P.B.MUKHARJI, J. - (1.) THIS reference under s. 66(2) of the IT Act raises the following question for answer by this Court : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 17,000 was allowable as deduction under s. 12(2) of the Indian IT Act, 1922 ?"
(2.) THE facts giving rise to the above question are briefly as follows : THE assessee is a private limited company owning immovable properties, some leasehold and some shares. THE statement of case relates to the asst. yr. 1958-59, and the corresponding previous year is the financial year ended on the 31st March, 1958. For the asst. yr. 1958-59, in addition to income from property and shares, the assessee had received Rs. 20,000 as guarantee commission for standing as a guarantor to the Central Bank of India Ltd. in respect of the loans advanced by that Bank to M/s Bengal Fine Spinning and Weaving Mills Ltd., an associate concern of the assessee-company. THE guarantee commission was included in the total income of the assessee- company for the asst. yr. 1958- 59, by the AAC as a result of disclosure by the assessee. THE guarantee given by the assessee-company to the Central Bank of India Ltd. was supported by the security of a building called "Mercantile Building" which belonged to the assessee. Now, in respect of that building the assessee paid municipal taxes aggregating to Rs. 64,863, out of which Rs. 35,291 was allowed in determining the income under the head "property" under s. 9 of the IT Act. THE assessee contends that the balance of Rs. 29,572 should be allowed as a deduction against the guarantee commission on the ground that the guarantee commission was earned by the assessee- company on the security of the said building. THE contention is that in determining the income, profits and gains under s. 12 all outgoings relating thereto should be allowed. THErefore, the assessee's case is that the taxes on the "Mercantile Building" had been paid by it for the purpose of making or earning the guarantee commission on the security of that building and therefore is deductible. THE Tribunal applied the Privy Council's decision in Probhat Chandra Barua vs. CIT (19530) 5 ITC 1 ; AIR 1930 PC 209and upheld the claim of the assessee on the point. What the Tribunal, however, held was that since the whole amount of Rs. 29,572 was not referable to the guarantee commission earned, only a sum of Rs. 17,000 out of the said sum which was so referable, should be allowed as a deduction from the guarantee commission. It is on these facts and such statement of the case that the question now comes up for our decision. The Tribunal at first refused to refer this question on the ground that the point was essentially a question of fact. This Court thereupon ordered the Tribunal to state the case with that question. A preliminary point of objection was taken by Mr. Mukherjee appearing for the assessee. His preliminary objection is that the question does not arise out of the order of the Tribunal. We are unable to accept that contention. We are of the opinion that the question does arise on the order of the Tribunal. As already stated, the Tribunal's refusal to state the case was not on the ground that the question itself did not arise out of the order of the Tribunal but on the ground that the question was one of fact.
(3.) TURNING to the order of the Tribunal itself, it is clearly stated by the Tribunal : "His (assessee's) contention was that the income under s. 12 can be determined only after all the outgoings relating thereto were allowed for. He also relied on CIT vs. Raja Sri Sri Kalyani Prasad Deo, Panchkote (1945) 13 ITR 17 (Pat) and Raja Probhat Chandra Barua vs. CIT (supra), where it was held that in determining the income from royalty under s. 12 jama paid on zemindary in respect of lands in which the coal fields were situated was a permissible deduction. The Departmental representative, on the other hand, contended that, in order to qualify for deduction under s. 12, expenditure must be directly related to the income earned. He also contended that the municipal taxes on the property had to be paid by the assessee whether it earned guarantee commission or not and that was a liability which was incidental to the ownership of the property and had nothing to do with the income earning activity." This, in our view, raises directly and pointedly this very question whether this sum can be allowed as a deduction under s. 12(2) of the IT Act. Mr. Mukherjee made a faint argument on the point that sub-s. (2) of s. 12 was not expressly mentioned and that it was a case under s. 12(1), contending thereby that in calculating profits all outgoings should be deducted and the net profit should be calculated in order to determine that tax. That argument cannot hold good because that order of the Tribunal as quoted above was directly concerned with the question whether the municipal tax was paid by the assessee to earn the guarantee commission or not which can only be a question germane under s. 12(2) of the IT Act.;