{"id":199042,"date":"1972-03-29T00:00:00","date_gmt":"1972-03-28T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/the-indian-aluminium-co-ltd-vs-c-i-t-west-bengal-calcutta-on-29-march-1972"},"modified":"2016-03-05T03:42:49","modified_gmt":"2016-03-04T22:12:49","slug":"the-indian-aluminium-co-ltd-vs-c-i-t-west-bengal-calcutta-on-29-march-1972","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/the-indian-aluminium-co-ltd-vs-c-i-t-west-bengal-calcutta-on-29-march-1972","title":{"rendered":"The Indian Aluminium Co. Ltd vs C.I.T., West Bengal, Calcutta on 29 March, 1972"},"content":{"rendered":"
Supreme Court of India<\/div>\n
The Indian Aluminium Co. Ltd vs C.I.T., West Bengal, Calcutta on 29 March, 1972<\/div>\n
Equivalent citations: 1972 AIR 1880, \t\t 1973 SCR (1)\t 15<\/div>\n
Author: S Sikri<\/div>\n
Bench: Sikri, S.M. (Cj), Grover, A.N., Ray, A.N., Palekar, D.G., Beg, M. Hameedullah<\/div>\n
           PETITIONER:\nTHE INDIAN ALUMINIUM CO.  LTD\n\n\tVs.\n\nRESPONDENT:\nC.I.T., WEST BENGAL, CALCUTTA\n\nDATE OF JUDGMENT29\/03\/1972\n\nBENCH:\nSIKRI, S.M. (CJ)\nBENCH:\nSIKRI, S.M. (CJ)\nGROVER, A.N.\nRAY, A.N.\nPALEKAR, D.G.\nBEG, M. HAMEEDULLAH\n\nCITATION:\n 1972 AIR 1880\t\t  1973 SCR  (1)\t 15\n 1972 SCC  (2) 150\n CITATOR INFO :\n R\t    1972 SC2874\t (2,3,4)\n F\t    1973 SC1344\t (3,4)\n RF\t    1975 SC  97\t (23,24,26)\n R\t    1975 SC 657\t (4,6,7,8,9)\n\n\nACT:\nIncome Tax Act, (11 of 1922), v. 10(1) and  (2)(xv)-Assessee\na trading company-Payment of wealth tax-if could be deducted\nin computing income for purposes of income tax.\n\n\n\nHEADNOTE:\nThe assessee, a trading company, paid wealth tax and  sought\nto,  deduct it as a business expense under s. 10(1)  and  s.\n10(2)  (xv)  of the Income Tax Act, 1922, in  computing\t its\nassessable  incomes  from business for the  purpose  of\t the\nIncome\tTax Act.  The High Court held against  the  assessee\nfollowing the decision of this Court in Travancore  Titanium\nProduct\t Ltd.  v.  C.I.T., [1966] 3 S.C.R.  321.   The\ttest\nadopted\t by this Court in the Travancore Titanium  case\t was\nthat \"to be a permissible deduction, there must be a  direct\nand  intimate  connection between the  expenditure  and\t the\nbusiness, that is, between the expenditure and the character\nof  the\t assessee as a trader, and not as an  owner  of\t the\nassets, even if they are the assets of the business\".\nAllowing the appeal to this Court,\nHELD : The Court is unanimous that the test laid down in the\ndecision in the Travancore Titanium case should be modified.\n[20A, 39B]\n(Per  S.M. Sikri, C. J., A. N. Grover, A. N. Ray and  D.  G.\nPalekar,  JJ.)\t:  (1)\tCertain\t important  aspects  of\t the\nquestion  were\tnot brought to the attention of\t this  Court\nwhen  the  earlier  case was decided. if  that\tdecision  is\nmodified as erroneous, it is not likely to cause any  public\ninconvenience  hardship or mischief; and numerous  assessees\nwould be affected by the decision. [20A-B]\nKeshav\tMills, Co. Ltd. v. C.I.T. [1965] 2 S.C.R. 908,\t922,\nfollowed.\n(2)  There  is\tno doubt that in one sense  when  rates\t and\ntaxes on property are paid by a trader he pays them as owner\nor  occupier,  because\ttaxes are either  on  possession  of\nproperty  or  on its ownership.\t But when a person  has\t the\ndual  capacity\tof a trader-cum-owner, and he  pays  tax  in\nrespect of property which is used for the purpose of  trade,\nthe payment must be taken to be in the capacity of a  trader\naccording to ordinary commercial principles. [25A-B, C-D]\nMoffatt v. Webb, [1913] 16 C.L.R., 120 applied (Not cited in\nthe Travancore Titanium case.\nSmith v. Lion Brewery Company, 5 T.C. 568, Usher's Wiltshire\nBrewery\t Ltd. v. Bruce, 6 T.C. 399, Harrods  (Buenos  Ayres)\nLtd.  v. TaylorGooby, 41 T.C. 450 and observations  of\tLord\nDavey  in  Strong  and Co. Romsey Ltd, case  (5\t T.C.  215),\nreferred to.\n(3)  In\t the  case of a trading company all the\t assets\t are\nowned  and the liabilities are incurred for the\t purpose  of\ntrading,  as outlined in its memorandum of association.\t  If\nall the assets are owned and used for the purpose of  trade,\nthe net wealth would also be owned and used for the ,purpose\nof trade.  The net wealth is as much an instrument of  trade\nas  the capital value of assets.  Therefore,.the  test\tlaid\ndown  in  the earlier case should be qualified,\t by  stating\nthat, if the expenditure is I-aid out by the\n16\nassessee as owner-cum-trader, and the expenditure is  really\nincidental  to the carrying on of his business, it  must  be\ntreated\t as having bean laid out by him as a trader  and  as\nincidental to his business. [29F-H, 3OA-C]\n(4)  It\t may  be  difficult for the  Revenue  to  allow\t the\ndeduction of debts, and non-business assets and debts.\t But\nthe  wealth tax return form itself requires the assessee  to\nshow  what are business assets and liabilities and what\t are\nthe  non-business assets and liabilities.  At any  rate,  it\nshould\tnot  be\t difficult to evolve a\tprinciple  or  frame\nstatutory rules to find out the proportion of the tax  which\nis 'really incidental to the carrying on of the trade. [30C-\nE]\n(Per  M.  H. Beg, J.) : (1) One of the tests  laid  down  in\nKeshav\tMills co's case ([1965]\/2 S.C.R.908),  for  deciding\nwhether\t a  previous erroneous view should be set  right  by\nthis  Court,  is whether any Possible  advantage  to  public\nresulting from doing so would be outweighed by the  mischief\nor harm a revision may cause. [38E-F]\nThe  Wealth Tax Act was not intended to strike at  or  check\nexpansion of commercial activities by either individuals  or\ncompanies.   Its  underlying  purpose  is  the\tremoval\t  of\ndisparities of individual or personal wealth and not  injury\nto  trade.   The  interpretation placed\t in  the  Travancore\nTitanium  case ([1966] 3 S.C.R. 321) seems to penalise\tmere\nexpansion   of\tbusiness  and  trade  without  serving\t the\nunderlying purpose of wealth tax.  Therefore, a revision  of\nopinion does not involve any such mischief or Such injury to\nthe public interest as would stand in the way of  correcting\nan erroneous view. [38G-H, 39A-B]\n(2)  The  error\t which crept into  the\tTravancore  Titanium\ndecision could be traced to an application of the  criterion\nstated by the Lord Chancellor in Strong and Co. of Romsey v.\nWoodfield  (5 T.C. 215), that if. the expenses fall  on\t the\ntrader\tin some character other than that of a trader,\tthey\ncould not be deducted in computing profits.  But in the same\ncase,  another Law Lord laid down a somewhat different\ttest\nthat  the payment to be deductible must have been  made\t for\nthe purpose of earning profits. [30G-H, 31A-B]\n(3)  Liabilities  incurred  by a trader to pay\tdamages\t for\ninjury\tto  his\t customer due  to  his\tpersonal-neglect  in\nmaintaining his premises, even though the premises were used\nfor  trade,  could be looked upon as outside the  course  of\ntrading\t altogether  even if they arise\t out  of  commercial\nactivity or    result from something connected with or meant\nto serve a commercial\t purpose.   But in Strong and  co.'s\ncase the negligence which resulted in\tpayment of  damages,\nfor  which the deduction was claimed, was that\tof  servants\nemployed  as an ordinary incident of trading, so  that,\t the\nmaster\t  was only vicariously liable; and the language used\nby  the Lord Chancellor in that case covers more  than\twhat\ncould be attributed to the trade man's own personal  wrongs.\n[31B-E]\n(4)  In later English cases the test adopted is whether\t the\nexpenses sought to deducted 'wholly or exclusively laid\t out\nfor the purpose of earning profits. [31F]\nSmith  v. Lion Brewery Company Limited, 5 T.C. 568;  Usher's\nWiltshire  Brewery  Ltd. v. Bruce 6 T.C.  399;\tAtherton  v.\nBritish Insulted and Halsby Cables Ltd., 10 T.C. 155; Margan\nv. Tate and Lyle Ltd., 35 T.C. 367, referred to.\nRushden Hell Co. Ltd, v. Commissioner of Inland Revenue,  30\nT.C. 298 and Smith's Potato Estates Ltd. v. Bolland, 30 T.C.\n267 explained\n17\nWhere  profits, the net gains of business, determined  after\nmaking\t all   permissible  deductions.\t  are\ttaxed,\t the\ndisbursements  to meet-such taxes cannot be deducted.\tBut,\nwhen the tax 'was levied on capital, or assets used for\t the\npurpose\t of earning those profits, it was a permissible\t de-\nduction in calculating profits. [32G-H]\nHarrods\t (Buenos Ayres) Ltd. v.' Taylor-Gooby, 40 T.C.\t450,\nreferred to.\n(6)  The principle, that tax paid by an assessee on property\nused  by him to earn income is deductible in  computing\t the\nincome for paying income tax, was also laid down in  Moffatt\nv.  Webb  [1913] 16 C.L.R. 120, which was not  cited  before\nthis Court when the Travancore Titanum case was argued.