Mitter, J. - (1.) The question in this case is whether wealth tax paid by a company on assets held by it for the purpose of its business is allowable as a deduction under Section 10 (1) or Section 10 (2) (xv) of the Indian Income-tax Act, 1922.
(2.) The contention of the assessee before the Income-tax Officer was that in order to carry on its business the company had to possess wealth in the form of various assets and therefore, the payment of tax levied on such wealth was incidental to the business and allowable as a deduction in computing its profits. The Income-tax Officer held that although wealth tax was a charge on the assets of the company including business as well as non-business assets, a person owing assets has to pay tax not because he carries on business but because of his ownership of the assets and hence wealth tax levied would not be said to be expended wholly and exclusively for business purposes. This was upheld in appeal by the Appellate Assistant Commissioner. The Tribunal however, came to a different conclusion. According to the Tribunal "the assets were held by the assessee for the purpose of its business and no other" It was urged that if the assesses had not paid the tax the Revenue Authorities might have taken measures for bringing the assets to sale for recovery of the tax : from this point of view payment made to avert that contingency was expenditure incidental to the carrying on of the business. It was contended by the Revenue that the determination of the wealth tax was arrived at after the profits had been made and, therefore, the payment of the wealth tax was not an expense wholly and exclusively incurred for the purpose of the business. According to the Tribunal it did not matter that the computation had to be made as at the end of the year. Not being satisfied with this the Revenue Authorities required the Tribunal to refer to this Court the question of law which was couched in the following words : "Whether on the facts and in the circumstances of the case, having regard, to the provision of Wealth Tax Act of 1957, the allowance of wealth tax liability was correct ?"
(3.) Under Section 8 of the Wealth Tax Act of 1957 "there shall be charged for every financial year commencing on and from the 1st day of April 1957 a tax in respect of the net wealth on the corresponding valuation date of every individual, company at the rate or rates specified in the schedule." It will be noticed at once that the tax is charged for every financial year; the net wealth has to be determined in terms of Section 2 (m) which broadly speaking means the aggregate value of all the assets of the assessee on the valuation dale less the debts owed by him. Under Section 2 (q) 'valuation date' in relation to any year for which an assessment is to be made means the last day of previous year as defined in the Income-Tax Act if an assessment were to be made under that Act for that year. Under Section 7 (1) the value of any asset, is to be estimated at the price which it would fetch if sold in the open market Under Section 7 (2) (a) where an assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth Tax Officer may, Instead of determining separately the value of each asset in such business, determine the net value of the assets of the business as a whole having regard to the balance of such business as on the valuation date. This is only a rough and ready method which can be adopted by the Wealth Tax Officer so as to avoid the valuation of each item of asset separately The schedule to the Act shows that a company which has incurred a net loss in any year computed in the manner provided is not to pay any wealth tax if it has not declared any dividend on its equity capital in respect of that year. Further, if the profits of the company in respect of any year before the deduction of certain allowances fall short of the amount of wealth tax payable by It In respect of the relevant assessment year the tax payable by the company is to be limited to the amount of such profits if the company has not declared any dividend on the equity capital in respect of that year.;