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High Court Of Delhi
ORISSA CEMENT LIMITED - Appellant
Versus
COMMISSIONER OF INCOME TAX, (DELHI CENTRAL) - Respondent
Decided On : 10/11/1968
INCOME TAX - Wealth tax paid under Wealth Tax Act not allowable deduction under Income Tax Act - Contribution to political party not allowable deduction - Excess dividend tax can be levied and collected under Income Tax Act - Legal charges for obtaining loan from Industrial Finance Corporation allowable deduction - Development rebate not allowable on drainage and sanitary fittings.
Fact of the Case:
The assessee, a company, claimed deductions under the Income Tax Act for wealth tax paid, contribution to a political party, legal charges for obtaining a loan, and development rebate on drainage and sanitary fittings. The Income Tax Officer and Appellate Assistant Commissioner disallowed the deductions, and the assessee appealed to the Income Tax Appellate Tribunal.
Finding of the Court:
The Tribunal upheld the disallowance of the deductions for wealth tax and political contribution, but allowed the deduction for legal charges and development rebate on drainage and sanitary fittings. The Commissioner of Income Tax and the assessee both filed references to the High Court.
Issues: 1. Whether wealth tax paid under the Wealth Tax Act is an allowable deduction under the Income Tax Act? 2. Whether contribution to a political party is an allowable deduction under the Income Tax Act? 3. Whether excess dividend tax can be levied and collected under the Income Tax Act? 4. Whether legal charges for obtaining a loan from the Industrial Finance Corporation are allowable deductions under the Income Tax Act? 5. Whether development rebate is allowable on drainage and sanitary fittings?
Ratio Decidendi: 1. Wealth tax paid under the Wealth Tax Act is not an allowable deduction under the Income Tax Act because it is a tax on the net wealth of the assessee and not on any commercial activity. 2. Contribution to a political party is not an allowable deduction under the Income Tax Act because it is not directly or intimately connected with the business of the assessee. 3. Excess dividend tax can be levied and collected under the Income Tax Act because it is authorized by the Finance Act. 4. Legal charges for obtaining a loan from the Industrial Finance Corporation are allowable deductions under the Income Tax Act because they are incurred for the purpose of the assessee's business. 5. The question of whether development rebate is allowable on drainage and sanitary fittings cannot be determined without further information about the nature and use of the assets.
Final Decision: 1. The question of whether wealth tax paid under the Wealth Tax Act is an allowable deduction under the Income Tax Act is answered in the negative. 2. The question of whether contribution to a political party is an allowable deduction under the Income Tax Act is answered in the negative. 3. The question of whether excess dividend tax can be levied and collected under the Income Tax Act is answered in the affirmative. 4. The question of whether legal charges for obtaining a loan from the Industrial Finance Corporation are allowable deductions under the Income Tax Act is answered in the affirmative. 5. The question of whether development rebate is allowable on drainage and sanitary fittings is referred back to the Tribunal for a further statement of case.
( 1 ) BY a consolidated statement of case made at the instance of both the assessee and the Commissioner of Income-tax, the Income-tax Appellate Tribunal, (Delhi Bench "a") has referred the following five questions to the Court :-
" (I) Whether on the facts and circumstances of the case, wealth-tax of Rs. 85,835. 40 (as finally determined under Wealth-tax Act) paid for 57-58 Wealth-tax assessment under the Wealth-tax Act, 1957, is allowable against profits and gains of the company s business under section 10 (1) or 10 (2) (xv) of the Indian Income-tax Act, 1922" ?
(II) Whether on the facts and circumstances of the case the sum of Rs. 1,00,000. 00 being contribution to the Congress party is an allowable deduction under section 10 (1) or 10 (2) (xv) of the Income Tax-Act, 1922?
(III) Whether the levy of excess dividend tax by withdrawal of Corporation tax rebate can be made and collected under the Income-tax Act, 1922 ?
(IV) Whether on the facts and circumstances of the case the legal charges of Rs. 1,10,138. 00 incurred for obtaining loan from Industrial Finance Corporation are allowable in the computation of profits and gains of the business of the assessee ?
(V) Whether on the facts and in the circumstances of the case the development rebate was allowable to the assessee-company on the sanitary and drainage fittings of Rs. 46,877. 00 ?"
( 2 ) THE first four questions were referred at the instance of the assessee and the fifth question at the instance of the Commissioner of Income-Tax. The period of assessment is the assessment year 1957-58.
( 3 ) THE first question stands concluded against the assessee by the decision of their Lordships of the Supreme Court in Travencore Titanium Product Ltd. v. Commissioner of Income Tax. (1) In that case the Supreme Court held that the amount of tax paid on the net wealth of the assessee under the Wealth-tax Act not a permissible deduction under section 10 (2) (xv) of the Indian Income Tax Act, in his assessment to income tax, for tax imposed under the Wealth Tax Act on the owner of the assets and not on any commercial activity. In this view the question must be answered in the negative and against the assessee.
( 4 ) REGARDING the second question, the Income-tax Officer and the Appellate Assistant Commissioner declined to allow deduction of Rs. one lakh paid to the Congress Party on the ground that the same was motivated by political consideration and had no connection with the business of the assessee. The assessee went up in appeal before the Income-tax Appellate Tribunal and the Tribunal upheld the view of the Appellate Assistant Commissioner. Before the tribunal the assessee claimed on the basis of its letter, dated 1. 6. 1961, that the amount was paid for furtherance of the business. In the said letter it is, inter alia, stated:-
"due to commercial expediency, the company has spent the same with a view to ensure smooth and efficient running of the factory. The factory is situated at a place far away from Calcutta and other places. Supply of coal, packing bags, supply of cement etc. envisage problems which are effectively solved by the Government, ruled by the Congress party. This contribution is, therefore, an expenditure, wholly and exclusively for the purposes of the the business. "
( 5 ) THE assessee contended before the Tribunal that the Government had given to the assessee an interest-free loan of Rs. 50 lakhs. The Government has also subscribed for Rs. 40 lakhs worth of preference capital in the company and had also agreed to buy the entire cement for the Hirakud Dam, and since the Congress party was a ruling party the payment was motivated by commercial considerations. The Tribunal recorded the finding that "we have carefully considered the matter, but we think that the payment has been rightly disallowed by the departmental officers as having no connection with the business carried on by the assessee-company. "
( 6 ) WHILE it is true that the expenditure incurred need not nec
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