Law:

Section:

Section 40(a)(ii), read with sections 28(i) and 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(4), read with sections 10(1) and 10(2)(xv) of Indian Income-tax Act, 1922] - Business disallowance - Taxes - Assessment years 1958-59 and 1959-60 - Assessee possessed mines from where iron and manganese ores were raised and entire ores mined by assessee were used up and consumed in factories and workshops for manufacture of pig iron, cast iron as well as finished iron and steel goods - Assessee's claim for deduction in respect of cess paid under Bengal Cess Act, was disallowed by ITO - AAC and Tribunal upheld disallowance - Whether cesses fell within prohibition as in section 10(4) of 1922 Act, being cesses levied on profits and gains of a business or otherwise on basis of such profits or gains - Held, yes - Whether since profit arose in law from mining operations, when mined ores were utilised in manufacture of goods which assessee sold for profit, cess was of type falling under section 10(4) of 1922 Act - Held, yes - Whether payment of cess does not depend upon any accepted commercial practice or trading principles, that expenditure was originally claimed as business expenditure under section 10(2)(xv) of 1922 Act failing to establish that claim, it was then not open to assessee to claim deduction under any accepted commercial practice or trading principle - Held, yes - Whether, therefore, amounts paid by assessee as cess to Government of Bihar were permissible allowances in computation of income of assessee from business - Held, yes FACTS The assessee-company possessed mines from where iron and manganese ore were raised. The entire ores mined were used up and consumed in its factories and workshops for the manufacture of pig iron, cast iron as well as finished iron and steel goods. No portion of such ores was sold for profit. For the assessment years 1958-59, and 1959-60, the assessee was assessed under the Bengal Cess Act, 1880, and claimed deduction in respect of the sums paid as cess, in computation of its profits. The ITO disallowed the claim. On appeal, the AAC upheld the disallowance. On second appeal, the Tribunal by majority, also rejected…

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