Law: Income Tax Act, 1922

Section: 10(2)(xv)

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment years 1955-56 and 1956-57 - A ssessee was a resident company incorporated outside India - Most of its shareholders were in the United Kingdom - During relevant accounting period, assessee-company paid certain amounts towards estate duty which was payable on death of certain shareholders who were not domiciled in India - Assessee-company debited said amounts in its accounts and claimed deduction under section 10(2)(xv) of 1922 Act - Whether since amounts were paid by assessee as a statutory agent to discharge a statutory duty unconnected with business, though occasion for imposition arose because of territorial nexus afforded by accident of its doing business in India, estate duty paid by assessee was not an allowable deduction under section 10(2)(xv) of 1922 Act - Held, yes FACTS During the accounting period relevant to the assessment years in question, the assessee-company paid certain amount towards estate duty which was payable on the death of certain shareholders who were not domiciled in India by debiting the said amounts to revenue in its accounts in ascertaining the profits and gains of its business for the said year and claimed deduction under section 10(2)(xv) of 1922 Act. The ITO disallowed the assessee's claim. On appeal, the AAC upheld the order of the ITO. On further appeal, the Tribunal allowed the assessee's claim. On reference the High Court upheld the order of the Tribunal. On appeal to the Supreme Court : HELD Under section 84 of Estate Duty Act, 1953 in the circumstances mentioned therein a company is liable to pay estate duty in respect of the shares of the deceased member of the company on the principal value of the shares held by the deceased in the company: under this section a statutory obligation is imposed on the company to pay the estate duty on the shares of a deceased non-resident member. If such a member of a company had died in India, subject to the conditions mentioned in the section, the company would not be liable to pay the estate duty payable on the shares held…

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