Full Judgment Text
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PETITIONER:
JAIPURIA SAMLA AMALGAMATED COLLIERIES LTD. ETC.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, WEST BENGAL
DATE OF JUDGMENT31/08/1971
BENCH:
ACT:
Income Tax Act, 1922, s. 10(4)--Cesses imposed under-Bengal
Cess Act, 1880 and Bengal (Rural) Primary Education Act,
1930 whether fall within mischief of section-Whether based
on profits and gains of business profession or vocation.
HEADNOTE:
The appellant was a public limited company. It carried on
the business of raising coal from coal mines and selling the
same. It had taken on lease several mines from the owners
of the coal bearing lands. As lessee of the mines the
appellant incurred liability for payment of (i) Road and
Public Works cess under the Bengal Cess Act of 1880; (ii)
Education Cess levied under the Bengal (Rural) Primary
Education Act, 1930. The amounts payable by the assessee on
account of the aforesaid cesses were claimed by it as a
deduction under s. 10 of the Income-tax Act, 1922. The
Income-tax authorities disallowed that claim relying on s.
10(4) of the Act. The Tribunal and the High Court decided
against the appellant. In appeal to this Court by special
leave, the question for determination was whether the cesses
levied under the aforesaid Bengal Acts fell within the
mischief of s. 10(4) of the Act. It was common ground that
these cesses were not levied on the profits or gains of any
business, profession, or vocation but it was claimed on
behalf of the Revenue that the cesses were assessed on the
basis of such profits and gains and therefore they would be
covered by the said provision.
HELD : (i) The words ’profits and gains of any business,
profession, or vocation which are employed in s. 10(4) can,
in the context, have reference only to profits or gains as
determined under s. 10 and cannot cover the net profits or
gains arrived at or determined in a manner other than that
provided by s. 10. The whole purpose of enacting sub-s. (4)
of s. 10 appears to be to exclude from the permissible
deduction under cis. (ix) and (xv) of sub-s. (2) such cess,
rate or tax which is levied on the profits or gains of any
business profession or vocation or is assessed at a
proportion of or on the basis of such profits or gains. In
other words sub-s. (4) was meant to exclude a tax or a cess
or a rate the assessment of which would follow the
determination or assessment of profits or gains of any
business. profession or vocation in accordance with s. 10 of
the Act. [514 D-E]
(iii) The road cess and public works cess are to be
assessed on the annual net profits under ss. 72 and 76 of
the Cess Act 1880. The net annual profits have to be
calculated on the average of the net profits for the last
three years of the mine or the quarry and if the annual net
profits of the property cannot be ascertained in the
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aforesaid manner then it is left to the Collector to
determine the value of the property first in such manner as
he considers expedient and determine 6 per cent on that
value which would be deemed to be the annual net profits.
The Cess Act of 1930 follows the same pattern so far as the
ascertainment of annual net profits is concerned. These
profits arrived at according to the provisions of the two
Cess Acts can by no stretch of reasoning be equated to the
profits which are determined under s. 10 of the Act. It is
not possible to see, therefore, how s. 10(4) could be
applicable at all in the
511
present case. Thus on the language of the provisions both-
of the Act and the two Cess Acts the applicability of s.
10(4) cannot be attracted. [514 F-H]
Commissioner of Income-tax, Bengal v. Gurupada Datta 14
I.T.R. 100, applied.
Simbholi Sugar Mill Ltd. v. Commissioner of Income-tax, U.P.
JUDGMENT:
& Rajasthan v. Banarsi Dass & Sons, 61 I.T.R. 414, approved.
Commissioner of Income-tax, West Bengal v. West, Bengal
Mining Co. 67 I.T.R. 292, disapproved.
&
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1910 to
1912 and 2112 of 1968, and 1102 to 1105 of 1971.
Appeals by certificate/special leave from the judgments and
orders dated July 28, 1967, March 29, 1968, May 24, 1968 of
the Calcutta High Court in Income-tax References Nos. 170 of
1963. 40 of 1965 and 4 of 1967.
