Law: Income Tax Act, 1961

Section: 30,37

Income tax ----- Business expenditure Capital or revenue expenditure Rents, rates and taxes Hotel business Building tax Not deductible as revenue expenditure or under S. 30 Indian Income Tax Act, 1961, Ss.30 & 37 Kerala Building Tax Act, 1975. The assessee, which ran a hotel claimed deduction of the tax paid under the Kerala Building Tax Act, 1975. It was disallowed by the Income¬tax Officer and the Tribunal. On a reference: Held, that under the Kerala Building Tax Act once the payment is made on completion of the building, it is once for all. The tax so paid forms part of the capital asset and hence, was part of capital expenditure. It could not be said to be an expenditure for the purpose of business on profession carried out in the said building. It was not deductible under section 37 of the Income Tax Act, 1961. In order to attract section 30, payment of tax must be for the purpose of business or profession. The payment of tax in the present case was not for the purpose of augmenting the business or profession. That being the position the tax was not deductible under section 30 of the Act. British Insulated and Helsby Cables Limited v. Atherton (1926) AC 205; (1925) 10 TC 155 (HL) and CIT v. Finlay Mills Ltd. (1951) 20 ITR 475 (SC) ref. JUDGMENT P.A. MOHAMMED, J. This income tax reference is coming up for answer before us at the instance of the assessee. The assessment year involved is 1977 78. The relevant previous year ended on March 31, 1977. The assessee filed a return declaring a loss of Rs.12,050. While completing ` the assessment, the Income tax Officer included a sum of Rs.43,469 which was claimed by the assessee as deduction on account of building tax paid under the Kerala Building Tax Act, 1975. However, the Income tax Officer rejected the deduction claimed by the assessee and treated it as a revenue expenditure (sic). On appeal, the Appellate Assistant Commissioner held that the expenditure laid out was an expenditure incurred for the purpose of business and was an admissible deduction under section 37 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). As against the said order, the Revenue filed an appeal before the Income…

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