{"id":110996,"date":"1966-01-17T00:00:00","date_gmt":"1966-01-16T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/travancore-titanium-products-ltd-vs-commissioner-of-income-tax-on-17-january-1966"},"modified":"2018-02-14T22:43:40","modified_gmt":"2018-02-14T17:13:40","slug":"travancore-titanium-products-ltd-vs-commissioner-of-income-tax-on-17-january-1966","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/travancore-titanium-products-ltd-vs-commissioner-of-income-tax-on-17-january-1966","title":{"rendered":"Travancore Titanium Products Ltd vs Commissioner Of Income-Tax, … on 17 January, 1966"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Travancore Titanium Products Ltd vs Commissioner Of Income-Tax, … on 17 January, 1966<\/div>\n
Equivalent citations: 1966 AIR 1250, \t\t 1966 SCR (3) 321<\/div>\n
Author: S C.<\/div>\n
Bench: Shah, J.C.<\/div>\n
           PETITIONER:\nTRAVANCORE TITANIUM PRODUCTS LTD.\n\n\tVs.\n\nRESPONDENT:\nCOMMISSIONER OF INCOME-TAX, KERALA\n\nDATE OF JUDGMENT:\n17\/01\/1966\n\nBENCH:\nSHAH, J.C.\nBENCH:\nSHAH, J.C.\nSUBBARAO, K.\nSIKRI, S.M.\n\nCITATION:\n 1966 AIR 1250\t\t  1966 SCR  (3) 321\n CITATOR INFO :\n D\t    1972 SC  19\t (6,8)\n O\t    1972 SC1880\t (1,2,3,23,28,38,40,51)\n D\t    1972 SC2674\t (2)\n RF\t    1973 SC1344\t (2,3)\n RF\t    1975 SC  97\t (22)\n RF\t    1975 SC 657\t (7,8)\n\n\nACT:\nIncome\tTax Act, 1922 (11 of 1922), s.\t10(2)(xv)-Wealth-tax\npaid  on  assets  owned for purpose  of\t business-Whether  a\npermissible deduction.\n\n\n\nHEADNOTE:\nIn  computing  the  total earned  income  of  the  appellant\ncompany\t for the calendar year 1959, the Income Tax  Officer\ndisallowed a claim for deduction of Rs. 80,255 in respect of\nliability for payment of tax under the Wealth Tax Act, 27 of\n1957  incurred by the company.\tThe order of the Income\t Tax\nOfficer\t was confirmed in appeal by the Appellate  Assistant\nCommissioner, the Tribunal and, on a reference, by the\tHigh\nCourt.\nIt  was\t contended by the appellant company that  since\t the\ncompany\t held  the assets on which tax was  levied  for\t the\npurpose\t of its business and profits were earned by the\t use\nof  those  assets, tax paid in respect of those\t assets\t was\nexpenditure laid out wholly and exclusively for the  purpose\nof  the\t business  and on that\taccount\t was  a\t permissible\nallowance under s. 10(2)(xv) of the Income-tax Act, 1922,\nHELD:The amount of tax paid on the net wealth of an assesses\nunder Wealth Tax Act is not a permissible deduction under s.\n10(2)  (xv) of the Income-tax Act, for tax is imposed  under\nthe Wealth Tax Act on the owner of the assets and not on any\ncommercial activity.  The charge of tax is the same, whether\nthe asset are part of or used in the trading organization of\nthe owner or are merely owned by him. [326 G-H]\nFor  expenditure to be regarded as being for the purpose  of\nthe  assessee's\t business within the meaning of\t s.  10\t (2)\n(xv),  the  nature of the expenditure of  outgoing  must  be\nadjudged  in the light of accepted commercial  practice\t and\ntrading\t principles.  The expenditure must be incidental  to\nthe  business  and  must be  necessitated  or  justified  by\ncommercial  expediency.\t It must be directly and  intimately\nconnected with the business and be laid out by the tax payer\nin  his\t character  as\ta  trader.   To\t be  a\t permissible\ndeduction,  there must be a direct and\tintimate  connection\nbetween\t the expenditure and the business i.e.\tbetween\t the\nexpenditure  and the character of the assessee as a  trader,\nand  not as owner of assets, even if they are assets of\t the\nbusiness. [326 F]\nCase law discussed.\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 235 of 1963
\nAppeal\tby special leave from the judgment and\torder  dated
\nAugust\t26,  1963  of the Kerala High  Court  in  Income-tax
\nReferred Case No. 29 of 1962.\n<\/p>\n
G.B.  Pai, T. A. Ramachandran and O. C. Mathur,\t for  the
\nappellant.\n<\/p>\n
A.   V. Viswanatha Sastri, N. D. Karkhanis, R. H. Dhebar and
\nR. N.  Sachthey, for the respondent.\n<\/p>\n
322<\/span><\/p>\n
The Judgment of the Court was delivered by
\nShah,  J.  In  computing  the total  earned  income  of\t the
\nappellant Company for the calendar year 1959, the Income-tax
\nOfficer, Trivandrum, disallowed a claim for deduction of Rs.