V. S. Desai, N. R. Khaitan, B. P. Maheshwari and Krishna
Sen. for the appellants (in all the appeals).
I B. Sen, K. S. Suri, R. N. Sachthey and B. D. Sharma, for
the respondent (in C.As. Nos. 1910 to 1912 of 1968, and 1102
to 1104 of 1971).
B. D. Sharma, for the respondent (in C.As. Nos. 2112 of
1968 and 1105 of 1971).
The Judgment of the Court was delivered by
Grover, J. These appeals from judgments of the Calcutta High
Court in Income-tax References involve a common question.
We shall refer to the facts in the batch of appeals of
Jaipuria Samla Amalgamated Collieries Ltd.
The assessee is a public limited company incorporated under
the Indian Companies Act 1913. It carried on the business
of raising coal from coal mines and selling the same to its
constituents. It had taken on lease several coal mines from
the owners of the coal bearing lands. As lessee of the
mines the assessee incurred liability for payment of (i)
Road and Public Works cess under the Bengal Cess Act of
1880; (ii) Education cess levied under the Bengal (Rural)
Primary Education Act, 1930., The amounts payable by the
assessee on account of the aforesaid, cesses were claimed by
it as deduction under s. 10 of the Income-tax Act, 1922,
hereinafter referred to as the "Act", in the computation of
,.its profits. The income tax authorities disallowed that
claim relying on s. 10 (4) of the Act. The assessee went
up, in appeal to the
512
Appellate Tribunal which agreed with the orders of the
departmental authorities. The questions which were
submitted by the Tribunal with the statement of the case
relating to the assessment years 1954-55, 1955-56 were as
follows :-
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"(1) Whether, on the facts and in the
circumstances of the case, the Road, the
Public Works and the Education Cesses were
levied either on the profits or gains of the
business or were assessed at a proportion of
or otherwise on the basis of any such profits
within the meaning of s. 10(4) of the Income
tax Act, 1922 ?
(2) Whether, on the facts and in the
circumstances of the case, the amounts
provided for or paid by the assessee company,
as Road and Public Works Cess and the
Education Cess was allowable as a deduction
under s. 10 (2) (ix) or 10 (2) (xv) of the
Indian Income tax Act, 1922, read with s.
10(4) of the said Act ?" ,
The High Court answered the questions against the assessee.
The assessee filed appeals to this Court after obtaining a
certificate of fitness but the same was found defective
owing to want of any reasons or grounds in the order
granting the certificate. Instead of getting the matters
remitted to the High Court for giving reasons petitions for
special leave were filed before us and leave was granted.
We have heard the appeals by special leave on the printed
record of the appeals by certificate. It may be mentioned
that this position obtains in all the appeals by certificate
before us.
Section 10(1) of the Act provides that tax shall be payable
by an assessee under the head "profits and gains of
business, profession or vocation" in respect of the profits
and gains of any business profession or vocation carried on
by him. Sub-section (2) says that such profits or gains
shall be computed after making the allowances set out
therein. Clauses (ix) and (xv) of this subsection are as
follows :-
"(ix) any sums paid on account of land
revenue, local rates or municipal taxes in
respect of such part of the premises as is
used for the purpose of the business,
profession or vocation."
"(xv) any expenditure not being an allowance
of the nature described in any of the clauses
(i) to (xiv) inclusive, and not being in the
nature of capital expenditure or
personal expenses of the assessee laid out or
expended wholly and exclusively for the
purpose of such business, profession or
vocation."