[34A-\nB]\n(7)  The test of trading character when incurring an expense\nfor which deduction is claimed can be utilised usefully only\nin  cases  where  the  question is  whether  a\tpayment\t was\ngratuitous  or\tunnecessary  or not made  for  a  bona\tfide\ncommercial  purpose  or connected more\twith  some  ulterior\nobject\treally failing outside the normal sphere or  regular\ncourse\tof commerce, such as the compounding of\t an  offence\neven if committed while trading; but this could not be so in\ncases of payment of taxes[34D-F]\nJ.K.   Cotton\tSpinning  &  Weaving  Mills  Co.   Ltd.\t  v.\nCommissioner  of Income Tax, A.I.R.<\/a> 1957 All. 513,  referred\nto;\n(8)  There  is\tno accepted commercial practice\t or  trading\nprinciple  according  to  which\t wealth\t tax  could  not  be\ndeducted  in the computation of profits under s. 10(i)\tand\n(ii)  of the Income Tax Act.  Except the observation in\t the\nTravancore Titanium case, all the other cases indicate\tthat\ncommercial  practice  and trading principles  'also  warrant\nsuch  deductions  of tax on capital assets used\t wholly\t and\nexclusively  for carrying on trade or for  earning  profits.\nDeductions of taxes on net profits may not be permited,\t but\nthose imposed on net assets or wealth, used exclusively\t for\nmaking\tprofits,  can be deducted in, computing\t income\t for\npurposes  of  income  tax.   Moreover,\twhatever  commercial\npractice  or  trading principles may imply or  import,\tthey\ncould  not alter the meaning of statutory  provisions.\t All\nthat the Language of s. 10(2)(xv) requires, for claiming its\nbenefit,  is  proof of direct causal connection\t between  an\noutgoing  and the commercial purpose which necessitated\t it.\nTo  lay\t down that it is the causal connection\tbetween\t the\npayment of tax and that part of the net wealth which is used\nwholly and exclusively for trade, and not the mere character\nor capacity for the possession of which the tax is demanded,\nwhich  determines  whether it is an allowable  deduction  or\nnot,  under s. 10(2) (xv), nothing more than giving  effect\nto the plain and literal meaning of a provision of a  taxing\nstatute. [35A-B, 35B-C]\n(9)  To exclude from the purview of s. 10(2)(xv)  wealth-tax\nsimply because it was a tax on assets or net wealth paid  by\nits  owner  so as to reduce his wealth, is to bring  in\t the\nmisleading  test of either of capacity of the owner for\t the\npossession  of which, or the purpose for which,\t the  wealth\ntax may be demanded. instead of the inevitable need and\t the\npurpose\t of  the  trader  in paying  the  tax,\tas  relevant\nmatters. [35D-F]\n(10)  Wealth tax is imposed on net wealth of   of  assessees\nwho  are persons both natural and artificial.\t     In\t the\ncase of an artificial or juristic person like a company,  it\nis  difficult  to  separate  the  purpose  of  the  Juristic\n\"persona\"   which  is  certainly  commercial,\tfrom\t the\ncharacter of the \"persona\" itself.    Even as regards  other\ntraders\t that  part of the tax which falls  on\tassets\tused\nexclusively for I trade could 'be really ascribed\n18\nonly to a trading character.  To the extent it is a tax\t on\nproperty  used\tfor  earning profits it must  enter  into  a\ncomputation  of\t profits from trading.\t Therefore,  nothing\nless  than  express,  statutory provision  would  justify  a\ndenial of the right to a deduction which the language of  s.\n10(2) (xv) confers upon assessees. [36D-F]\n(11) The  Court\t is  not concerned with\t any  difficulty  in\nseparating that pail of the tax which is levied on any\tpart\nof  the\t net wealth, used wholly or exclusively\t for  trade,\nfrom  the rest of it.  The Court is concerned only with\t the\ninterpretation\tof s. 10(2)(xv) and not with any  difficulty\nwhich may arise in actually computing the deductible amount.\nMoreover,  since  net  wealth  is  an  amount  by  which  an\naggregation  of all the assets exceeds all the\tdebts  there\ncan be no intractable difficulty in calculating what part of\nthe net Wealth is used for trade or business of an a  sessee\nand what is not, an aggregation being collection of items  n\nbeing collection of items which can be separated, and not  a\nmixture\t whose ingredients became inseparable. Further,\t the\nwealth-tax  return form divides wealth under two heads,\t one\nof business assets and another of other assets, showing that\nthe  Wealth  Tax Act its itself makes that part of  the\t net\nwealth\tseparable which is used wholly and 'exclusively\t for\ntrade  from the reminder of it.\t If this can be done,  there\nis  no difficulty in separating that part of the wealth\t tax\nwhich could be deducted under s. 10(2)(xv) of the Income Tax\nAct. [37D-G]\nAssuming there is some difficulty the principle involved or.\nthe meaning    of  the\trelevant  previsions  will  not\t  be\naffected thereby. [37G]\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION: C.A. Nos. 1694 and 1730 of   1968.
\nAppeals from the judgment and order dated August 11, 1967 of
\nthe Calcutta High Court in Income-tax Reference Nos. 106 and
\n215 of 1963.\n<\/p>\n
S.   R. Banerjee, N. N. Goswamy and S. N. Mukherjee, for the
\nappellant (in both the appeals).\n<\/p>\n
V.   S.\t Desai,\t R. N. Sachthry and B. D.  Sharma,  for\t the
\nrespondent (in both the appeals).\n<\/p>\n
A. K. Sen,     T. A.  Ramachandran and D. N. Gupta, for the
\nintervener (in both the appeals).\n<\/p>\n
The Judgment of the Court was delivered\t by Sikri C.J.,\t Beg
\nJ. gave a concurring but a separate opinion.
\nSikri C.J.-These appeals have been  referred by\t a  Division
\nBench of this Court ‘to a larger Bench as the Division Bench
\nfelt :that the decision of this Court in Travancore Titanium
\nProduct ,Ltd. v. Commissioner of Income Tax(1) might require
\nreconsideration.   The only point involved in these  appeals
\nis  whether the Wealth Tax paid by the assesse,\t a  ‘trading
\ncompany\t is deductible as an expenditure under s. 10 (\t1  )
\nand  S. 10 (2) (xv) of the Income-tax Act, 1922.  The  facts
\nin  both  the  appeals\tare similar.   They  relate  to\t two
\nseparate accounting and assessment years and two  assessment
\norders have been challenged.  We may
\n(1)  [1966] 3 S.C.R. 321.\n<\/p>\n
19<\/span><\/p>\n
give  a\t few facts in one appeal The  Indian  Aluminium\t Co.
\nLtd.,\tin  respect  of\t the  year  of\tassessment   1959-60
\n(accounting period Calendar year 1958), paid Rs.  1,59(630\/-
\nas Wealth Tax and, claimed to deduct this amount as  expense
\nfrom their assessable income.\t   Income    Tax     Officer
\nallowed\t  the\tdeduction  but\t the   Appellate   Assistant
\nCommissioner  held that the Company was not entitled to\t the
\ndeduction  of  Wealth  Tax as  an  expense.   The  Appellate
\nTribunal  upheld  the  order  of  the  Appellate   Assistant
\nCommissioner.\tOn  the\t application of\t the  assessee,\t the
\nfollowing question was referred to the High Court :\n<\/p>\n
\t      “Whether\ton  the facts and  circumstances  of
\n\t      case  the\t sum of Rs. 1,59,630\/- paid  by\t the
\n\t      assessee as wealth-tax legally deductible as a
\n\t      business\texpense in computing the  assessee’s
\n\t      income from business?”\n<\/p><\/blockquote>\n
The  High  Court, following the decision of  this  Court  in
\nTravancore  Titanium case(1), answered the question  against
\nthe assessee.  Having  obtained certificate of fitness\tfrom
\nthe High Court, the assessee has appealed to us.
\nBasing\t  himself  on Keshav Mills Co. Ltd. v. C.I.T.(2)  it
\nwas contended by the learned counsel for the Revenue that we
\nshould\tnot  review  our  decision  in\tTravancore  Titanium
\ncase(1).  Gajendragadkar, C.J., speaking, for the Court, had
\nobserved  in  that  ‘case  that\t “it  is  not  possible\t  or
\ndesirable,  and in any case it would be inexpedient  to\t lay
\ndown any principles which should govern the approach of\t the
\nCourt in dealing with the question of reviewing and revising
\nits earlier decisions.” He further observed
\n\t      “It would always depend upon several  relevant
\n\t      considerations  :-What  is the nature  of\t the
\n\t      infirmity\t or  error  on which a\tplea  for  a
\n\t      review  and  revision of the earlier  view  is
\n\t      based  ?\tOn the earlier\toccasion,  did\tsome
\n\t      patent   aspects\t of  the   question   remain
\n\t      unnoticed, was the attention of the Court\t not
\n\t      drawn  to any relevant and material  statutory
\n\t      provision,  or  was any previous\tdecision  of
\n\t      this Court bearing on the point not noticed  ?
\n\t      Is  the Court hearing such plea fairly  unani-
\n\t      mous  that there is such an  error  in  the,
\n\t      earlier  view ?  What would be the  impact  of
\n\t      the  error ‘on the general  administration  of
\n\t      law  or  on  public good\t?  Has\tthe  earlier
\n\t      decision been followed on subsequent occasions
\n\t      either  by this Court or by the High courts  ?
