Professional tax paid by an assessee is not allowable as a deduction under Section 10(2) (xv) of the Indian Income-tax Act, 1922, as it is a contribution from the assessee's income to the municipality and not an expenditure incurred to earn income.

PREM CHAND PANDIT, J.

1. The following question of law has been referred to us for opinion :

"Whether, on the facts and in the circumstances of the case, the amount of Rs. 250 paid on account of professional tax was allowable as a deduction in the assessees assessment ?"

2. The Saraswathi Industrial Syndicate, Yamunanagar, District Ambala, the assessee, is a public limited company. The assessment year is 1959-60, the relevant accounting period being the year ending 31st August, 1958. The assessee claimed a deduction of Rs. 250 which was paid by it on account of professional tax, Both the Income-tax Officer and the Appellate Assistant Commissioner disallowed this amount in view of the provisions of section 10(4) of the Indian Income-tax Act, 1922 (hereinafter called "the Act"). The appellate Tribunal, however, held it to be an allowable deduction, because the assessee had to pay this tax in order to carry on its business. This finding was given relying on the decision of the Allahabad High Court in Simbholi Sugar Mills Ltd. v. Commissioner of Income-tax. The Commissioner of Income-tax then made an application requiring the Tribunal to refer certain questions of law to this court for opinion. The Tribunal, however, referred only the abovementioned question.

3. The assessee paid this tax under the Punjab Professions, Trades, Callings and Employments Act, 1956, and it claimed this deduction under section 10(2) (xv) of the Act. The relevant part of section 10 reads :

"10. Business. - (1) The tax shall be payable by an assessee under the head Profits and gains of business, profession or vocation in respect of the profits and gains of any business, profession or vocation carried on by him.

(2) Such profits or gains shall be computed after making the following allowances, namely :-

...... (xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to) (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation."

4 The case of the assessee was that this expenditure was neither an allowance of the nature described in any of the clauses (i) to (xiv) of section 10(2) nor was it in the nature of capital expenditure or personal expenses of the assessee, but the same was laid out or expended wholly and exclusively for the purpose of his business. The assessee had to pay the professional tax in order to carry on its business. This tax was, therefore, fully covered by the provisions of section 10(2) (xv) and was allowable as a deduction in the relevant assessment. The position taken by the revenue, on the other hand, was that the assessee could not claim this deduction in view of the provisions of sections 10(4) of the Act, the relevant part of which is :

"Nothing in clause (ix) or clause (xv) of sub-section (2) shall be deemed to authorise the allowance 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......"

5. Their case was that since this tax was levied on the profits or gains of the assessees business or in any case assessed at a proportion of or other wise on the basis of any such profits or gains, therefore, this sum could not be allowed as a deduction in view of the provisions of section 10(4) of the Act.

6. The first question to be determined is whether the case set up by the assessee itself would come under section 10(2) (xv) of the At. It can claim the exemption of this tax only if it can show, as is alleged by it, that this tax was an expenditure laid out or expended wholly and exclusively for the purpose of its business. In other words, can it be said that this was an expenditure which had been incurred by the assessee exclusively for the purpose of its business. It is quite different to