- (1.) THE Income-tax Appellate Tribunal, Chandigarh Bench, has referred the following question of law for our opinion : " On the facts and circumstances of the case, whether the property tax levied by the Punjab Government was admissible as a deduction ?"
(2.) THE assessee is a private limited company. It derives its income from exhibition of motion pictures. Two cinema houses, one at Gurgaon and the other at Hissar, are owned by it. During the previous years to the assessment years 1961-62 and 1962-63, the assessee paid property tax on the cinema houses. Rs. 3,065 was paid in the year 1961-62 and Rs. 2,563 in the year 1962-63. The assessee debited these amounts in the profits and loss account and claimed deduction in computing its total income. The Income-tax Officer disallowed this deduction by his order dated 12th February, 1964. An appeal by the assessee to the Appellate Assistant Commissioner also failed. The Appellate Assistant Commissioner held that the property tax was not admissible deduction under Section 10 (2) (ix) of the Income-tax Act, 1922, as it was not covered by the expression " land revenue, local rates or municipal taxes". It was further held that these amounts could not be allowed as permissible deduction under Section 10 (2) (xv) as the expenditure was not incurred for purposes of business inasmuch as the tax was really on the ownership of property.
(3.) A further appeal was taken by the assessee to the Tribunal. The Tribunal allowed the appeal. The operative part of the Tribunal's order reads thus: " The assessee-company derives income from two cinemas. Rs. 3,065 and Rs. 2,563 were claimed by the assessee as deduction as these were the payments towards property tax in respect of the buildings of the cinema halls in which the assessee carries on his business. The revenue authorities disallowed this claim on the ground that they were incidental to the assessee's position as owner of the property. The learned counsel for the assessee has contended that the payment of property tax is incidental to the assessee's business of running cinemas, inasmuch as, unless the assessee pays the property tax, it cannot carry on its business. He has also pointed out that for the assessment years 1963-64 and 1964-65, his contention was considered by the Tribunal and the claim of the assessee was allowed. In our opinion there is force in the assessee's contention that the payment of urban property tax is incidental to the carrying on of the business and, therefore, we hold that the disallowance of these amounts was unjustified and the amount should be allowed as a deduction in both these years. ";