\n80,255\/-  in respect of liability for payment of  tax  under
\nthe  Wealth Tax Act 27 of 1957 incurred by the\tCompany\t for
\nthe  calendar years 1957 and 1958.  The order was  confirmed
\nby the Appellate Assistant Commissioner and by the Appellate
\nTribunal.  On the following question referred by the  Wealth
\nTax Appellate Tribunal,
\n\t      “Whether on the facts and circumstances of the
\n\t      case,  the assessee Company is entitled  to  a
\n\t      deduction of Rs. 12,873\/- being the wealth tax
\n\t      paid during the account year ended  29-2-1960.
\n\t      against the profits and gains of its  business
\n\t      for the assessment year 1960-61 under Sec.  10
\n\t      (2)(xv) of the Indian Income-tax Act ?”\n<\/p>\n
the High Court of Kerala recorded an answer in the negative.
\nThe Company has appealed to this Court with special leave.
\nThe  Company claims that wealth-tax paid by  it\t represented
\nexpenditure laid out wholly and exclusively for the  purpose
\nof  its\t business,  and on that\t account  is  a\t permissible
\nallowance  under  s. 10(2)(xv) of the  Income-tax  Act.\t  In
\ndetermining the admissibility of this claim, it is necessary
\nto ascertain the true character of the liability for payment
\nof tax under the Wealth Tax Act.  Tax is charged under S.  3
\nof  the\t Wealth Tax Act, 1957, for every financial  year  in
\nrespect\t of  the  net  wealth  of  every  individual,  Hindu
\nundivided family and Company at the rate or rates  specified
\nin  the Schedule to the Act; and ‘net wealth’ under the\t Act
\nmeans  the amount by which the aggregate value\tcomputed  in
\naccordance with the provisions of the Act of all the  assets
\nbelonging to the assessee on the valuation date is in excess
\nof the aggregate value of all the debts owed by the assessee
\non that date other than the debts specified.  The tax  under
\nthe  Act  is  payable by all  individuals,  Hindu  undivided
\nfamilies  ,and\tCompanies  on the value\t of  taxable  assets
\nbelonging to the taxpayer: it is charged on the net value of
\nthe  assets,  and not on the business  or  trading  activity
\ncarried on by the taxpayer.  The rates of tax for  companies
\nas  well  as individuals and Hindu  undivided  families\t are
\nprescribed  by the Second Schedule.  The slabs on which\t the
\nrate of tax is nil are not uniform in the case of  different
\ntaxable\t entities  and\ta special exemption is\tgiven  to  a
\nCompany\t which\thas incurred in any year  loss\tcomputed  in
\naccordance  with ss. 8, 9, 1 0 and 12 of the Income-tax\t Act
\nwithout referring to depreciation allowances and development
\nrebates\t and without taking into account the losses  brought
\nforward\t from the earlier years, and which has not  declared
\nany dividend on its equity capital in respect of that  year.