\n\t      And,   would  the\t reversal  of  the   earlier
\n\t      decision\t lead\tto   public   inconvenience,
\n\t      hardship or mischief ?”\n<\/p>\n
(1) [1966] 3. S.C.R. 321.\n<\/p>\n
(2) [1965]  S.C.R. 908-922.\n<\/p>\n
20<\/span><\/p>\n
We   are  inclined  to\treview\tour  earlier  decision\t ‘in
\nTravancore  Titanium  case(,’), because, as  will  presently
\nappear, certain aspects of the question were not brought  to
\nthe  attention of the Court and remained unnoticed, and\t our
\ndecision  is not likely to cause any  public  inconvenience,
\nhardship  or mischief.\tWe are all of the opinion  that\t the
\ndecision  was erroneous.  The decision will affect  numerous
\nassessees.   In the circumstances we think we should  review
\nthe decision.\n<\/p>\n
\t      Section 10 (1)   of the Indian Income-tax Act,
\n\t      1922, reads:\n<\/p>\n
\t       “10(1)  The  tax\t shall\tbe  payable  by\t  an
\n\t      assessee under the he,-id profits and gains of
\n\t      business, profession or vocation in respect of
\n\t      the   profit   or\t gains\tof   any   business,
\n\t      profession or vocation carried on by him.”
\n\t      Section 10(2) provides :\n<\/p>\n
\t      “Such profits or gains shall be computed after
\n\t      making\t  the\t  following\t allowances,
\n\t      namely,. . . .”\n<\/p>\n
\t      (xv)  any\t expenditure not being an  allowance
\n\t      of the nature described in any of the  clauses\n<\/p>\n
\t      (i)  to (xiv) inclusive and not being, in\t the
\n\t      nature  of  capital  expenditure\tor  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>\n
The language seems to be simple enough but it has engendered
\njudicial  conflict  not only in India but also\tin  England.
\nEminent\t Judges halve striven to formulate correct tests  to
\ndetermine  whether  an\texpenditure has\t been  laid  out  or
\nexpended wholly and exclusively for the purposes of business
\nor  not,  but  no one has been able to find a  test  in\t the
\napplication  of which differences of opinion do\t not  arise.
\nIt  seems to us therefore. essential that in each case,\t the
\nCourts must always keep in mind language of the section.
\nOne  of the tests which have been laid down and\t applied  by
\nsome of the Judges in England is whether the expenditure has
\nbeen  made in the capacity of a trader or an owner.  One  of
\nthe  earliest  cases in which this test\t was  suggested\t was
\nStrong and Company of Romsey Ltd. v. Woodfield(2).  In\tthat
\ncase  the Brewing Company, which also owned licensed  houses
\nin  which  they\t carried  on  the  business  of\t lnnkeepers,
\nincurred damages and costs on account of injustice caused to
\na  visitor staying at one of their houses by the falling  in
\nof a chimney.  The House, of Lords
\n(1) [1066] 3 S.C.R. 321
\n(2) 5 T.C. 215.\n<\/p>\n
21<\/span><\/p>\n
held  that  the damages and costs were not  allowable  as  a
\ndeduction in computing the Company’s profits for Income\t Tax
\npurposes.  The Lord Chancellor observed:\n<\/p>\n
\t      “In  my opinion, however, it does\t not  follow
\n\t      that if a loss is in any sense connected\twith
\n\t      the  trade,  it must always be  allowed  as  a
\n\t      deduction;   for\tit  may\t be  only   remotely
\n\t      connected\t  with\tthe  trade  or\tit  may\t  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.  The, nature of the trade is to  be
\n\t      considered.   To give an illustration,  losses
\n\t      sustained by a railway company in compensating
\n\t      passengers for accident in travelling might be
\n\t      deducted.\t on the other hand, if a man kept  a
\n\t      grocer’s\tshop, for keeping which a  house  is
\n\t      necessary and one of the window shutters\tfell
\n\t      upon and injured a man walking. in the street,
\n\t      the  loss arising thereby to the grocer  ought
\n\t      not to be deducted.\n<\/p><\/blockquote>\n
\t      Lord Davey did not apply this test and put the
\n\t      matter thus:\n<\/p><\/blockquote>\n
\t      I think that the payment of these damages\t was
\n\t      not  money  expended “for the purpose  of\t the
\n\t      trade”.  These words are used in other  rules,
\n\t      and  appear to me to mean for the\t purpose  of
\n\t      enabling a person to carry on and earn profits
\n\t      in  the trade, &c.  I think the  disbursements
\n\t      permitted\t are  such  as\tare  made  for\tthat
\n\t      purpose.\t  It   is  not\t enough\t  that\t the
\n\t      disbursement  is\tmade 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\t the  trade.<\/p><\/blockquote>\n
\t      It  must\tbe made for the purpose\t of  earning the p
\nrofits.”\n<\/p>\n
Lord Chancellor’s observations in Woodfield’s case were\t not
\naccepted  by  Lord Atkinson in Smith v.\t Lion  Brewery\tCom-
\npany(1).  The Brewery_ Company were the owners or lessees of
\na  number  of licensed premises which they had\tacquired  as
\npart  of  their\t business  as brewers  and  as\ta  necessary
\nincident  of  its profitable  exploitation.   The  licensed
\npremises  were let to tenants, who were “tied”\tto  purchase
\ntheir  beers  from :the company.  Under the  Licensing\tAct,
\n1904,  compensation Fund Charges were levied in\t respect  of
\nthe  excise “on” licences held by the tenants who  paid\t the
\ncharges and recouped themselves by
\n(1)  5 T.C. 568.\n<\/p>\n
22<\/span><\/p>\n
deduction from the rents which they paid to the company.  It
\nwas claimed by the company that in computing their,  profits
\nfor  assessment\t to  Income Tax they should  be\t allowed  to
\ndeduct\tthe sum of the amounts ultimately borne by  them  in
\nrespect\t of  the Compensation Fund Charges.   The  Court  of
\nKing’s\t Bench\t held  that  the   deduction   claimed\t was
\ninadmissible.\tThis decision was reversed in the  Court  of
\nAppeal\t(Kennedy,  L.J., dissenting), and  opinions  in\t the
\nHouse  of  Lords being equally divided the judgment  of\t the
\nCourt of Appeal was sustained.\tEarl Halsbury, in holding in
\nfavour\tof the Brewery, observed that “lie (trader) must  if
\nhe  carries on that business or that trade pay this tax;  it
\nis the act of the Legislature which makes him pay it and  it
\nis not a thing that is open to his own will or option.” Lord
\nAtkinson observed
\n\t      “Again,,\tit is urged that the  landlord\tpays
\n\t      his  contribution as landlord and\t because  of
\n\t      his  proprietary interest in the premises\t and
\n\t      not  as  trader,\tsince he  would\t be  equally
\n\t      liable to it whether he traded or not.   That,
\n\t      no  doubt, is so, but in the present case\t the
\n\t      Company have become landlords and thus  liable
\n\t      to pay the charge, for the purpose solely\t and
\n\t      exclusively  of  setting\tup  the\t  tied-house
\n\t      system\\ of trading.  If the Company took under
\n\t      lease a plot of land to enlarge their  brewery
\n\t      or   took\t similarly  premises  in  which\t  to
\n\t      establish\t a depot to sell their beer  through
\n\t      an agent, the same criticism might be  applied
\n\t      with  equal force to the payment of  the\trent
\n\t      reserved. by the lease.  They would pay it  as
\n\t      lessees,\tnot as brewers.\t They would  pay  it
\n\t      whether  they continued to brew or  not.\t Yet
\n\t      under  the provisions of the very rule  relied
\n\t      upon  in this case, they would be entitled  to
\n\t      deduct the rent from the profits earned, and
\n\t      that, too, utterly irrespective of whether the
\n\t      receiver\tof the rent used it to pay  for\t his
\n\t      support or for his pleasure or even to set  up
\n\t      a rival brewery.\n<\/p>\n
\t      Indeed,  even  in\t a  contract  made  for\t the
\n\t      purchase of material such as hops or malt, the
\n\t      Company  would have to pay for  the  commodity
\n\t      supplied,\t not because they are  brewers,\t but
\n\t      because they were contracting parties, utterly
\n\t      irrespective of whether they carried on  their
\n\t      trade or had abandoned it.  Yet it can  hardly
\n\t      be suggested that the price paid for the hops
\n\t      or  malt\tunder  the contract  should  not  be
\n\t      deducted\t from  the  receipts.\t There\t is,
\n\t      therefore, in my opinion, nothing in this\t ob-
\n\t      jection.”\n<\/p>\n
 23<\/span><\/p>\n
In  Usher’s  Wiltshire\tBrewery Ltd v.\tBruce(1)  a  brewery
\ncompany\t were the owners or lessees of a number of  licensed
\npremises which they had acquired solely in the course of and
\nfor  the  purpose  of their business as\t brewers  and  as  a
\nnecessary  incident  to the more profitably carrying  on  of
\ntheir  said  business.\tThe licensed premises  were  let  to
\ntenants\t who were “tied” to purchase their beers, etc.\tfrom
\nthe Company.  The Company claimed that in the computation of
\ntheir profits for assessment under Schedule D, the following
\nexpenses  incurred  in\tconnection with\t these\ttied  houses
\nshould be allowed
\n\t      (A)   repairs to tied houses;\n<\/p>\n
\t      (B)   differences\t between rents of  leasehold
\n\t      houses  or  Schedule  Assessment\tof  freehold
\n\t      houses on the one hand and the rents  received
\n\t      from the tied tenants on the other hand;\n<\/p>\n
\t      (C) fire and licence insurance premises;
\n\t      (D)   rates and taxes;\n<\/p>\n
It  was\t held by the House of Lords that  all  the  expenses
\nclaimed\t  were\t admissible  as\t being\tmoney\twholly\t and
\nexclusively  laid  out of expended for the  purpose  of\t the
\ntrade of the Brewery Company.\n<\/p>\n
In this case, Horridge, J. held that “on the facts found the
\nFire and Licence insurance Premiums, the Rates and Taxes and
\nthe  Gas  and Water were all expenditure  essential  to\t the
\nearning\t of the profits, and I think they also are  governed
\nby   Smith  v.\tThe  Brewery  Company(1)  and  are  proper
\ndeductions.”\n<\/p>\n
The Court of Appeal, regarding Rates and Taxes, said
\n\t      “The next head is “D., Rates and Taxes.  pound
\n\t      3 8 7s. 6d.” These are sums which the  tenants
\n\t      were under a legal obligation to pay  pursuant
\n\t      to  their covenant in the\t tenancy  agreement.
