DEBRA DUN TEA CO. LTD. & ANR. v. COMMISSIONER OF INCOME TAX, U.P., LUCKNOW

8 ## c D E F G H DEBRA DUN TEA CO. LTD. & ANR. _v._ COMMISSIONER OF INCOME TAX, U.P., LUCKNOW _December_ 12, 1972 [K. S. HEGDE AND P. JAGANMOHAN REDDY, JJ.] _Income-tax_ _Act_ 1922 _s._ 10(2) _(xv)-Deductib/e_ _expenditure-Tax_ _paid by_ _tea_ _growers under_ _U.P._ _Large_ _Land_ _Holdings_ _Act XXXJ_ _of_ _1951_ _whether deductible._ **The** **assessee** **companies** **were** **growers** **of** **tea.** **Their** **income** **was** **taxed** under s. 10 of the Income-tax Act 1922 but under Rule 24 of the Rules framed under the Act only 40% of their income was brought to tax. The expenditure was also allowed to the extent of 40%. The companies claimed that the tax paid by them under the U.P. Large Land Holdings Tax Act 1957 was deductible under s. 10(2)(xv) of the Income-tax Act. The claim was disallowed by the income-tax authorities. In a reference under s. 66(1) the High Court, relying upon the deciaion of this Court in _Travancore Titanium Product Ltd._ v. _CJ.T. Kera/a_ (60 I.T.R. 277) answered the questi0n in favour of t,he Revenue. Jn these appeals the companies relied on the decision of this Court in _Indian_ _A.lumlnhun_ _Co._ _Ltd._ v. _Commissioner_ _of Income Tax, West Bengal_ (84 I.T.R. 735). It was contended on behalf of the respondent that the decision in _Indian Alumi-_ _nium_ was inapplicable to the case since the tax under the U.P. Act was **laid** **on** **the** **companies** **as** **owners.** Allowing the appeal,, HELD : (i) Applying the ratio of the decision in the _Indian Alumi-_ _nium_ case to the facts of the present case it was clear that the lands owned by the assessee companies were their business assets and the tax paid threon under the U.P. Act XXX! of 1957 was an item of expenditure laid out by the assessee companies as traders and as incidental to their business. Consequently the same must be treated as an item of expenditure under Section 10(2) (xv) of the .Act. [84-H] The contention on behalf of the Revenue that the decision in _Indian_ _Aluminium_ was inapplicable could not be accepted. A tea-grower is considered under the Act read with Rules as an _owner-cum-trader._ 'Iberafore any item of expenditure incurred by him must be considered as an item of expenditure incurred by a trader in connection with hil bual· ness activity. It is true that only 40 per cent of the net income of the tea-growers is brought to tax under- the Ac!; but at the same time the tea growers will also be entitled only to 40 per cent of the expenditure incurred by them. [8SCDJ _Travancore Titanium Product Ltd._ v. _C.J.T, Kera/a._ 60 l.T.R. 277 referred to. _**Indian**_ _**Aluminium.;Co. Ltd.**_ v~ _**Commissioner of Income**_ _**Tax,**_ _**West**_ _Bengal,_ 84 !.T.R. 735 applied. (ii) Section 40 of the Income Tax Act 1961 as amended in 1972 had no bearing on the point arising for decilion in this case. [86A] CML APPELLATE JURISDICTION : Civil Appeals No. _56_ to 61 of 1970. 81 84 SUPREME COURT REPORTS [1973) 3 S.C.R. Appeals by special leave from the judgment and order dated January 1, 1969 of the Allahabad High Court in l.T.R. No. 198 and 199 of 1965. _M._ _C._ _Chagla,_ _A. K. Verma,_ _J.B._ _Dadachanji,_ _0. C._ _Mathur_ and _R._ _Narain,_ for the respondents. _N._ _C._ _Kharkhanis,_ _J._ _Ramamurthi_ and _R._ _N._ _Sachthey_ for the respondents. The Judgment of the Court was delivered by B HEGDE, J. These are appeals by special leave. They are directed agains.t the decision of the High Court of Allahaba:i in a reference under Section 66 (1) of the Indian Income Tax Act C 1922 (to be hereinafter referred to as the Act). The common question of law referred in these appeals was : "Whether the tax paid by the assessee company on the tea-garden lands under the U.P. Large Land Holdings Tax Act, 1957 (U.P. Act XXXI of 1957) is liable to be deduoted under Section 10(2) (xv) ?" D The High Court answered this question in favour of the Revenue. It did so following the decision of this Court in _Travancore Titanium Product Ltd._ v. _C.1.T. Kerala(_ _[1]_ _)._ l't may be noted that the assessee companies (there are two companies) are taxed under Section 10 of the Act. Their income is considered as business income. The assessee companies are tea-growers and the activity they carry on is a business activity. Therefore, the question is whether the tax paid by them under the U.P. Act XXXI of 1957 is an item of expendi· ture coming within the scope of Section 10(2) (xv) of the Act. In _Indian Aluminium Co._ _Ltd._ v. _Commissioner_ _of Income Tax,_ _West Bengal('),_ a Five-Judge Bench. of this Court modified the decision of this Court in _Travancore Titanium Products_ _case_ (supra) holding that if the expenidture laid out by the assessee is as an owner'cum-trader and the expenditure is really incidental to the carrying on of his business it must be treated to have been laid out by him as a trader and as incidental to his business. On the basis of tliat ru1e it came to the conclusion that the weajth tax paid by a trader on his business assets is liable. to be deducted under Section 10(2)(xv) of the Act. Applying the ratio of that decision to the facts of the pr=nt case it is clear that the 1ands owned by the assessee companies are its business assets and the tait.paid thereon under the U.P. Act XXXI of 1957 is an item of extl'enditure Jaid out by the assessee companies as traders and as incidental -Mi their business. · Consequently the same must be (I) 60 I.T.R. 2n. (2) 84 I.T.R. 735. E F G H A B E F H DEHRADUN TEA co. _v._ C.I.T. _(Hegde,_ _I.)_ 85 treated as an item of expenditure under Section 10(2) (xv) of the Act. Mr. Karkhanis appearing for the Revenue contended that so far as tea-growers arc concerned they are both the owners of lands as well as traders. It is for that reason they are assessed only on 40 percent of their net income, applying Rule 24 of the Rules framed under the Act. According to him the tax paid under the U.P. Act XXXI of 1957 is a tax levied on the owners and not on the traders. Consequently the ratio of the decision of this Court in _Indian Aluminium Company's_ case (supra) is inapplicable. We are unable to accept this contention as correct. A tea-grower is considered under the Act, read with Rules as an owner-cumtrader. Therefore, any item of expenditure incurred by him must be considered as an item of expenditure incurred by a trader in connection with his business activity. It is true that only 40 per cent of the net income of the tea-growers are brought to tax under the Act; but, at the same time, the tea-growers will also be entitled only to 40 per cent of the exp~nditure incurred by them. Under Rule 24, only 40 per cent of the net income is brought to tax. Hence we are unable to accept the contention of Mr. Karkhanis that the ratio of the decision of this Court in the _Indian Alumi-_ _nium Company's_ case (supra) is inapplicable to t~e facts of this case. Lastlv. Mr. Karkhanis contended that in view of the Income-tax (Amendment) Act 1972, an assessee company is noi entitled to claim any deduction in respect of the tax paid by them. In this connection he relies on Section 2 of the Amendment Act of 1972. That section reads : "2. Amendment of Section 40. In Section 40 of the Income-tax Act, 1961 ( 43 of 1961) (hereinafter referred to as the principal Act), after sub-clause (ii) of clause (a), the following sub-clause shall be, and shall be deemed always to have been, inserted, namely : " ( iia) any sum pa1d on account of wealth-tax." Explanation :-For the purposes of this sub-clause, "wealth-tax" means wealth-tax chargeable under the Wealth-tax Act, 1957 (27 of 1957), or an}' tax of a similar character chargeable under any law in force in any country outside India or any tax chargeable under such Jaw with reference to the value of the assets of, or the capital employed in, a business or profession, carried on by the assessee, whether or not the debts of the business or profession are allowed as a deduction in computin!l; the amount with reference to which such tax is charged, but d0>~ not include any tax chargeable with reference to the value of any particular asset of ihe business or profession;". 86 SUPREME COURT llEPO!lTS [1973] 3 S.C.ll. We are unable to accept the co~tion of Mr. Karkhanis is that this Section· has any bearing on the point arising for decision in this case. Herein we are not dealing with Wealth-tax, _I.e._ a tax on net assets nor with any of the taxes referred in the explanation. In the result these _appeals are allowed and the answer given by the High Court is revoked and the question referred to the B High Court is answered in favour of the assessee. In other words, the answ~r to the question is that on the facts and in the circumstances of the case the tax paid under the U.P. Large Land Holdings Tax Act, 1957, is an admissible deduction from the taxable income of the assessee companies. The appellants are entitled ## to the costs of these appeals in this Court as well as in the High c Court but there will be only one hearing fee. G.C. _Appeals allowed._