Judgment

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)?".

2. 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, 60 ITR 277 = (AIR 1966 SC 1250).

3. 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 l957 is an item of expenditure coming within the scope of Section 10 (2) (xv) of the Act. In Indian Aluminium Co. Ltd. v. Commr. of Income Tax, West Bengal, 84 ITR 735 a Five-Judge Bench of this Court modified the decision of this Court in Travancore Titanium Products case 60 ITR 277 holding that if the expenditure laid out by the assesses is as an owner-cum-trader and the expenditure is really incidental to the carrying on 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 l0 (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 assesses companies as traders and. as incidental to their business. Consequently the same must be treated as an item of expenditure under S. 10 (2) (xv) of the Act.

4. 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 per cent 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 Aluminimum Company s case 84 ITR 735 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. Karkhanis that the ratio of the decision of this Court in the Indian Aluminium Company s case 84 ITR 735) 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:

"(ii