Sub-section (4) of s. 10 to the extent It is material is in
the
following terms :
513
(4) Nothing in clause (ix) or clause (xv) of subsection (2)
shall be deemed to authorise the allowance of any sum paid
on account of any cess, rate or tax levied on the profits or
gains of any business, profession or vocation or assessed at
a proportion of or otherwise on the basis of any such
profits or gains
The essential question that has to be determined is whether
the cesses levied under the aforesaid Bengal Acts fell
within the mischief of s. 10(4) of the Act. It is common
ground that these cesses are not levied on the profits or
gains of any business, profession or vocation but it has
been claimed on’ behalf of the Revenue and that contention
was accepted throughout that the cesses are assessed on the
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basis of such profits or gains and therefore they would be
covered by the said provision.
According to the preamble to the Bengal Cess Act 1880, the
road and works cesses were levied on immovable property
interalia to provide for the construction and maintenance of
roads and other works of public utility. Under s. 5 all
immovable property with certain exceptions was to be liable
to the payment of road cess and public works cess. Section
6 laid down that these cesses were to be assessed on the.
annual value of lands and until provision to the contrary
was made by the Parliament on the annual not profits from
mines, quarries, tramways, railways and other immovable
property on such rates as were to be determined in the
manner prescribed. Under S. 72 the Collector of the
district had to serve a notice upon the owner etc. of every
mine, quarry and immovable property requiring him to lodge
a return of the net annual profits of such property cal-
culated on the average of the annual net profits thereof for
the last three years for which accounts had been made up.
Section 75 provided for a contingency where a return was not
furnished within the prescribed period. The Collector in
that case or if he found that the return made, was untrue or
incorrect was to proceed to ascertain and determine by such
ways or means as seemed expedient the annual net profits of
such property calculated as aforesaid. If the Collector was
unable- to ascertain the annual net profits he could
ascertain and determine the value of the property and
thereupon determine 6% of such value to be the annual net
profits thereon (s. 76). The scheme of the Bengal (Rural)
Primary Education Act 1930 may next be referred to. The
preamble to that Act was as follows:--
"Whereas it is expedient to make better
provision for the progressive expansion and
for the management and control of primary
education in rural. areas in Bengal so as to
make it available to all children and with a
view to make it compulsory within ten years
514
According to s. 29 all immovable property on which the road
and public works cesses were assessed were to be liable to
the payment of primary education cess. The rates on which
the education cess was to be levied varied according as the
property ,consisted of mines and quarries or of tramways,
railways and other immovable property. As regards mines and
quarries it was to be levied at the rate of three and a half
piece on each rupee of annual net profits.
Now it is quite clear that the aforesaid cesses would be
allowable deductions either under clause (ix) or clause (xv)
of sub-s. (2) of S. 10 unless they fell within S. 10(4). We
have already referred to the provisions of both Acts under
which the cesses are levied which show that their assessment
is not made at a proportion of the profits of the assessee’s
business. What has to be determined is whether the
assessment of the cesses is made on the basis of any such
profits. The words "profits and gains of any business,
profession or vocation" which are employed in S. 10(4) can
’in the context, have reference only to profits or gains as
determined under S. 10 and cannot cover the net profits or
gains arrived at or determined in a manner other than that
provided by s.10 The whole purpose of enacting sub-s. (4) of
S. IO appears to be to exclude from the permissible
deductions under clauses (ix) and (xv) of sub-s. (2) such
cess, rate or tax which is levied on the profits or gains of
any business, profession or vocation or is., assessed at a
proportion of or on the basis of such profits or gains. In
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other words sub-s. (4) was meant to exclude a tax or a cess’
or rate the assessment of which would follow the determina-
tion or assessment of profits or gains of any business,
profession or vocation in accordance with the provisions of
S. 10 of the Act.
The road cess and public works cess are to be assessed on
the annual net profits under ss. 72 to 76 of the Cess Act
1880. The net annual profits have to be calculated on the
average of the net profits for the last three years of the
mine or the quarry and if the annual net profits of the
property cannot be ascertained in the aforesaid manner then
it is left to the Collector to determine the value of the
property first in such manner as he considers expedient and
determine 6 per cent on that value which would be deemed to
be the annual net profits: The Cess Act of 1930 follows the
same pattern so far as the ascertainment of annual net
profits is concerned. These profits arrived at according to
the provisions of the two Cess Acts can by no stretch of
reasoning be equated to the profits which are determined
under S. 10 of the Act. It is not possible to see,
therefore, how S. 10(4) could be applicable at all in the
present case. Thus on the language of the provisions both
of the Act and the two Cess Acts the applicability of s.
