K MAHESH Vs. COMMISSIONER OF INCOME-TAX MADRAS

JUDGEMENT

(1.) THESE tax cases raise a common question as to whether on the facts and in the circumstances, the claim for deduction of Wealth Tax paid by the assesses as an admissible expenditure is lawful. The Revenue as well as the tribunal negatived the claim and the references have come before us under Section 66 (1) of the income-tax Act 1922 or under Section 256 (1) of the Income-tax Act 1961. Each of the assessees as an Individual received dividend Income and interest in the relative previous year and paid Wealth Tax in a certain sum on his holding of stock. The sum paid as Wealth Tax was sought to be deducted from the income that comprised of dividends and interest as an allowable expenditure under section 57 (iii) of the Income-tax Act 1961, but unsuccessfully before the Revenue. The Tribunal relied on Kumbakonam Electric Supply Corporation Ltd. v. Commissioner of Income-tax Madras. (1963) 50 ITR 809 (Mad) and dismissed the aseessee's appeal in each case. That was of course a case under Section 10 (2) (xv)in which a Division Bench of this Court Was of opinion that Wealth Tax paid on the net wealth of the company there was not an allowable expenditure in computing its taxable income.

(2.) THE assessee in each case as an individual was charged to income-tax under the head "other sources". In computing his net income chargeable to tax, he will be entitled to allowance of any expenditure not being in the nature of capita! expenditure, laid out or expended wholly and exclusively for the purpose of making or earning such income. The point is whether the Wealth Tax paid by each of the assessees on the net value of the stock held by him is such expenditure. Though the question is by no means capable of an easy answer, we have come to the conclusion that the Wealth Tax paid is not an expenditure of that character. In order an expenditure to come within the ambit of Section 57 (iii) it must satisfy the tests which obviously suggest themselves from the language employed by that provision. The expenditure should be laid out or incurred wholly and exclusively and should be for the purpose of making or earning such income. It should be connected with in the sense it must be incidental to the making or earning of the income. In other words, there must be a nexus between the character of the expenditure and the making or earning of income. If the sum laid out is on a capacity different from that in making or earning income, that will clearly be outside the scope of Section 57 (iii ).

(3.) IN the present cases, we fail to see how the wealth tax paid is for the purpose of making or earning income. The assessee paid wealth Tax as Owner and on the value of the totality of his assets. That has nothing to do with his making or earning income from such assets. The production of income from the assets appears to be wholly unconnected with the payment of wealth Tax. This view of ours, as we think, receives support from a parity of reasoning in (1963) 50 ITR 809 (Madi and Travancore Titanium Products Ltd v. Commissioner of Income-Tax kerala, These cases, no doubt, are related to Section 10 (2) (xv)but what fell for decision in them was the scope of the words