Law:

Section:

Section 37(1) of Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of 1922 Act] - Business expenditure - Allowability of - Assessment years 1961-62 and 1962-63 - Assessee company owned cinema houses and derived income from exhibition of motion pictures therein - Whether property tax paid by assessee on cinema houses could be allowed as permissible deduction under section 10(2)(xv) of 1922 Act - Held, no FACTS The assessee company owned two cinema houses and derived income from exhibition of motion pictures. The assessee claimed deduction of property tax paid on the cinema houses. The ITO disallowed the deduction and the appeal to the AAC also failed. The AAC held that these amounts could not be allowed as permissible deduction under section 10(2)(xv) of 1922 Act as the expenditure was not incurred for purposes of business inasmuch as the tax was really on the ownership of property. The Tribunal however allowed the assessee's appeal holding that the payment of urban property tax was incidental to the carrying on of the business. On reference : HELD It is clear from the language of the statute that the tax is on the ownership of property. On this principle, the property tax had no direct connection with the carrying on of the business of the assessee. An assessee who owns a cinema house and carries on business of exhibiting films pays the tax whereas an assessee who carries on the business of exhibiting films but does not own the cinema house does not pay the tax. This will demonstrate that the tax has no connection whatever with the carrying on of the business of film exhibitors. In the matter whether a particular tax can be allowed as a permissible deduction under section 10(2)(xv), no uniform rule can be laid down. In each case it will depend on as to what is the nature of the business and what is the nature of the tax. Only when the tax has intimate connection with the carrying on of the business that it can be claimed as a permissible deduction. So far as the instant case was concerned, the property tax could not be allowed as a permissible deduction under section 10(2)(xv ) of the 1922 Act. Note : The case was decided against the assessee. CASES…

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