Judgment

GUPTA, J.:- These two groups of appeals, brought an certificates granted by the High Court at Calcutta, arise out of two references under Section 66 (2) of the Indian Income-tax Act, 1922 involving similar questions of law.

2. Mitsui Steamship Co. Ltd. appellant in Civil Appeals Nos. 1072-1075 of 1970 and M/s. Kawasaki Kisen Kaisha Ltd. appellant in Civil Appeals Nos. 1076-1079 of 1970, are both non-resident shipping companies having their registered offices in Japan. Civil Appeals Nos. 1072-1075 of 1970 relate to assessment years 1957-58, 1958-59, 1959-60 and 1960-61 for which the previous years were the financial years ending on the 31st March, 1957, 1958, 1959 and 1960 respectively. Civil Appeals Nos. 1076-1079 of 1970 relates to assessment years 1956-57, 1957-58, 1958-59 and 1959-60, the corresponding previous years being the financial years ending on the 3lst March 1956, 1957, 1958 and 1959 respectively. The appellant in each case had been assessed to income-tax for the years mentioned above under the Indian Income-tax Act 1922 (hereinafter referred to as the Act of 1922) in respect of its net Indian earnings. In the assessment proceedings the appellant companies had claimed as deductible allowance under Section 10 (2) (xv) of the Act of 1922 the tax paid by them on their business assets under the Local Tax Law in force in Japan. The Income-tax Officer rejected the claim on the view that the incidence of tax under the Japanese law falls on the assesses companies in their capacity as the owners of the business assets and not as traders. On anneals preferred by the assessees the Appellate Assistant Commissioner took the view that the tax paid under the Local Tax Law in Japan was an allowable expenditure under Section 10 (2) (xv) of the Act of 1922. The Tribunal also affirmed the view taken by the Appellate Assistant Commissioner overruling, the contention raised on behalf of the revenue that the nature of tax imposed by the Japanese statute was similar to the wealth tax payable in India which was not a permissible deduction under Section 10 (2) (xv).

3. In Civil Appeals Nos. 1072-75 of 1970 the question referred under Section 66 (2) was :

"Whether on the facts and in circumstances of the case the property tax and vessels tax paid by the assesses in Japan an its land, buildings and other tangible assets and ships were allowable deduction under Section 10 (2) (xv) of the Income-tax Act. 1922 ?"

In Civil Appeals Nos. 1076-1079 of 1970 the question referred was :

"Whether on the facts and in the circumstances of the case the property tax paid by the assessee in Japan on its vessels was allowable as deduction under Section 10 (2) (xv) of the Income-tax Act, 1922?"

The two Questions, though worded a little differently, depend for their answers on a correct appreciation of the character of the Japanese tax.

4. The High Court on a consideration of the various provisions of the Japanese statute held that under the Local Tax Law in Japan it was the ownership of the assets that was material and not; their actual user in business, and relying on the decision of this Court in Travancore Titanium Product Ltd. v. Commissioner of Income-tax, Kerala, 60 ITR 277 answered the question referred to it in both cases in the negative and in favour of the revenue. In the case of Travancore Titanium Product Ltd., 60 ITR 277 this Court was considering the Question whether a sum Paid as wealth tax was deductible from the profits and gains of the assessee s business under Section 10 (2) (xv) of the Act of 1922. In holding that the amount of tax paid on the net wealth of an assessee under the Wealth Tax Act wag not a permissible deduction this Court observed :

"The expenditure must be incidental to the business and must be necessitated or justified by commercial expediency. It must be directly and intimately connected with the business and be laid out by the tax-payer in his character as a trader. To be a permissible deduction, there must be a direct an