\n\t      The Company, however, did not, for the reasons
\n\t      stated  under  A\tin  the\t Case  enforce\t the
\n\t      tenants’\tcovenants to pay,  and\tconsequently
\n\t      paid  the rates and taxes\t themselves.   These
\n\t      reasons  have  been stated and appear  in\t the
\n\t      Case, and need not be repeated; in brief; They
\n\t      are  commercial interest and  expediency,\t and
\n\t      avoidance of inconvenience.\n<\/p>\n
\t      I am of opinion that these rates and taxes  so
\n\t      paid  are\t in no sense  deductions  which\t are
\n\t      allowable from
\n\t      the Company’s profits.”\n<\/p>\n
(1)  6 T.C. 399.\n<\/p>\n
(2) 5 T.C. 568.\n<\/p>\n
24<\/span><\/p>\n
The’ House of Lords, however, allowed these items.  Lord
\nAtkinson at page 422 of the report said
\n\t      “Stated  broadly, I think that  that  doctrine
\n\t      amounts to this, ,hat where a trader bona fide
\n\t      creates  in himself or acquires  a  particular
\n\t      estate  or  interest in  premises\t wholly\t and
\n\t      exclusively  for\tthe purposes of\t using\tthat
\n\t      interest\tto  secure a better market  for\t the
\n\t      commodities  which it is part of his trade  to
\n\t      vend, the money devoted by him to discharge  a
\n\t      liability imposed by Statute on that estate or
\n\t      interest,\t or  upon him as the  owner  of\t it,
\n\t      should  be taken to have been expanded by\t him
\n\t      wholly and exclusively for the purposes of his
\n\t      trade;”\n<\/p>\n
\t      Then regarding these items he observed:
\n\t      “The  small items were not much  contested  in
\n\t      arguments.    I  concur,\thowever,  with\t Mr.
\n\t      Justice Horridge in thinking they ought to  be
\n\t      allowed.”\n<\/p>\n
\t      Lord Parker observed:\n<\/p>\n
\t      “My  Lords,  the Appellants  claim  deductions
\n\t      under three other heads : (1) Fire and licence
\n\t      insurance\t premiums, (2) Rates and taxes,\t and
\n\t      (3)  Legal  and other  costs.   The  Attorney-
\n\t      General  did  not object to  these  deductions
\n\t      being  allowed,  and indeed having  regard  to
\n\t      what I have already said and to the facts\t ad-
\n\t      mitted  in the Supplementary Statement, p.  7,
\n\t      of  the  Appendix, it would  be  difficult  to
\n\t      contend\tthat  they  were  not\tproper\t and
\n\t      necessary\t  deductions  in  ascertaining\t the
\n\t      balance\tof   profits  and   gains   of\t the
\n\t      Appellants’  ,trade, or that they\t are  within
\n\t      any  of  the  prohibitions  contained  in\t the
\n\t      Rules.”\n<\/p>\n
\t      Lord Summer observed
\n\t      “The   remaining\titems,\trates\tand   taxes,
\n\t      premiums\t and  costs  call  for\tno   special
\n\t      observation.   In my view, the case  means  to
\n\t      find  them all to be disbursements  and  money
\n\t      “wholly  and  exclusively\t expanded  for\t the
\n\t      purposes of the trade,”, and that being so  in
\n\t      fact, I ,think there is no reason why they may
\n\t      not  be  so  in  law.   They  are\t accordingly
\n\t      covered  by the decision on the rent  and\t the
\n\t      repairs.”\n<\/p>\n
It  may\t be mentioned ‘that there was no  express  statutory
\nprovision  for deduction of rates and taxes in\tthe  English
\nIncome\tTax  Act and yet they were allowed  as\ta  necessary
\ndeduction  for the ‘purpose of carrying on trade.  There  is
\nno doubt that in one
\n 25<\/span>
\nsense  when  rates  and taxes on property are,,\t paid  by  a
\ntrader\the pays them as owner or occupier because taxes\t are
\neither\ton possession of property or on its ownership.\t But
\nwhen  the  assessee  has  a  dual  capacity,  i.e.,  he\t  is
\nowner-cum-trader,  why\tshould\tit be  not  deductible\twhen
\naccording  to  ordinary commercial principles  he  would  be
\ntreated as paying it as trader.\n<\/p>\n
Take  the case of taxation on a motor vehicle.\tThe  tax  is
\nlevied\tunder  the Motor Vehicles Act on the  possession  or
\nowner ship of a motor car, When a owner-cum-trader pays\t the
\ntax  in respect of a vehicle used solely for the purpose  of
\ntrade,\tnobody\tdoubts,\t and the, learned  counsel  for\t the
\nRevenue did not contest the position, that the tax would  be
\ndeductibles as an expense.  Now, why is it deductible ?\t The
\nonly  rational\texplanation seems to us to be  that  when  a
\nperson\thas  a dual capacity, of a tradercum-owner,  and  he
\npays  tax  in  respect of property which is  used  for\tthe,
\npurpose\t of  trade, the payment must be taken to be  in\t the
\ncapacity  of  a\t trader\t according  to\tordinary  commercial
\nprinciples.\n<\/p>\n
This  aspect  is  also clearly brought\tout  in\t Moffatt  v.
\nWebb(1),  which was not cited before this Court\t then.\t The
\ntaxpayer was a grazier, and during the year’1911, carried on
\nbusiness,  and\twas still carrying on’ business as  such  in
\nVictoria  upon\tlands  of the fee simple, of  which  he\t was
\nduring\tthe  said year and still was the owner.\t  The,\tsaid
\nlands  comprised  17,970  acres or  thereabouts,  and  their
\nunimproved  value  had\tfor the purposes  of  the  Land\t Tax
\nAssessment  Act 1910 of the Commonwealth of  Australia\tbeen
\nassessed  at  pound 44,924.  He paid Commonwealth  land\t tax
\namounting to pound 3 87 on the unimproved value of the\tSaid
\nlands.\t The  taxpayer claimed to deduct this tax  from\t his
\nincome as an outgoing incurred by him “as a disbursement” or
\nexpenditure  being  wholly  and\t exclusively  laid  out\t  or
\nexpanded  for the purpose of his trade.\t The High  Court  of
\nAustralia  held that the tax was properly deductible  either
\nas  an\toutgoing actually incurred by him in  production  of
\nincome\tor  a disbursement of money wholly  and\t exclusively
\nlaid  out or expanded for the purpose of  trade.   Griffith,
\nC.J., summed up the argument as follows :\n<\/p>\n
\t      “The,   possession  of  land  is\t necessarily
\n\t      incident\tto  carrying on the  business  of  a
\n\t      grazier\tthe  payment  of  land\ttax  is\t  it
\n\t      necessary\t consequence  of the  possession  of
\n\t      land of tax, able value, whether the land\t is
\n\t      freehold or leasehold; the payment of land tax
\n\t      is therefore a’ necessary incident of carrying
\n\t      on   the\tbusiness  of  grazing.\t  The\tcase
\n\t      therefore,  seems\t to me to come\twithin\tthe-
\n\t      exact words of the first paragrapher sec.\t 9.”
\n\t      (Sec.  9 is substantially similar to s.  10(2)\n<\/p><\/blockquote>\n
\t      (xv) of the Indian Income Tax Act, 1922).\n<\/p><\/blockquote>\n
(1) [1913] 16 C.L.R. 120.\n<\/p>\n
L1208SupCI\/72
\n26<\/span>
\nBarten, J., observed
\n“..the sole use to which the appellant puts the land is\t for
\nthe purposes of his business as a grazier.  He needs a large
\narea of land for that purpose, and this area of about 18,000
\nacres  is applied to his business needs.  It seems too\tmuch
\n‘altogether  to say that he would have to pay.\tthe  federal
\ntax  on\t this  land  if he did\tnot  carry  on\tthe  grazing
\nbusiness.  Somebody would be wed, no doubt, but would it  be
\nthe  appellant ? It cannot be predicated that he  would\t own
\nthe land at all if he carried on any other business.  It  is
\nscarcely an inference from the case to say that he hold’ the
\nlands  simply  as  an instrument  essential  to\t the  proper
\nconduct of his business : I think it is the fair meaning  of
\nthe first paragraph at which we can arrive without inserting
\nanything  not imported by the words.  If I am  right  there,
\nthen  is  ‘the land tax payment a  disbursement\t or  expense
\nwholly and exclusively laid out or expanded for the purposes
\nof  the\t business  ? It may not be so if  the  criterion  is
\nwhether the business could be carried on without payment  of
\nthe tax.  But I do not think that is the criterion.  Is\t the
\npayment wholly and exclusively incidental to the carrying on
\nof  the\t business  ?  Well, it is  only\t by  reason  of\t the
\nnecessity of land for his business that he holds this  land,
\nand  it is only because of his holding it for  his  business
\nthat  he necessarily pays the tax, for without the  business
\nit  cannot be said that he would hold the land at  all.\t  In
\nview, then, of the particular facts, I think the payment  is
\nincidental  to the conduct of his business, and that  it  is
\nmoney  wholly and exclusively expended for the\tpurposes  of
\nhis trade.”\n<\/p>\n
Issaes, J., was impressed by the reasoning of Lord  Halsbury
\nand Lord Atkinson in Smith v. Lion Brewery, Co. Ltd.(1).  He
\nobserved :\n<\/p>\n
\t      “And  Lord Atkinson reasons out  the  position
\n\t      and  shows  convincingly,\t to  my\t mind  that,
\n\t      though  a\t tax may in I one sense be  paid  as
\n\t      owner  or\t lessee, in another it\tis  paid  as
\n\t      trader.\tThe instance he puts as to  licences
\n\t      are undeniable, and I cannot distinguish\tthem
\n\t      from this case.\n<\/p><\/blockquote>\n
\t      To  carry\t the matter further  :\tSuppose\t the
\n\t      Federal  Parliament were to, lay a tax on\t the
\n\t      owners of motor cars, and carts, and guns, and
\n\t      dogs and sheep. so that
\n\t      (1)   5 T.C. 568.\n<\/p><\/blockquote>\n
\t      27<\/span><\/p>\n
\t      the tax was payable whether these things\twere
\n\t      employed\tin trade or not could it be  doubted
\n\t      that   the  tax  would  be  a  real   outgoing
\n\t      necessary for the production of the income  of
\n\t      a\t business in which they were all used?\t The
\n\t      land  is as necessary To the business  as\t the
\n\t      personal property…\n<\/p><\/blockquote>\n
\t      And  the\tfallacy\t of  the   contrary-doctrine
\n\t      consists in this; it confuses, not so much the
\n\t      meaning,\tas  the\t application  of  the\tword
\n\t      “purpose”.    The\t land  tax  is\tenacted\t  by
\n\t      legislature  for its own purpose, that is,  to
\n\t      tax  the\towner; and when he pays\t it  to\t the
\n\t      Crown,  he pays it as the owner, it  is  true,
\n\t      but  so far, not for any purpose of  his.\t  He
\n\t      simply  pays  it because he is obliged  to  by
\n\t      law.  But when he uses the property to produce
\n\t      an income that is, for his business  purposes,
\n\t      he pays the tax inseparably connected with the
\n\t      land  also for his business purposes,  namely,
\n\t      as  an outlay necessary in the existing  state
\n\t      of  the law to obtain that income by means  of
\n\t      that land.”\n<\/p><\/blockquote>\n
The unsoundness of the test of the capacity in which payment
\nis ‘Made was commented upon in Harrods (Bueonos Aires)\tLtd.