\nIt  is also provided by r. 5 of the Schedule that where\t the
\nprofits\t of  a\tcompany\t in  respect  of  any  year,  before
\ndeducting any
\n32 3
\nof  the\t allowances referred to in the second  paragraph  of
\nPart  11, are less than the amount of wealth-tax payable  by
\nit  in respect of the relevant assessment year, the  wealth-
\ntax payable by the company for such assessment year shall be
\nlimited\t to  the amount of such profits\t provided  that\t the
\ncompany has not declared any dividend on its equity  capital
\nin  respect  of that year.  But by relating the\t quantum  of
\nliability of a company to wealth-tax in these special  cases
\nto  the\t profits  earned, the character of the\ttax  is\t not
\naltered.   It  is  and remains a tax charged  upon  the\t net
\nwealth, and it is not made a tax related to or incidental to
\nthe  carrying on of a business.\t The rules in  the  Schedule
\nmerely\textend the exemption which is primarily declared  in
\nfavour of a Company of which the net wealth does not  exceed
\nRs.  5\tlakhs, to a company which has in the  previous\tyear
\nmade  a loss, and grant a partial exemption if\tthe  company
\nhas made profits which are inadequate to meet the wealth-tax
\nliability at the prescribed rate.\n<\/p>\n
In computing the profits or gains of an assessee who carried
\non business, certain allowances are permitted under s. 10(2)
\nfrom the business profits, and one such head is:\n<\/p>\n
\t      “(xv)  any expenditure not being an  allowance
\n\t      of the nature described in any of the  clauses\n<\/p><\/blockquote>\n
\t      (i)  to (xiv) inclusive, and not being in\t the
\n\t      nature  of  capital expenditure  for  personal
\n\t      expenses of the assessee laid out or  expended
\n\t      wholly and exclusively for the purpose of such
\n\t      business, profession or vocation.”\n<\/p><\/blockquote>\n
An  allowance permissible under cl. (xv) in the\t computation
\nof  taxable income is therefore expenditure incurred in\t the
\nyear  of account in respect of a business carried on by\t the
\nassessee:  the\texpenditure  must not be in  the  nature  of
\ncapital expenditure or personal expenses of the assessee and
\nit   must  have\t been  laid  out  or  expended\twholly\t and
\nexclusively for the purpose of the business.
\nThe  argument  for the Company in this case turns  upon\t the
\nmeaning\t  of  the  expression  “for  the  purpose  of\tsuch
\nbusiness.” On behalf of the Company it is urged that for the
\npurpose\t of its business, it holds assets and by the use  of
\nthose  assets profits are earned and therefore tax  paid  in
\nrespect\t of  those assets is expenditure laid  out  for\t the
\npurpose\t of  the business.  Whether an item  of\t expenditure
\nfalls  within  that  description  has  of  necessity  to  be
\ndetermined having regard to the nature of the business,\t the
\nnature\tof  the\t expenditure and the  relation\tbetween\t the
\nbusiness  and  the expenditure.\t In  adjudicating  upon\t the
\nclaim  that an outgoing is a permissible deduction under  s.
\n10(2)(xv)  of  the Income-tax Act, the primary\tquestion  is
\nwhether\t in  the  light\t of  accepted  commercial  practice,
\ntrading principles and the relation between the business and
\nthe  outgoing,the outgoing can be said to arise out  of\t the
\ncarrying  on  of the business and to be incidental  to\tthat
\nbusiness.  In the context of a variety of
\n324<\/span>
\ntrading\t  transactions\t and  the   relation   between\t the
\ntransactions  and the expenditure claimed as  a\t permissible
\ndeduction,  in the decisions of the courts under the  Indian
\nIncome-tax Act and of the courts in the United Kingdom under
\nthe English taxing statutes, different tests are  suggested.