10(4) cannot be attracted. But even according to the
decided cases
515
such cesses cannot fall within s. 10(4). The Privy Council
in Commissioner of Income tax, Bengal v. Gurupada Dutta &
Others(1) had to consider whether the rate imposed under the
provisions of the Bengal Village Self Government Act 1919 on
a person occupying a building and using the same for the
purpose of business was an allowable deduction in computing
the profits of the business under s. 10 of the Act. Their
Lordships laid down the law in the following words : .
"It will be noted that, in the absence of the
necessary powers and machinery, which are not
provided by the Act, the estimate of the
annual income from business can only proceed
on a rough guess, which is in no way
comparable with the ascertainment of profits
and gains under the Income-tax Act, an
d, in the
opinion of their Lordships, the inclusion of
this element of business income as part of the
"circumstances" of the assessee with a view to
the imposition of the union rate does not fall
within sub-section (4) of Section 10 of the
Income tax Act. It is conceded that the union
rate is not "levied on the profits or gains",
which clearly implies an ascertainment of such
profits and gains, and the words "
assessed.......... on the basis of any such
profits or gains" in the later part of the
sub-section must also be so limited. No such
ascertainment of the profits and gains of the
business can be undertaken for the purposes of
the union rate.,, The main argument for the
Crown, therefore fails."
In our judgment this decision is quite apposite and fully
covers the points under consideration. It has been followed
by the Allahabad High Court in Simbholi Sugar Mills Ltd. v. Commi
ssioner of Income tax, U.p. & V.p.(2) in which the
question related to the deductibility of tax payable under
the U.P. District Boards Act 1922 which was imposed on
persons assessed according to their circumstances and
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property. Similarly in Commissioner of Income tax, Delhi
and Rajasthan v. Banarsi Dass & Sons(3), the Punjab High
Court held that a tax imposed under the U.P. District Boards
Act on circumstances and property could be legitimately
claimed as an allowance and the above-decision of the Privy
Council was followed. In the Income tax Act 1961, s. 28
relates to the income which shall be chargeable to income
tax under the head "profits and gains of business or
profession’. Section 30(b) (ii) is equivalent to cl. (ix)
of s. 10(2) of the Act, Section 40 (a) (ii) corresponds to
s. 10 (4) of the Act. It is significant that in spite of
the decision of the Privy Council in
(1) 14 I.T.R. 100.
(3) 61 I.T.R. 414.
(2) 45 I.T.R. 125.
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Gurupada Dutta’s case(1) the Parliament did not make any
change in the language of the provisions corresponding to s.
10(4). It can, therefore, legitimately be said that the
view of the Privy Council with regard to the true scope and
ambit of s. 10(4) of the Act was accepted. We are unable to
concur in the reasoning or the conclusion of the Calcutta
High Court in Commissioner of Income tax, West Bengal, v.
West Bengal Mining Co.(2) in which it was held that the two
cesses being related to profits would attract S. 10(4) of
the Act.
In the result Civil Appeals Nos. 1102 to 1105 of 1971 which
are by special leave are allowed and the answers returned by
the High Court are discharged. The questions referred shall
stand answered in favour of the assessees and against the
Revenue. The assessee shall be entitled to their costs in
this Court.
Civil Appeals Nos. 1910 to 1912 of 1968 and 2112 of 1968 in
which the certificates are defective and have to be revoked
shall stand dismissed.
G.C. Ordered accordingly.
(1) 14 I. T. R. 100. (2) 67 I.T.R. 292.
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