\nv. Taylor-Gooby(1) by the Court of Appeal.  The facts can be
\nconveniently taken from the head-note.\n<\/p>\n
\t      “The Appellant Company, which was incorporated
\n\t      and resident in the United Kingdom, carried on
\n\t      the business of a large retail store at Buenos
\n\t      Aires.  In consequence the Company was  liable
\n\t      in Argentina to a tax known as the  substitute
\n\t      tax, which was levied on joint stock companies
\n\t      incorporated  in Argentine, and  on  companies
\n\t      incorporated outside, Argentine which  carried
\n\t      on  business there, as did the Appellant\tCom-
\n\t      pany,  through an “empress estable”.  The\t tax
\n\t      was  charged annually at the rate of  one\t per
\n\t      cent on the Company’s capital and was  payable
\n\t      whether  or not there were profits  liable  to
\n\t      Argentine\t income\t tax.  Under  Argentine\t law
\n\t      there were sanctions available to remedy\tnon-
\n\t      payment of the tax.\n<\/p><\/blockquote>\n
\t      On appeal against an assessment to Income\t Tax
\n\t      under  Schedule D for the year 1959-60 it\t was
\n\t      contended\t on  behalf of the Company  that  it
\n\t      paid the substitute tax solely for the purpose
\n\t      of  enabling  it to carry on business  in\t the
\n\t      Argentine\t since,\t if it had not paid  it,  it
\n\t      would  have  been\t unable\t to  carry  on\t its
\n\t      business there, and that the tax was therefore
\n\t      deductible as “money wholly and
\n\t      (1)   41 T.C. 450.\n<\/p><\/blockquote>\n
\t      28<\/span><\/p>\n
\t      exclusively  laid\t out  or  expended  for\t the
\n\t      purposes\tof (its) trade”, within the  meaning
\n\t      of Section 137(a), Income Tax Act, 1952.\t For
\n\t      the Crown, it was contended (inter alia)\tthat
\n\t      the-Company  paid the tax in the\tcapacity  of
\n\t      taxpayer rather than trader.”\n<\/p><\/blockquote>\n
\t      Willmer,\tL.J., referred to  Commissioners  of
\n\t      Inland Revenue
\n\t      v.    Dowdall   O’Mahoney\t  &   Co..(1)\t and
\n\t      observed:\n<\/p><\/blockquote>\n
\t      “I can find no sup port whatever in this\tcase
\n\t      for the proposition that the question  depends
\n\t      on the capacity in which the taxpayer pays the
\n\t      taxes.”\n<\/p><\/blockquote>\n
\t      After  referring to Smith v.  Lion  Brewery(2)
\n\t      case he observed
\n\t      “It appears to, me that these two decisions of
\n\t      the   House  of  Lords  are  not\tonly   quite
\n\t      inconsistent with the principal submission put
\n\t      forward on behalf of the Crown in the  present
\n\t      case,  but  that the ratio decidendi  of\tboth
\n\t      cases,  as stated by Lord Atkinson, is  really
\n\t      decisive in favour of the Company.”
\n\t      Dancwerts, L.J. observed
\n\t      “In  Rushden  Heal Co. Ltd.  v.  Keens(3),  to
\n\t      which  I have referred, Lord Greene, M.R.,  in
\n\t      30  T.C.\tpage 316-7, introduced a test  of  a
\n\t      different\t kind  from  that to  which  I\thave
\n\t      referred.\t  He  seems to\tdraw  a\t distinction
\n\t      between  payments\t made  by a  trader  in\t the
\n\t      character of taxpayer and not, or not  wholly,
\n\t      as  trader.   I find this idea  difficult\t to,
\n\t      follow and not very helpful in, discussing the
\n\t      subject  in  issue.   It\tseems  to  me\tvery
\n\t      difficult\t to  say  where\t to  draw  the\tline
\n\t      between\tthe  two  capacities,  and  not\t  as
\n\t      satisfactory  as\tthe  test  which  has\tbeen
\n\t      adopted in the cases to which I have referred.
\n\t      Everyone\twho  pays taxes pays because  be  is
\n\t      taxed and is a taxpayer.”\n<\/p><\/blockquote>\n
\t      Diplock,\tL.J.,  also criticized the  test  in
\n\t      these words
\n\t      “it  is  contended  for  the  Crown  that\t the
\n\t      Company  Paid  the tax in its  capacity  as  a
\n\t      taxpayer,\t not in, its capacity as  a  trader.
\n\t      But with great respect to Lord Greene,  M.R.’s
\n\t      Judgment\tin the Rushden Heel Co.’s  on  which
\n\t      this  Convention\twas mainly  based,  this  is
\n\t      merely playing with words.  As pointed out  by
\n\t      Willmer, L J., this. ratio decidendi “was\t not
\n      adopted by the House
\n\t      (1)   33 T.C. 259.\n<\/p><\/blockquote>\n
\t      (3) 30 T.C. 298.\n<\/p><\/blockquote>\n
\t      (2) 5 T.C. 568.\n<\/p><\/blockquote>\n
\t      29<\/span><\/p>\n
\t      of  Lords in the same case and cannot, in\t my,
\n\t      view,   survive\tLord   Atkinson’s    earlier
\n\t      criticism\t of a similar argument in the  Lion,
\n\t      Brewery  case which Willmer L.J., has  already
\n\t      cited.   You can always find some label  other
\n\t      than  “trader”  to describe  the\tcapacity  in
\n\t      which a trader makes any disbursement for\t the
\n\t      of  his trade.  He pays rent for his  business
\n\t      premises in the capacity of “tenant”, rates in
\n\t      the  capacity  of “Occupier “,  wages  in\t the
\n\t      capacity of “employer”, the price of goods  in
\n\t      the capacity of “buyer”.\tBut if he has become
\n\t      tenant  or occupier of those  particular\tpre-
\n\t      mises,  employer of those particular  servants
\n\t      or buyer of those particular goods solely\t for
\n\t      the purposes of his trade, the money which  he
\n\t      has  expended  in\t any of\t the  capacities  so
\n\t      labelled is a deductible expense in  computing
\n\t      the profits of his trade.”\n<\/p><\/blockquote>\n
The  learned counsel for the Revenue did not say that  these
\ncases  had been wrongly decided.  What he said was  that  if
\nthe  real  nature  of  wealth  tax  is\tappreciated,  it  is
\nimpossible  to equate the “net wealth” with “land”  used  by
\nthe  grazier in Moffatt v. Webb(1) or with “tied  house’  in
\nSmith  v.  Lion Brewery Compnay(2) or  with  the  “Company’s
\nCapital” in Harrods (Bueonos Aires) Ltd. v. Taylor-Gooby(3).
\nHe said that in all these cases the tax was being levied  on
\nthe  asset  of\tthe business which was being  used  for\t the
\npurpose of business.  In the present case, according to him,
\nthe net wealth could not be likened to an asset owned by the
\ntrading\t company.   To\tthis the  learned  counsel  for\t the
\nappellant retorted that in the case especially of a  trading
\ncompany\t all the assets are owned and  liabilities  incurred
\nfor  the purposes of trading, as outlined in its  Memorandum
\nof  Association; if, all the assets are owned and  used\t for
\nthe purpose of the trade the net wealth would also be  owned
\nand used for the purpose of trade.  He said that it would be
\npossible for a company to mortgage its net assets to a\tbank
\nand if a company did that, it could not be said that the net
\nwealth\tor net assets had not been used for the purposes  of
\nbusiness.  If tax was levied on the capital value of  assets
\nwithout allowing deduction of debts it is clear that the tax
\nwould be deductible.  What difference does it make if  debts
\nare  deducted  from the capital value of  assets.   The\t net
\nwealth\tis  as much an instrument of trade  as\tthe  capital
\nvalue  of assets.  We find it very difficult to\t distinguish
\nthe  case  of  a  trading  company  like  the  assessee,  on
\nprinciple, from that of the grazier or the brewery  company,
\nin the cases referred to above.\n<\/p>\n
(1) [1913] 16 C.L.R. 120.\t\t (2) 5 T.C. 568.\n<\/p>\n
(3)  41 T.C. 450.\n<\/p>\n
30<\/span><\/p>\n
In   our view the test adopted by this Court  in  Travancore
\nTitanium case(1) that “to be a permissible deduction,  there
\nmust  be  a  direct  and  intimate  connection\tbetween\t the
\nexpenditure and the business, i. e., between the expenditure
\nand  the character of the assessee as a trader, and  not  as
\nowner  of assets, even if they are assets of  the  business”
\nneeds to be qualified by stating that
\nif the expenditure is laid out by the assessee as Owner-cum-
\ntrader,\t and  the expenditure is really\t incidental  to\t the
\ncarrying on of his business, it must be treated to have been
\nlaid  out  by  him  as a trader and  as\t incidental  to\t his
\nbusiness.\n<\/p>\n
It  was pointed out by the learned counsel for\tthe  Revenue
\nthat it would be difficult to allow the deduction of  wealth
\ntax in respect of individuals who have both business  assets
\nand debts and non-business assets and debts.  But the Wealth
\nTax  Return form itself requires the assessee to  show\twhat
\nare  the business assets and liabilities and what  are\tnon-
\nbusiness assets and liabilities.\n<\/p>\n
At any rate it should not be difficult to evolve a principle
\nor  frame statutory rules to find out the proportion of\t the
\ntax  which  is really incidental to the carrying on  of\t the
\ntrade.\t On the facts of this case it is clear that  payment
\nof  wealth tax was really incidental to the carrying on,  of
\nthe assessee company’s trade.\n<\/p>\n
Accordingly,  we  hold\tthat the appellant  is\tentitled  to
\nsucceed.  The appeals are allowed, the judgment of the\tHigh
\nCourt  set aside and the question answered in favour of\t the
\nassessee. Parties will bear their own costs throughout.
