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1955 Supreme(Pat) 88
PATNA HIGH COURT
S.K.Das and Kanhaiya Singh JJ.
Commissioner Of Income Tax, B.& O.
Versus
Janki Kuar Sahiba
Miscellaneous Judicial Case No. 590 of 1953 ;
Decided On : AUGUST 24, 1955
Cess paid under the Bengal Cess Act of 1880 is not allowable as a deduction under Sec.12(2), Income-tax Act, as it is a tax on profits, not an expenditure incurred solely for the purpose of making or earning income.
Headnote:
INCOME TAX - Deduction - Cess paid under Bengal Cess Act of 1880 - Not allowable as deduction under Sec.12(2), Income-tax Act - Cess is a tax on profits, not an expenditure incurred solely for the purpose of making or earning income.
Fact of the Case:
The assessee, the owner of the Bettiah estate, claimed a deduction of Rs. 21,554/- paid as cess under the Bengal Cess Act of 1880 in computing the income-tax payable by him. The Income-tax Officer and the Appellate Assistant Commissioner refused to make an allowance for this sum, as, according to them, the cess was a tax on the assessee's profits. The assessee appealed to the Appellate Tribunal, which accepted the assessee's contention that the cess was allowable as a deduction in computing the assessee's income from forests under Sec.12 of the Act.
Finding of the Court:
The court held that the cess paid under the Bengal Cess Act of 1880 was not allowable as a deduction under Sec.12(2), Income-tax Act, as it was a tax on profits, not an expenditure incurred solely for the purpose of making or earning income.
Issues: Whether the cess paid under the Bengal Cess Act of 1880 was allowable as a deduction under Sec.12(2), Income-tax Act in computing the assessee's income from forests.
Ratio Decidendi: The court relied on the decision in Jyoti Prasad Singh Deo, In re, AIR 1921 Pat 103 (2) (FB), which held that road cess and public works cess cannot be deducted in assessing income-tax as the payment of cess is not an expenditure solely incurred for making the income. The court also referred to the decision in Commissioner of Income-tax, B. & O. v. Shiva Prasad Singh, AIR 1926 Pat 109, which held that the taxes payable by the assessee under the Jharia Water-Supply Act, 1914, and the Bihar and Orissa Mining Settlement Act, 1920, cannot be deducted from the royalty received by him in assessing the tax payable under the Income-tax Act.
Final Decision: The court answered the question in favor of the Department, holding that the cess paid under the Bengal Cess Act of 1880 cannot be deducted in computing the income-tax payable by the assessee.
Kanhaiya Singh, J.
1. This case came before us on a case stated by the Income-tax Appellate Tribunal, Patna Branch, under Sec. 66(1), Income-tax Act, 1922, on the application of the Commissioner of Income-tax, Bihar and Orissa. The assessee was the then owner of the Bettiah estate and submitted a return with respect to the forest produce for the assessment year 1948-49, corresponding to the accounting year 1947-48. The assessee owns some forest and derives income from the sale of forest produce.
The assessment was made under S, 12, Income-tax Act, as income falling under head (v) of Sec. 6 of the Act, namely, income from other sources. For the assessment year 1948-49 the assessee returned a net income of Rs. 1,66,675/- from the sale of forest produce. The gross receipt from the sale of forest produce amounted to Rs. 2,59,521/-The assessee claimed a deduction therefrom of a sum of Rs. 90,846/- as expenditure incurred solely for the purpose of earning the income from forests.
It included a sum of Rs. 21,554/- representing cess paid by the assessee which has been described by the Appellate Tribunal at Jungle cess. This jungle cess is levied under Sec. 6, Bengal Cess Act of 1880 (Act 0 of 1880) as applied to the State of Bihar\ The assessee claimed a deduction of the amount paid as cess is computation of the income-tax under Sec.12 of the Act.
The Income-tax Officer and the Appellate Assistant Commissioner refused to make an allowance for this sum in computing the forest income of the assesses, as, according to them, the cess was a tax on the assessees profits. An appeal from the decision was taken to the Appellate Tribunal. There also the assessee claimed that the deduction amounting to Rs. 21,554/- was permissible under Sec.12, Income-tax Act in computing the assessees income from forests. The Tribunal accepted the assessees contention that the cess was allowable as a deduction in computing the asscssees incomes from forests under Sec.12 of the Act, as, in their opinion, (1) cess is a tax oh immovable property, and (2) it does not matter for the purpose of Sec.12 of the Act that the amount of the cess had been determined with reference to, the asscssees profits. This order of the Appellate Tribunal was made on 13-2-1952. Upon the application of the Commissioner the Appellate Tribunal referred the following question of law for determination: "Whether the jungle cess of Rs. 21,554/- levied under the Bengal Cess Act of 1880 (9 of 1880), as applied to the State of Bihar, is allowable as a deduction under Sec.12(2) of the Act in computing the assessees income from forests?"
2. The important question for consideration is whether the sum of Rs. 21,554/- paid as cess should be deducted in computing the income-tax payable by the assessee. This cess was assessed under Sec. 6, Bengal Cess Act of 1880, which reads as follows;
"The local cess shall be assessed on the annual value of lands and, until provision to the contrary is made by the Parliament, on the annual net profits from mines, and quarries, other than notified mines, and from tramways, railways and other immovable property ascertained respectively as in this Act prescribed."
The question is whether the cess was levied on the annual value of lands or on the produce from the forests. The Appellate Tribunal proceeded oh the basis of the Calcutta decision reported in --Isabella Coal Co. V/s. Commr. of Income-tax, Bengal, AIR 1926 Cal 396 at pp. 397-398 (A), and held that it was a cess payable in respect of immovable property. From the returns submitted as well as from the order of the Income-tax Officer it appears that it was a tax not on the annual value of the land but on the annual net profits from the immoveable property, namely, annual net profits from forests in this case. When this was an imposition on the produce from the forests, the question that falls for determination is whether the cess paid on that produce should be deducted in computing the income-tax. There is