\nThose tests, though adequate for the specific problem  under
\ndiscussion, cannot be regarded as exhaustive or\t necessarily
\napplicable  to\tother problems.\t When Rowlatt,\tJ.,  in\t The
\nCommissioners of Inland Revenue v. The Anglo Brewing Company
\nLtd.(1)\t said  that the expression “for the purpose  of\t the
\ntrade” meant for the purpose of keeping the trade going, and
\nof  making it pay, he was making that statement in  relation
\nto the facts of the case, and he did not intend to suggest a
\nuniversal  test.   Similarly  when because  of\tthe  special
\nnature of the business, expenditure incurred for payment  of
\nrates, taxes and duties was held a permissible allowance  in
\nthe  computation of taxable income, it was not intended\t and
\ncould  not  be\tintended to be laid  down  that\t expenditure
\nincurred for payment of rates, taxes or duties in respect of
\nanother\t  business  would  be  regarded\t necessarily  as   a
\npermissible  allowance.\t Illustrations of this class are  to
\nbe  found in Smith v. Lion Brewery Company  Ltd.(2)  Usher’s
\nWiltshire  Brewery  Ltd.  v. Bruce(3)  and  Harrods  (Buenos
\nAires)\t Ltd.  v.  Taylor-Gooby.(4)  In\t the  Lion   Brewery
\nCompany’s  case(2)  a  Brewery Company who  were  owners  or
\nlessees\t of  licensed  premises acquired as  part  of  their
\nbusiness   as  brewers\tand  as\t a  necessary  incident\t  to
\nprofitable exploitation were held entitled to the  allowance
\nin  the\t computation  of  their\t income\t under\tSch.   D  of
\nCompensation  Fund Charges imposed under the  Licensing\t Act
\nupon  their  tenants  and which\t the  tenants  after  paying
\nrecouped  themselves by deduction from the rents payable  to
\nthe Company. In Usher’s Wiltshire Brewery Ltd.’s case(3) the
\nclaim of a Brewery Company as owners or lessees of  licensed
\npremises  acquired in the course of and for the\t purpose  of
\ntheir business as brewers and as a necessary incident to the
\nmore  profitable  conduct  of  their  business\tof   certain
\nexpenses in connection with those licensed houses was allow-
\ned in the computation of their profits.\t In Harrods  (Buenos
\nAires)\tLtd’s  case(4)-Harrods (Buenos\tAires)Ltd-a  company
\nincorporated in the United Kingdom-carried on business of  a
\nretail store in Argentina and was liable to pay a tax  known
\nas  “substitute\t tax”  which  was  levied  on  joint   stock
\ncompanies   incorporated  in  Argentina\t and  on   companies
\nincorporated  outside  but  which  carried  on\tbusiness  in
\nArgentina  through  an\t“empresa  estable”  (a\t “commercial
\nestablishment”).   In proceedings for assessment of  income-
\ntax  of the business the claim of the Company to deduct\t the
\n“substitute  tax”  paid\t to  the  Argentina  Government\t was
\naccepted, for it was an expenditure without paying which the
\nassessee Company could not carry on its business at all.  In
\nall the three cases the expenditure was directly related  to
\nthe business Organisation of the taxpayer.