\nBeg,  J. My lord the Chief Justice has quoted certain  tests
\nlaid down by Gajendragadkar, C.J., speaking for this  Court,
\nin  Keshav  Mills Co. Ltd. v.  Commissioner  of\t Income-Tax,
\nBombay North<\/a>(2), which have to be satisfied before we  could
\nproperly dissent from a previous decision of this Court.  In
\nsuch  a\t case,\tI think I should  indicate  my\treasons\t for
\nreaching  a concurring conclusion, with very great  respect,
\nthat an earlier, opinion of this Court, on the very question
\nbefore us now, needs revision.\n<\/p>\n
The  error  which  crept into  the  decision  of  Travancore
\nTitanium  Products  Ltd.  v.  Commissioner  of\t Income-tax,
\nKerala<\/a>(1)  could be traced to an application of\t the  rather
\nspeciously stated criterion laid down, in the House of Lords
\nin  Strong & Co. of Romsey Ltd. v.Woodfield(3), by the\tLord
\nChancellor who said there that expenses cannot be  deducted,
\nin computing profits, “if they are mainly incidental to some
\nother  vocation,  or fall on the trader\t in  some  character
\nother than that of trader.  The nature of the trade is to be
\nconsidered”.  But, Lord Davey, looking at the case from
\n(1) [1966] 3 S.C.R. 321.   (2) [1965] 2 S.C.R. 908.
\n(3)  5 T. C. 215.\n<\/p>\n
31<\/span><\/p>\n
a somewhat different angle, “said:, “it was not enough\tthat
\nthe bursement is made in the course of, or arises out of, or
\nis  connected with, the trade or is made out of the  profits
\nof  the trade.\tIt must be made for the purpose\t of  earning
\nprofits”.  ‘The two tests were not identical.
\nThe  ratio  decidendi of Strong’s case would not  have\tbeen
\nopen  to criticism if the noble Lords could have held  there
\nand had made it clear that they were holding nothing  beyond
\nthat  a tradesman who has to pay damages for injury  to\t his
\ncustomer  due  to his personal neglect\tin  maintaining\t his
\npremises, even though these premises are used for trade, was
\nnot entitled to deduct them in computing his profits for the
\npurposes  of paying income-tax just as he Could not claim  a
\ndeduction  for damages he will have to pay as  a  wrong-doer
\nfor  assaulting\t or defaming a customer who comes  into\t his
\nshop.\tIt  is\tno part of normal business  to\tcommit\tsuch
\nwrongs.\t  Liabilities so incurred could very well be  looked
\nupon  ,is outside the course of trading altogether  even  if
\nthey  arise  out  of  commercial  activity  or\tresult\tfrom
\nsomething  connected with or meant to serve  any  commercial
\npurpose.   Their  Lordships, however,  used  language  which
\ncould  cover  more  than what could  be\t attributed  to\t the
\ntradesman’s  own purely personal wrongs.  The facts of\tthat
\ncase  show that the negligence which resulted in payment  of
\ndamages,  for  which a deduction was claimed,  was  that  of
\nservants employed as an ordinary incident of trading so that
\nthe master was only vicariously liable as an inn-keeper\t and
\nan employer.  And, this aspect of the case made Lord  James,
\nin Strong’s case, doubt the correctness of the opinion which
\nhe, very hesitatingly, decided to accept.
\nIn  Smith v. Lion Brewery Company, Limited(1),\tcompensation
\nfund charges levied under statutory provisions were held, by
\nthe  Court  of\tAppeal,\t to  be\t permissible  deductions  in
\ncomputing  profits on the ground that they were\t “wholly  or
\nexclusively  laid out’ for the purpose of  earning  profits.
\nThis  decision had to be upheld by the House of Lords  where
\nopinion was evenly divided when the case was taken up there.
\nHence,\tthe test laid down there by the Court of Appeal\t was
\nheld  by  Farl Loreburn to he binding upon him,\t in  Usher’s
\nWiltshire Brewery Ltd. v. Bruce(2), although lie had himself
\nnot accepted it in Lion Brewery’s case. in
\nIn  Rushden Heel Co. Ltd. v. Commissioner of Inland  Revenue
\n(3) Lord Greene, M.R., in disallowing deduction of  expenses
\nincurred in contesting claims for payment of Excess  Profits
\nDuty,  from a computation of profits for purposes of  paying
\nIncome-tax,  applied  the test of character or\tcapacity  in
\nwhich\tthe  expense  was  incurred.   He  held\t  that\t the
\ndisbursment- had to be disallowed
\n(1) 5 T.C. p. 568.\n<\/p>\n
(3) 30 T.C. 298.\n<\/p>\n
(2) 6 T.C. p. 399.\n<\/p>\n
32<\/span><\/p>\n
on  the\t ground “that the expenditure was  incurred  by\t the
\nCompany primarily in its capacity as a taxpayer and for\t the
\npurpose\t of regulating the Position as between itself  as  a
\ntaxpayer  and  the Crown.  ” The House of Lords\t upheld\t the
\ndecision, following its slightly earlier pronouncement by  a
\nmajority, in Smith’s Potato Estates Ltd. v. Bolland(1),\t but
\nit   did   so  on  the\tground\tthat  the   expenses   under
\nconsideration,\t incurred  on  litigation,  related   to   a
\ncomputation  of Excess Profits Duty which had to take  place
\nafter profits had been calculated.\n<\/p>\n
In Artherton v. British Insulated and Helsby Cables Ltd.(1),
\nhowever, the test in Usher’s Wiltshire Brewery case  (supra)
\nwas  applied  to  hold\tthat  even  sums  expended  “not  of
\nnecessity  with a view to a direct and immediate benefit  to
\nthe trade, but voluntarily and on the grounds of  commercial
\nexpediency and in order to directly facilitate the  carrying
\non. the business may yet be expended wholly and\t exclusively
\nfor the purposes of the trade”.\n<\/p>\n
In  Mogan  v. Tata & Lyle Ltd. (3), the House of  Lords\t had
\nused  Lord Davey’s test in Strong’s case (supra) to  justify
\ndeduction  of sums spent on propaganda to oppose  threatened
\nnationalisation\t of,  the Sugar Refinery industry  as  money
\nspent “wholly and exclusively for the company’s trade”.
\nThe  decision  of the Court of Appeal,\tin  Harroda  (Buenos
\nAires)\tLtd. v. Taylor-Gooby (4), fully exposed the  fallacy
\ninvolved in applying, without close examination, the test of
\ncapacity,  for\tthe  possession of which in  a\ttax  may  be
\nimposed, to every levy of a tax, by extending the alluringly
\nsimple formula of the Lord Chancellor, in Strong’s case,  to
\ncases  for which it could not have been meant.\tIn  Harrods’
\ncase, deduction was claimed, in computing annual profits  of
\na Company, of a ‘Substitute Tax which had to be paid on\t the
\nCompany’s capital in Argentina, irrespective of the  profits
\nmade on it (just like the Wealth Tax before us).  The  Court
\nof  Appeal  quoted  passages from the opinions\tof  the\t Law
\nLords, in Rushden Heel Co.’s case (supra) and Smith’s Potato
\nEstates’  case (supra), to show that the ratio decidendi  of
\nthese two decisions confined the principle applied there  to
\ncases  where  taxes,  like the Income  Tax  and\t the  Excess
\nProfits Tax, had to be paid upon and after a calculation  of
\nprofits and did not extend to other cases.  In other  words,
\nwhere  profits, the net gains of business  determined  after
\nmaking\t all   permissible  deductions,\t  are\ttaxed,\t the
\ndisbursements  to meet such taxes cannot be deducted.\tBut.
\nwhere  the  tax was levied, as it was in Harrods’  case,  on
\ncapital\t or  assets used for the purpose  of  earning  these
\nprofits,  it  was  a permissible  deduction  in\t calculating
\nprofits.\n<\/p>\n
(1) 30 T.C. p. 267.\t (2) 10 T. C. P. 15 5.\n<\/p>\n
(3) 35 T.C. p. 367.\t     (4) 41 T.C. p. 450.\n<\/p>\n
33<\/span><\/p>\n
In Harrods’ case, both Willmer, L.J., and Diplock, L.J.\t had
\nmade  use of Lord Davey’s test set out above, from  Strong’s
\ncase  (supra).\tThey held the ratio decidendi of the  “tied-
\nhouse” cases. and not Lord Loreburn’s test to be  applicable
\nto payment of taxes on assets used for trading exclusivelye.
