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PATNA HIGH COURT
R.L.Narasimham and B.N.Jha JJ.
Commissioner Of Income Tax
Versus
Chunilal Rameshwar Lal
Tax Case No. 10 of 1966 ;
Decided On : JANUARY 23, 1968
INCOME TAX - Deduction - Professional tax paid to municipality - Whether allowable - Bihar and Orissa Municipal Act, 1922, Sec. 82(1)(ff), 150A - Indian Income-tax Act, 1922, Sec. 10(1), 10(2)(ix), 10(4).
Fact of the Case:
The assessee, an individual carrying on wholesale business in cloth, claimed deduction of Rs. 125 paid as professional tax to the Deoghar Municipality under Sec. 150A of the Bihar and Orissa Municipal Act, 1922, for the assessment year 1961-62. The Income-tax Officer and the Appellate Assistant Commissioner of Income Tax disallowed the deduction, but the Income Tax Appellate Tribunal allowed it.
Finding of the Court:
The Court held that the professional tax paid by the assessee was not a tax on the profits or gains of the business, but was a tax paid for carrying on the business in the particular premises. Therefore, it was not barred by Sec. 10(4) of the Indian Income-tax Act, 1922, and was deductible under Sec. 10(1) of the Act.
Issues: Whether the sum of Rs. 125 payable by the assessee under the provisions of Sec.150A of the Bihar and Orissa Municipal Tax Act, 1922, is allowable under the Indian Income-Tax Act, 1922.
Ratio Decidendi: The Court interpreted Sec. 10(4) of the Indian Income-tax Act, 1922, to mean that it does not bar the deduction 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, if such sum is not paid on the profits or gains or on the basis of any such profits or gains of the business.
Final Decision: The Court answered the question in the affirmative, holding that the assessee was entitled to deduct the sum of Rs. 125 paid as professional tax under Sec. 150A of the Bihar and Orissa Municipal Act, 1922.
B.N.Jha, J.
1. The following question has been referred to this Court under Sec. 66(1) of the Indian Income-Tax Act, 1922 (hereinafter referred to as the Act), by the Appellate Tribunal. Patna for its opinion:-
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"Whether on the facts and circumstances of the case, the sum of Rs. 125 payable by the assessee under the provisions of Sec.150A of the Bihar and Orissa Municipal Tax Act, 1922, is allowable under the Indian Income-Tax Act, 1922."
2. The assessee is an individual and carries on wholesale business in cloth under the name and style, Messrs. Chunilal Rameshwarlal at Deoghar. For the purpose of determination of taxable income the assessee claimed deduction of a sum of Rs. 125 on account of the payment made by him to Deoghar Municipality as professional Tax under Sec.150A of the Act for the assessment year of 1961-62. Both the Income-tax Officer and the Appellate Assistant Commissioner of Income Tax disallowed the deduction. However, the Income Tax Appellate Tribunal accepted the contention of the assessee that the tax paid to the municipality was not a personal Tax levied on the profits or gains of any business or assessed in proportion to or otherwise on the basis "of any such profits or gains but was a tax paid under Sec.150A read with Section 82(1)(ff) of the Bihar and Orissa Municipal Act, 1922, in relation to the premises where the business was carried on; and, as such, the payment did not fall under Section 10(4) of the Act. Hence, it allowed deduction under Sec.10(1) of the Act. In pursuance of an application by the Income Tax Commissioner, the aforesaid question has been referred to this Court by the Income-tax Appellate Tribunal, Patna, for its opinion.
3. Section 82(1)(ff) of the Bihar and Orissa Municipal Act, 1922 (hereinafter referred to as the Municipal Act), empowers the Municipality to impose a tax within its limits on the trades, professions, callings and employments specified in the Fourth Schedule at such rates not exceeding the rates specified therein as may from time to time be determined by the Commissioners at a meeting subject to the approval of the State Government.
Sec.150A of the Municipal Act provides for taking out a half-yearly licence by the person for carrying on professions, trades or employments specified in the Fourth Schedule and paying a tax assessed on him in pursuance of Clause (ff) of Sub-section (1) of Section 82 of the Municipal Act. The second proviso of Sec.150A of the said Act provides for exemption of the payment of the tax in case of a person who exercises any such profession, trade, calling or holds any employment within the municipality and whose taxable income does not exceed fifteen hundred rupees, per annum or the value of whose place of business does not exceed ten rupees per mensem or whose income from employment does not exceed twenty-four hundred rupees per annum. The proviso contemplates three kinds of exceptions depending on (i) the taxable income,
(ii) the valuation of the business premises and
(iii) the income from employment.
4. The relevant provisions made in the Fourth Schedule of the Municipal Act may be quoted here:-
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"1. Every licence shall be granted under one or the other of the classes mentioned in the second column of the following table and there shall be paid half yearly from 1st April to 30th September and 1st October to 31st March, for the same a Tax not exceeding the amount mentioned in that behalf in the third column of the table.
Serial NoClasses.Maximum half-yearly Tax Rs. N. P (a)Joint stock company transacting business within the Municipality for profit or as a benefit society of which the paid up Capital is equivalent to (a)Rs. 1,00,000 or more125.00
(b)Rs. 75,000 or more but less than Rs. 1,00,000100.00
(c)Rs. 50,000 or more but less than Rs. 75,000.75.00
(d)Less than Rs. 50,00050..00
(b)Mill owner, merchant, banker, money-lender, trader, dealer, owners, owner of houses, public car-rier vehicle, taxi cabs (exceeding two), Carriage (
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