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PETITIONER: DEHRA DUN TEA CO.  LTD. & ANR.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, U.P., LUCKNOW

DATE OF JUDGMENT12/12/1972

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. REDDY, P. JAGANMOHAN

CITATION:  1973 AIR 1344            1973 SCR  (3)  83  1973 SCC  (4) 126

ACT: Income-tax Act 1922 s. 10(2) (xv)-Deductible expenditure-Tax paid  by tea growers under U.P. Large Land Holdings Act  XXI of 1957 whether deductible.

HEADNOTE: 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 decision  of this Court in Travancore Titanium Product  Ltd. v.  C.I.T. Kerala (60 I.T.R. 277) answered the  question  in favour  of  the’  Revenue. in these  appeals  the  companies relied on the decision of this Court in Indian Aluminium 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 Aluminium 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 Aluminium 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 thereon under the U.P.  Act XXXI  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.    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 is brought to tax under the  Act; but  at the same time the tea growers will also be  entitled

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only  to  40 per cent of the expenditure incurred  by  them. [85CD] Travancore Titanium Product Ltd. v. C.I.T. Kerala. 60 I.T.R. 277 referred to. Indian  Aluminium Co. Ltd. v., Commissioner of  Income  Tax, West Bengal, 84 I.T.R. 735 applied. (ii)Section 40 of the Income Tax Act 1961 as amended in 1972 bad  no  bearing on the point arising for decision  in  this case. [86A]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeals No. 56 to 61 of 1970. 84 Appeals  by special leave from the judgment and order  dated January  1, 1969 of the Allahabad High Court in  I.T.R.  No. 198 and 199 of 1965. M.   C. Chagla, A. K. Verma, J. B. Dadachanji, O. 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 HEGDE,  J.  These are appeals by special  leave.   They  are directed against the decision of the High Court of Allahabad in a reference under Section 66(1) of the Indian Income  Tax Act  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  deducted under Section 10(2) (xv) ?" 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.I.T. Kerala(1). It  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 expenditure coming within the scope of Section 10(2) (xv) of the Act. In Indian Aluminium Co. Ltd. v. Commissioner  of Income Tax, West Bengal(2), a Five-Judge Bench of this Court modified  the decision of this Court in Travancore  Titanium Products  case (supra) holding that if the expenditure  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 that rule it came to the conclusion that the wealth 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 present case it is  clear that  the  lands  owned by the assessee  companies  are  its business assets and the tax paid thereon under the U.P.  Act XXXI  of  1957  is an item of expenditure laid  out  by  the assessee  companies  as traders and as incidental  to  their business.  Consequently the same must be (1) 60 I.T.R. 277. (2) 84 I.T.R. 735. 85 treated as an item of expenditure under Section 10(2)  (xv) of the Act.

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Mr.  Karkhanis appearing for the Revenue contended  that  so far as tea-growers are 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-cum- trader.  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 expenditure  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. Karkhan is that  the ratio of the decision of this Court in the Indian  Aluminium Company’s case (supra) is inapplicable to the facts of  this case.   Lastly, Mr. Karkhanis contended that in view of  the Income-tax (Amendment ) Act 1972, an assessee company is not 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   paid   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 any tax of a  similar  character               chargeable  under  any  law in  force  in  any               country  outside India or any  tax  chargeable               under such law 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  computing  the   amount   with               reference  to which such tax is  charged,  but               does  not  include  any  tax  chargeable  with               reference to the value of any particular               asset of the business or profession;". 86 We  are unable to accept the connection 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  High Court is answered in favour of the  assessee.   In other words, the answer 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 Court but there  will  be only one hearing fee.

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G.C.                                                 Appeals allowed.. 87