2) (xv) of the Indian Income Tax Act, 1922). Ratio |
Barten, J., observed ". the sole use to which the appellant puts the land is for the purposes of his business as a grazier. PRE |
He needs a large area of land for that purpose, and this area of about 18,000 acres is applied to his business needs. PRE |
It seems too much 'altogether to say that he would have to pay. PRE |
the federal tax on this land if he did not carry on the grazing business. PRE |
Somebody would be wed, no doubt, but would it be the appellant ? It cannot be predicated that he would own the land at all if he carried on any other business. PRE |
It is scarcely an inference from the case to say that he hold ' the lands simply as an instrument essential to the proper conduct of his business : I think it is the fair meaning of the first paragraph at which we can arrive without inserting anything not imported by the words. PRE |
If I am right there, then is 'the land tax payment a disbursement or expense wholly and exclusively laid out or expanded for the purposes of the business ? It may not be so if the criterion is whether the business could be carried on without payment of the tax. PRE |
But I do not think that is the criterion. PRE |
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