\n(1)  12 T.C. 803.\t\t\t\t     (2))  5
\nT.C. 568.\n<\/p>\n
(3)  6 T.C.  399.\t\t\t\t\t  41
\nT.C. 450.\n<\/p>\n
\t\t\t    325<\/span><\/p>\n
But every item of expenditure merely because it is connected
\nwith  the  trade  may  not  necessarily\t be  treated  as   a
\npermissible  deduction.\t  A  fairly  reliable  approach\t for
\ndetermining  what  may be regarded normally  as\t expenditure
\nlaid out or expended wholly and exclusively for the  purpose
\nof  the\t business  was suggested in Strong  and\t Company  of
\nRomsey\tLtd. v. Woodifield.(1) That was a case of a  Brewery
\nCompany\t owning a licensed house in which it carried on\t the
\nbusiness of inn-keepers.  The Company had to pay damages  to
\na  customer who was, when sleeping in the inn, injured by  a
\nfalling\t chimney, the fall of the chimney being due  to\t the
\nnegligence of the Company’s servants.  The Company was\theld
\ndisentitled  to\t deduct\t the expenditure  in  computing\t its
\nprofits\t for  income-tax purposes.  Lord Loreburne,  L.\t C.,
\nobserved,   in\tdisallowing  the  claim\t as  a\t permissible
\nexpenditure  under the head expenditure laid out wholly\t and
\nexclusively for the purpose of the business:\n<\/p>\n
\t      “A  deduction cannot be allowed on account  of
\n\t      loss not connected with or arising out of such
\n\t      trade.   That is one indication.\tAnd  no\t sum
\n\t      can be deducted unless it be money wholly\t and
\n\t      exclusively  laid\t out  or  expended  for\t the
\n\t      purposes\tof  such  trade.   That\t is  another
\n\t      indication . .\n<\/p><\/blockquote>\n
\t      connected\t with the trade, it must  always  be
\n\t      allowed  as  a deduction: for it may  be\tonly
\n\t      remotely connected with the trade or it may be
\n\t      connected with something else quite as much as
\n\t      or  even\tmore than with the trade.   I  think
\n\t      only  such  losses  can  be  deducted  as\t are
\n\t      connected\t with it in the sense that they\t are
\n\t      really  incidental to the trade itself.\tThey
\n\t      cannot   be  deducted  if\t they\tare   mainly
\n\t      incidental to some other vocation, or fall  on
\n\t      the  trader in some character other than\tthat
\n\t      of trader.”\n<\/p><\/blockquote>\n
\t      In the same case Lord Davey observed:
\n\t      “These  words…….. appear tome to mean\t for
\n\t      the  purpose of enabling a person to carry  on
\n\t      and  earn profits in the trade, etc.  I  think
\n\t      the  disbursements permitted are such  as\t are
\n\t      made for that purpose.  It is not enough\tthat
\n\t      the disbursement is made in the course of,  or
\n\t      arises out of, or is connected with, the trade
\n\t      or is made out of the profits of the trade.”
\n\t      In  Badridas Daga v. Commissioner\t of  Income-<\/a>
\n\t      tax,(2)  Venkatarama Aiyar, J., observed\tthat
\n\t      whether  the expenditure is admissible or\t not
\n\t      will  depend  upon whether it can be  said  to
\n\t      arise  out of the carrying on of the  business
\n\t      and   be\tincidental  to\tit,  and  this\t was
\n\t      reaffirmed  by this Court in a later  judgment
\n\t      in  Commissioner\tof  Income-tax,\t Bombay\t  v.<\/p><\/blockquote>\n
\t      Abdullabhai Abdulkadar.(3)
\n\t      (1)  5  T.C.  215\t\t\t\t (2)
\n\t      [1959] S.C.R.  690=34 I.T.R. 10
\n\t      (3)   [1961] 2 S. C. R. 949=41 1. T.R. 545.\n<\/p><\/blockquote>\n
\t      326<\/span><\/p>\n
\t      In   a   recent\tjudgment   of\tthis   Court
\n\t      Commissioner   of\t  Income-tax,\tKerala\t  v.
\n\t      Malayalam Plantations Ltd.<\/a>(1) certain  amounts
\n\t      paid as estate duty under s. 84 of the  Estate
\n\t      Duty   Act,  1953,  by  a\t  resident   company
\n\t      incorporated  outside  India on the  death  of
\n\t      shareholders  not\t domiciled  in\tIndia,\twere
\n\t      sought  to be deducted under S. 10(2) (xv)  as
\n\t      expenditure  laid out or expended\t wholly\t and
\n\t      exclusively for the purposes of the  business.
