JEEVANLAL LTD Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee-company is incorporated in India and has its registered office at Calcutta. It carries on business at several places in India and has a sales depot at Rangoon in Burma. THE assessee was assessed for the asst. yr. 1948-49 as a resident and ordinarily resident Indian company on the profits of the accounting year ending 31st Dec., 1947. In adding the profits of the Rangoon branch to the taxable income, the ITO disallowed an item of Rs. 50,157 deducted by the assessee as business profits tax paid in Burma under the Burma Business Profits Tax Act. An appeal was filed before the AAC. THE assessee contended that the Burma business profits tax, namely, Rs. 50,157, ought to have been allowed as a deduction under s. 10(2)(xv) of the Indian IT Act. THE assessee's contention was not accepted. THE assessee preferred an appeal before the Tribunal and contended that the Burma business profits tax should have been deducted before adding Burma income to the Indian income for income-tax purposes. THE assessee contended that the Burma profits can only amount to the income earned in Burma less the amount of the business profits tax paid in Burma. THE Tribunal came to the conclusion that the income in Burma was the total income earned there irrespective of the income-tax or the business profits tax to which the income was chargeable in Burma.

(2.) ON these facts the following question of law has been referred :

(3.) IN the case of IRC vs. Dowdall O'Mahoney and Co. Ltd. (1952) 33 Tax Cases 259 a similar question arose as to whether a company managed, controlled and resident in Eire, where it carried on the business of margarine manufacturers and butter merchants, and had two branches in England, where it conducted a general grocery business, could contend that in computing the profits of the English branches it was entitled to deduct that proportion of the Irish taxes which was attributable to those profits. The Commissioners held that it was a necessary expense for the company in carrying on part of its trade as branches in England to incur Irish taxes. The Crown preferred an appeal. Counsel for the assessee relied on the observations of Somervell L. J. at p. 269 of the report that the Irish taxes could and should be regarded as a disbursement laid out for the purposes of trade in England. The case went up to the House of Lords. Lord Oaksey said at p. 274 of the report that the authorities established that the payment of such taxes by a trader is not a disbursement wholly and exclusively laid out for the purposes of his trade and that this is so whether such taxes are United Kingdom taxes or foreign or Dominion taxes. Lord Oaksey further said that taxes like these are not paid for the purpose of earning the profits of the trade : they are the application of those profits when made and not the less so that they are exacted by a Dominion or foreign Government. Lord Reid said at p. 282 of the report that there is not and never was any right under the principles applicable . . . to deduct income- tax or excess profits tax, British or foreign, in computing trading profits. Lord Radcliffe at p. 285 of the report said that, once it is accepted that the criterion is the purpose for which the expenditure is made in relation to the trade of which the profits. are being computed, no material distinction could be found between a payment to meet such taxes abroad and a payment to meet a similar tax at home.