\nWillmer,  L.J.,\t quoted\t the  following\t passage  from\tLord
\nHalsbury’s opinion in Lion Brewery case (p.466)
\n\t      “Again, it is urged that the landlord pays his
\n\t      contribution  as landlord and because of\this
\n\t      proprietary interest in the premises and,\t not
\n\t      as  trader, since he would be, equally  liable
\n\t      to  it  whether he traded or  not.   That,  no
\n\t      doubt,  is  so, but in the  present  case\t the
\n\t      Company have become landlords and thus  liable
\n\t      to pay the charge, for ,the purpose solely and
\n\t      exclusively  of  setting\tup  the\t tied  house
\n\t      system of trading.”\n<\/p>\n
Lord  Atkinson’s view, expressed in the following  words  in
\nthe  same  case, was also relied upon by the  learned  Judge
\n(p.466) :\n<\/p>\n
\t      “Stated broadly, I think that doctrine amounts
\n\t      to this, that where a trader bona fide creates
\n\t      in himself or acquires a particular estate  or
\n\t      interest\tin premises wholly  and\t exclusively
\n\t      for  the\tpurposes of using that\tinterest  to
\n\t      secure  a\t better market for  the\t commodities
\n\t      which  it\t is part of his trade to  vend,\t the
\n\t      money devoted by him to discharge a  liability
\n\t      imposed by Statute on that estate or
\n\t      interest,\t or  upon him as the  owner  of\t it,
\n\t      should  be taken to have been expended by\t him
\n\t      wholly and exclusively for the purposes of his
\n\t      trade”.\n<\/p><\/blockquote>\n
In Harrods case, the Court of Appeal, after a  comprehensive
\nsurvey\tof all the relevant English authorities,  considered
\nthe  proposition accepted by it, that the ‘substitute  tax’,
\nlevied\t on  the  company’s  capital,  was   a\t permissible
\ndeduction.  in\tcalculating  the profits of  a\tcompany\t for
\npaying\tincome tax, to be so clear and free from  doubt,  on
\nthe  authorities then existing and applied, that it  refused
\neven leave to appeal to the House of Lords.
\nIf there could be any doubt about the correct position of  a
\ntax like the one before us, a perusal of the opinions  given
\nby  Australian Judges, in Moffat v. Webb, (1) where after  a
\ndiscussion  of\tthe relevant English  authorities,  land-tax
\npaid  by  a grazier on land used by him to earn\t income\t was
\nheld to be deductible in computing it for paying income tax,
\nwould  lay  to rest, if I may so put it\t ,  the\t disembodied
\nghost  of  a  tradesman’s  non-trading\tcharacter,  a\tpure
\nabstraction,  which is sought to be used before us,  by\t the
\nlearned\t Counsel for the Income-tax Department,\t to  prevent
\nwealth tax paid on even the wholly commercial assets,
\n(1)  16 Commonwealth Law Reports p. 120,
\n34<\/span>
\nconstituting  a part or whole of the taxable  “net  wealth”,
\nused ,exclusively for purposes of trade, from being deducted
\nas allowable expense, under Sec. 10(2)(xv) of the Income-tax
\nAct, 1922.\n<\/p>\n
On the earlier occasion, when Travancore Titanium Co.’s case
\n(supra) was argued in this Court, Moffat v. Webb (supra) was
\nnot cited.  Although, there are references in the,  judgment
\n,of  this  Court, in the earlier case, to  the\t“tied-house”
\ncases  and to Harrods’ case (supra), these were held  to  be
\ndistinguishable\t on facts, but, the test propounded by\tLord
\nChancellor  Loreburn,  in  Strong’s  case,  was\t applied  to
\ndisallow  deduction  of\t wealth tax  in\t computing  profits.
\nAfter going through all the relevant authorities, I have  no
\ndoubt  whatsoever  left\t in my mind that  it  is  the  ratio
\ndecidendi  of “tied-house” cases and Harrods’  case  (supra)
\nwhich  is  the same as that of the.  Australian\t case,\tthat
\napplies\t here  and not Lord Chancellor Lorebum’s  test\tlaid
\ndown  in a very different context than that of payment of  a
\ntax as a necessary precondition of earning more profits.
\nI  do  not think that the test of  trading  character,\twhen
\nincurring  an expense for which a deduction is\tclaimed,  is
\nwithout\t its uses.  There are cases where the  question\t has
\narisen\twhether a payment was gratuitous or  unnecessary  or
\nnot  made  for a bona fide commerical purpose  or  connected
\nmore  with some ulterior object really falling\toutside\t the
\nnormal\tsphere\tor regular course of commerce, such  as\t the
\ncompounding  of an offence even if committed while  trading.
\nIn  J.\tK.   Cotton Spinning & Weaving\tMills  Co.  Ltd.  v.
\nCommissioner of Income Tax<\/a>(1), I had occasion to consider, a
\ncase  where  the test of trading character  or\tcapacity  in
\nwhich  a  payment  is  made as\twell  of  causal  connection
\nbetween,  the payment and a legitimately commercial  purpose
\ncould,\tit  seemed to me, be both  simultaneously  employed.
\nBut,  in cases of payment of taxes, a concentration  on\t the
\ntest  of  capacity for which payment  becomes  necessary  is
\ncertainly liable to mislead us.\n<\/p>\n
A  question which did trouble my mind was whether,  in\tview
\nwhat  this  Court  had\theld  in  Travancore  Titanium\tcase
\n(supra),  it  could be said that  any  “accepted  commercial
\npractice  and trading principles” could exclude\t wealth\t tax
\nfrom the computation of profits, with which Sec. 10 sub.  s.
\n(1) and (2) of the Income-tax Act are concerned.  One of the
\ngrounds given by this Court, to support, its view there, was
\nthat “the nature of the expenditure of the outgoing must  be
\nadjudged  in the light of accepted commercial  practice\t and
\ntrading principles”.  Speaking for myself, I was inclined to
\ntake  the view that, if the earlier decision of\t this  Court
\ncould  be  justified  by a  reference  to  some\t “commercial
\npractice  or trading principles” which could be implied\t by,
\nor,  read into, the very process of computation\t of  profits
\nwith which provisions of Section
\n(1)  A.T.R. 1967 All. p. 513.\n<\/p>\n
35<\/span><\/p>\n
10(1)  & (2) of the income-tax Act, 1922, are concerned,  it
\nmust  stand.  I find, however that no case, apart  from\t the
\nObservations  mentioned above, contained in  the  Travancore
\nTitanium  Co.’s\t case.\twas cited to support  this  line  of
\nreasoning.  All the other cases brought to our notice, which
\nare discussed above, indicate that ,.commercial practice and
\ntrading principles” also warrant such deductions of a tax on
\nassets for capital used wholly and exclusively for  carrying
\non  trade or earning profits.  They may preclude  deductions
\nof taxes on net profits but not those imposed on net  assets
\nor wealth used exclusively for making profits.
\n“Commercial  practice  and trading principles”\tcould  vary’
\nThese  terms appear to be rather vague and indefinite.\t The
\nmeanings of the relevant statutory provisions seem much more
\nfixed and definite.  All that the language of Sec. 10(2)(xv)
\napparently requires, for claiming its benefit, is proof of a
\ndirect\tcausal\tconnection  between  an\t outgoing  and\t the
\ncommercial   purpose   which   necessitates   it.   Whatever
\n“commercial  practice  or trading principles” may  imply  or
\nimport,\t they could not alter the meaning of statutory\tpro-
\nvisions or travel beyond it.\n<\/p>\n
Another\t question  which engaged my  attention\twas  whether
\nWealth\tTax  could be excluded from the purview of  of\tSec.
\n10(2)(xv)  simply  because it was a tax on assets  or  “net-
\nwealth” paid by its owner so as to reduce his wealth.  This,
\nline of thinking, however, seemed to me to bring in, through
\nthe backdoor, the misleading test of either the capacity  as
\nowner  for the possession of which or the purpose for  which
\nthe  wealth tax may be demanded, instead of  the  inevitable
\nneed  and  the purpose of the trader in paying the  tax,  as
\nrelevant  matters.   In Lion Brewery’s\tcase  (supra),\tLord
\nHalsbury  had  declared the unavoidable need  to  satisfy  a
\nstatutory  demand for the purpose of making profits as\tthe
\nreally\trelevant question for consideration in\tsuch  cases.
\nHe  said, about “the purpose for which the  Government\thave
\nexacted\t the  tax”;  “whatever that purpose  may  be  it  is
\nimmaterial”.\n<\/p>\n
It  may\t be that the purpose of the tax before us  could  be
\nconsidered in order to determine whether its nature is\tsuch
\nas to necessarily imply that it cannot be taken into account
\nin  calculating profits or gains of business under  Sec.  10
\nsub, s. (1) & (2) of the Income-tax Act.  The nature of\t the
\nWealth\tTax was examined by this Court in Union of India  v.
\nHarbhajan Singh Dhillon<\/a>(1). where the following passage was
\nquoted\tfrom “Readings on Taxation in Developing  Countries,
\nby Bird & Oldman, dealing with the concept of Wealth-tax :-\n<\/p>\n
\t      “The term ‘net wealth tax’ is usually  defined
\n\t      as a tax annually imposed on the net value  of
\n\t      all assets less liabilities of particular tax-
\n\t      payers-especially individuals.
\n\t      (1)   [1971] (2) Supreme Court Cases p. 779  @\n<\/p><\/blockquote>\n
\t      806.
\n\t      36<\/span>
\n\t      This definition distinguished the net  wealth
\n\t      tax  from\t other\ttypes  of  taxation  of\t net
\n\t      wealth,  such  as death duties and  a  capital
\n\t      levy;   the   former  are\t imposed   only\t  at
\n\t      infrequent  intervals-once a  generation-while
\n\t      the latter is a one-time charge, usually with.