\n\t      Subba Rao, J., speaking for the Court observed
\n\t\t\t    at p. 705:\n<\/p><\/blockquote>\n
\t      “The  expression\t“for  the  purpose  of\t the
\n\t      business”\t  is   wider  in  scope\t  than\t the
\n\t      expression   “for\t the  purpose\tof   earning
\n\t      profits.”\t Its range is wide: it may  take  in
\n\t      not only the day to day running of a  business
\n\t      but   also   the\t rationalization   of\t its
\n\t      administration   and  modernization   of\t its
\n\t      machinery;  it  may include measures  for\t the
\n\t      preservation  of\tthe  business  and  for\t the
\n\t      protection  of  its assets and  property\tfrom
\n\t      expropriation,  coercive process or  assertion
\n\t      of  hostile  title;  it  may  also  comprehend
\n\t      payment of statutory dues and taxes imposed as
\n\t      a precondition to commence or for carrying  on
\n\t      of  a business; it may comprehend\t many  other
\n\t      acts  incidental\tto  the\t carrying  on  of  a
\n\t      business.\t  However  wide the meaning  of\t the
\n\t      expression may be, its limits are implicit  in
\n\t      it.   The purpose shall be for the purpose  of
\n\t      the business, that is to say, the\t expenditure
\n\t      incurred\tshall be for the carrying on of\t the
\n\t      business\tand the assessee shall incur  it  in
\n\t      his  capacity  as\t a person  carrying  on\t the
\n\t      business.”\n<\/p><\/blockquote>\n
The position may therefore be summarised thus: the nature of
\nthe expenditure or outgoing must be adjudged in the light of
\naccepted  commercial practice and trading  principles.\t The
\nexpenditure  must be incidental to the business and must  be
\nnecessitated or justified by commercial expediency.  It must
\nbe  directly and intimately connected with the business\t and
\nbe  laid out by the taxpayer in his character as  a  trader.
\nTo  be a permissible deduction, there must be a\t direct\t and
\nintimate connection between the expenditure and the business
\nie.  between  the  expenditure\tand  the  character  of\t the
\nassessee  as a trader, and not as owner of assets,  even  if
\nthey are assets of the business.\n<\/p>\n
In the light of the principles the amount of tax paid on the
\nnet wealth of an assessee under the Wealth Tax Act is not  a
\npermissible  deduction\tunder  s. 10(2)(xv)  of\t the  Indian
\nIncome-tax  Act in his assessment to income-tax, for tax  is
\nimposed under the Wealth Tax Act on the owner of assets\t and
\nnot  on any commercial activity.  The charge of the  tax  is
\nthe same, whether the assets are” part of or
\n(1)  (1964] 7 S.C.R. 693=53 I.T.R. 140.\n<\/p>\n
\t\t\t    327<\/span><\/p>\n
used in the trading Organisation of the owner or are  merely
\nowned  by him.\tThe assets of the  taxpayer-incorporated  or
\nnot-become chargeable to tax because they are owned by\thim,
\nand not because they are used by him in the business.
\nThe appeal therefore fails and is dismissed with costs.
\nAppeal dismissed.\n<\/p>\n
10 Sup.C.I.\/66-8
\n328<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Travancore Titanium Products Ltd vs Commissioner Of Income-Tax, … on 17 January, 1966 Equivalent citations: 1966 AIR 1250, 1966 SCR (3) 321 Author: S C. Bench: Shah, J.C. PETITIONER: TRAVANCORE TITANIUM PRODUCTS LTD. Vs. RESPONDENT: COMMISSIONER OF INCOME-TAX, KERALA DATE OF JUDGMENT: 17\/01\/1966 BENCH: SHAH, J.C. BENCH: SHAH, J.C. SUBBARAO, K. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-110996","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nTravancore Titanium Products Ltd vs Commissioner Of Income-Tax, ... on 17 January, 1966 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/travancore-titanium-products-ltd-vs-commissioner-of-income-tax-on-17-january-1966\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Travancore Titanium Products Ltd vs Commissioner Of Income-Tax, ... on 17 January, 1966 - 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