\n\t      the  primary Purpose of redeeming\t a  war-time
\n\t      national\tdebt.  The net wealth tax is  really
\n\t      intended\tto tax the annual yields of  capital
\n\t      rather than the principal itself as do  death’
\n\t      duties  or a capital levy, even though  it  is
\n\t      levied  on the value of the principal.   Since
\n\t      it  tax-es  net wealth, it also  differs\tfrom
\n\t      Property\ttaxes imposed on the gross value  of
\n\t      property-primarily  real property-in a  number
\n\t      of  countries.   The  net\t wealth\t tax   gives
\n\t      consideration   to  the  tax-payer’s   taxable
\n\t      capacity\t through   the\tdeduction   of\t all
\n\t      outstanding    liabilities    and\t    personal
\n\t      exemptions  as well as through other  devices,
\n\t      while the property tax generally does not take
\n\t      these  factors into account.  The\t net  wealth
\n\t      tax  is therefore deemed to be imposed on\t the
\n\t      person of the taxpayer, while the property tax
\n\t      often  deemed to be imposed on  an  object-the
\n\t      property itself”.\n<\/p><\/blockquote>\n
It-  is, true that wealth tax is imposed on “net-wealth”  of
\nassessees  ,  as defined by Sec. 2 sub-s. (c), who  are\t all
\n“persons”.   These persons are both natural and\t artificial.
\nIn  the\t case of an artificial or juristic person  like\t the
\nCompany\t before us, it seems very difficult to separate\t the
\npurpose\t of  the  juristic  “persona”  which  is   certainly
\ncommercial,  from  the character of  the  “persona”  itself.
\nEven as regards other traders, that part of tax which  falls
\non  what  is  used exclusively for  trade  could  be  really
\nascribed only to a trading character.  To the extent it is a
\ntax on property used for earning profits, it must enter into
\na computation of profits from trading.\n<\/p>\n
On going through the provisions of Wealth-Tax Act as well as
\nthe Income-tax Act it was not possible for me to infer\tthat
\nthe  payment  of  Wealth-tax  must  be\texcluded  from\t the
\ncomputation  of profits under Sec. 10 sub. s. (1) &  (2)  of
\nthe Income-tax Act.  It appears to me that nothing less than
\nexpress\t statutory provision would justify a denial  of\t the
\nright  to a deduction which the language of Sec. 10 sub.  s.
\n(2) (xv) confers upon an assessee.\n<\/p>\n
On  looking  at\t the  position of law  in  America  on\tthis
\nsubject,  I find that there are statutory  provisions  which
\ndeny  deductions of certain taxes only, such as\t income-tax,
\nand  taxes  on\twar  profits  and  excess  profits,   gifts,
\ninheritance,  legacies, and succession (See U.S. Code  1958,
\ned.  Titles 22-26 “Internal Revenue Code”, p. 4287 paragraph\n<\/p>\n
164).  A general statement of the law on this subject  there
\nis that it
\n37<\/span>
\n\t      “does  not  prevent (a) a\t deduction  therefor
\n\t      under  Sec.  23(a) provided it  represents  an
\n\t      ordinary\t and-necessary\t expense   paid\t  or
\n\t      incurred\t during\t the  taxable  year,  by   a
\n\t      corporation  or an individual in\tcarrying  on
\n\t      any  trade or business, or, in the case of  an
\n\t      individual,  for the production or  collection
\n\t      of    income,   or   for\t  the\t management,
\n\t      Conservation, or maintenance of property\theld
\n\t      for  the\tproduction  of income,\tor  (b)\t the
\n\t      inclusion of such tax paid or incurred  during
\n\t      the  taxable  year  by  a\t corporation  or  an
\n\t      individual  as  a\t part of the,  cost  of\t ac-\n<\/p>\n
\t      quisition\t or  production\t in  the  trade\t  or
\n\t      business, or, in the case of an individual, as
\n\t      a\t part of the cost of property held  for\t the
\n\t      production  of  income with respect  to  which
\n\t      such tax is paid or incurred”. (See Jacob Mer-
\n\t      tens  Law of Federal Income Taxation:  Vol  5,
\n\t      1954  Cumulative Pock-et\tSupplement,  Chapter
\n\t      27, paragraph 27.01).\n<\/p>\n
Learned\t Counsel for the Department relied upon\t the  diffi-
\nculty in separating that Dart of the tax which is levied  on
\nany part of the net wealth, used wholly and exclusively\t for
\ntrade,,\t from  the rest of it.\tWe arc,\t strictly  speaking,
\nconcerned  only with the correct interpretation of  Sec.  10
\nsub. s. (2) (xv) of the Act and with the definition of “net-
\nwealth”\t given in Sec. 2(m) of the Wealth Tax Act  on  which
\nincidence of the tax levied under Sec. 3 falls.\t In order to
\ndetermine  whether,  as\t a matter of  principle,  a  tax  so
\ndefined\t and  imposed  would be covered by  Sec.  10  sub.s.
\n(2)(xv) of the relevant Income-tax Act, the difficulty which
\nmay  arise in actually computing the deductible amount\tdoes
\nnot  seem  ,to be a material consideration.   Moreover,\t the
\nfact that “net wealth” is an amount by which an\t aggregation
\nof  all\t the assets exceeds all the debts does not  seem  to
\nimpose any intractable difficulty in the way  of-calculating
\nwhat part of the net-wealth is used for trade or business of
\nan  assessee  and  what is- not.   An  aggregation  means  a
\ncollection of items added up which can be separated and. not
\na  mixture  the\t ingredients of\t which\tbecome\tinseparable.
\nAssuming,   however,  that  there  is  some  difficulty\t  in
\nseparating that part of the tax which is payable in  respect
\nof  net\t ,wealth used only for trade from that\tpart  of  it
\nwhich  is imposed on a portion of net-wealth not so used,  I
\nfail  to  see how the principle involved or meaning  of\t the
\nrelevant provisions, with which we are concerned here,\twill
\nbe  affected.  Mr. Chagla, appearing for an  assessee,\tdrew
\nour  attention to  the division into  two  heads,  one\tof
\nbusiness assets and another of the “other assets”, which  is
\nfound in form ‘A’ prescribed by the rules for the Wealth Tax
\nreturn.\t  This\tmeans that the Wealth Tax Act  itself  makes
\nthat part of the net wealth separable which can be  utilised
\nwholly\tand exclusively for trade from the remainder of\t it.
\nIf  this can be, done, it is difficult to see how that\tpart
\nof Wealth Tax could escape
\n38<\/span>
\ndeduction,  under  Sec. 10(2) (xv) of the Income tax  Act,
\nwhich  is attributable to such portion of the net wealth  as
\nis used wholly and, exclusively for earning profits.
\nTo  lay down, as we are doing in this case, that it  is\t the
\ncausal\tconnection between payment of tax and that  part  of
\nnet  wealth which is used wholly and exclusively  for  trade
\nand not the mere character or capacity for the possession of
\nwhich the tax is demanded, which determines whether it is an
\nallowable deduction or not, under Sec. 10(2)(xv) of the Act,
\nseems to me to amount to nothing more than to give effect to
\nthe  plain  and literal meaning of a provision of  a  taxing
\nstatute.   There  seems\t no need in such a  clear  case,  to
\ninvoke\t the   aid  of\tthe  well  established\t cannon\t  of
\nconstruction  that, where a taxing provision  is  reasonably
\ncapable of two equally possible constructions, the one which
\nfavours\t the  assessee must be preferred.   of\tcourse,\t the
\nburden of proving whether the whole or a part of the  Wealth
\ntax   paid  by\tan  assessee  is  attributable\twholly\t and
\nexclusively  to the carrying on of a trade, and,  therefore,
\nis  an allowable deduction, must rest upon the\tassessee  in
\neach  case.  The argument on behalf of the assessees,  as  I
\nunderstand it, goes no further.\n<\/p>\n
One  of the tests laid down in\tKeshav Mills Company’s\tcase
\n(Supra)\t for  deciding whether a  previous.  erroneous\tview
\nshould be set right by this Court, was whether any  possible
\nadvantage  to  the public resulting from doing so  would  be
\noutweighed by the mischief or harm a revision may cause.  of
\ncourse,\t the  ultimate\tdetermination of  what\tpublic\tgood
\nrequires  the law to be must take place elsewhere-  But,  in
\ndeciding whether a previous interpretation of the law, as it
\nexists,\t by  this  Court, even if it be\t erroneous  in\tsome respe
\nct  ,  needs revision by it, a consideration  of  what
\npublic good demands undoubtedly lies within the province  of
\nour powers.\n<\/p>\n
It  seems to me that the Wealth Tax Act was not intended  to
\nstrike\tat  or check expansion of  commercial  activites  by
\neither individuals or companies.  Its underlying purpose was
\nthe removal of disparities of individual or personal  wealth
\nand not injury to trade.  It could be said to be a tax aimed
\nat  individuals whose wealth exceeds certain limits.  In  so
\nfar   as   Ole\tparticular  interpretation  which   we\t are
\nabandoning,  because of the infirmities found in it,  seemed
\nto penalise mere expansion of business and
\n39<\/span>
\ntrade  ‘without\t serving the assumed underlying\t purpose  of
\nWealthtax, a revision of opinion does not appear to  involve
\nany such mischief or injury to the public as could stand  in
\nthe way of correcting an erroneous view.
\nI have, therefore, no hesitation left in my mind in  holding
\nthat the view expressed by this Court in Travancore Titanium
\ncase  (Supra) must be modified as indicated by My  lord\t the
\nChief Justice.\n<\/p>\n
V.P.S.\t\t\t       Appeal allowed.\n40<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India The Indian Aluminium Co. Ltd vs C.I.T., West Bengal, Calcutta on 29 March, 1972 Equivalent citations: 1972 AIR 1880, 1973 SCR (1) 15 Author: S Sikri Bench: Sikri, S.M. (Cj), Grover, A.N., Ray, A.N., Palekar, D.G., Beg, M. Hameedullah PETITIONER: THE INDIAN ALUMINIUM CO. LTD Vs. RESPONDENT: C.I.T., WEST BENGAL, CALCUTTA […]<\/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-199042","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nThe Indian Aluminium Co. 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