Civil Appeals Nos 1910 to 1912 and 2112 of 1968 and 1102 to 1105 of 1971
Appeals by certificatespecial leave from the judgments and orders dated July 28 1967 March 29 1968 May 24 1968 of the Calcutta High Court in Income tax References Nos 170 of 1963
40 of 1965 and 4 of 1967
V section Desai N R Khaitan B P Maheshwari and Krishna Sen for the appellants in all the appeals
I B Sen K section Suri R N Sachthey and B D Sharma for the respondent in CAs
1910 to 1912 of 1968 and 1102 to 1104 of 1971
B D Sharma for the respondent in CAs
2112 of 1968 and 1105 of 1971
The Judgment of the Court was delivered by Grover J
These appeals from judgments of the Calcutta High Court in Income tax References involve a common question
We shall refer to the facts in the batch of appeals of Jaipuria Samla Amalgamated Collieries Ltd The assessee is a public limited company incorporated under the Indian Companies Act 1913
It carried on the business of raising coal from coal mines and selling the same to its constituents
It had taken on lease several coal mines from the owners of the coal bearing lands
As lessee of the mines the assessee incurred liability for payment of i Road and Public Works cess under the Bengal Cess Act of 1880 ii Education cess levied under the Bengal Rural Primary Education Act 1930
 The amounts payable by the assessee on account of the aforesaid cesses were claimed by it as deduction under section 10 of the Income tax Act 1922 hereinafter referred to as the Act in the computation of its profits
The income tax authorities disallowed that claim relying on section 10 4 of the Act
The assessee went up in appeal to the 512 Appellate Tribunal which agreed with the orders of the departmental authorities
The questions which were submitted by the Tribunal with the statement of the case relating to the assessment years 1954 55 1955 56 were as follows  1 Whether on the facts and in the circumstances of the case the Road the Public Works and the Education Cesses were levied either on the profits or gains of the business or were assessed at a proportion of or otherwise on the basis of any such profits within the meaning of section 104 of the Income tax Act 1922  2 Whether on the facts and in the circumstances of the case the amounts provided for or paid by the assessee company as Road and Public Works Cess and the Education Cess was allowable as a deduction under section 10 2 ix or 10 2 xv of the Indian Income tax Act 1922 read with section 104 of the said Act   The High Court answered the questions against the assessee
The assessee filed appeals to this Court after obtaining a certificate of fitness but the same was found defective owing to want of any reasons or grounds in the order granting the certificate
Instead of getting the matters remitted to the High Court for giving reasons petitions for special leave were filed before us and leave was granted
We have heard the appeals by special leave on the printed record of the appeals by certificate
It may be mentioned that this position obtains in all the appeals by certificate before us
Section 101 of the Act provides that tax shall be payable by an assessee under the head profits and gains of business profession or vocation in respect of the profits and gains of any business profession or vocation carried on by him
Sub section 2 says that such profits or gains shall be computed after making the allowances set out therein
Clauses ix and xv of this subsection are as follows  ix any sums paid on account of land revenue local rates or municipal taxes in respect of such part of the premises as is used for the purpose of the business profession or vocation xv any expenditure not being an allowance of the nature described in any of the clauses i to xiv inclusive and not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended wholly and exclusively for the purpose of such business profession or vocation Sub section 4 of section 10 to the extent It is material is in the following terms  513 4 Nothing in clause ix or clause xv of subsection 2 shall be deemed to authorise the allowance of any sum paid on account of any cess rate or tax levied on the profits or gains of any business profession or vocation or assessed at a proportion of or otherwise on the basis of any such profits or gains The essential question that has to be determined is whether the cesses levied under the aforesaid Bengal Acts fell within the mischief of section 104 of the Act
It is common ground that these cesses are not levied on the profits or gains of any business profession or vocation but it has been claimed on  behalf of the Revenue and that contention was accepted throughout that the cesses are assessed on the basis of such profits or gains and therefore they would be covered by the said provision
According to the preamble to the Bengal Cess Act 1880 the road and works cesses were levied on immovable property interalia to provide for the construction and maintenance of roads and other works of public utility
Under section 5 all immovable property with certain exceptions was to be liable to the payment of road cess and public works cess
Section 6 laid down that these cesses were to be assessed on the
annual value of lands and until provision to the contrary was made by the Parliament on the annual not profits from mines quarries tramways railways and other immovable property on such rates as were to be determined in the manner prescribed
Under section 72 the Collector of the district had to serve a notice upon the owner etc
of every mine quarry and immovable property requiring him to lodge a return of the net annual profits of such property cal culated on the average of the annual net profits thereof for the last three years for which accounts had been made up
Section 75 provided for a contingency where a return was not furnished within the prescribed period
The Collector in that case or if he found that the return made was untrue or incorrect was to proceed to ascertain and determine by such ways or means as seemed expedient the annual net profits of such property calculated as aforesaid
If the Collector was unable to ascertain the annual net profits he could ascertain and determine the value of the property and thereupon determine 6 of such value to be the annual net profits thereon section 76
The scheme of the Bengal Rural Primary Education Act 1930 may next be referred to
The preamble to that Act was as follows Whereas it is expedient to make better provision for the progressive expansion and for the management and control of primary education in rural
areas in Bengal so as to make it available to all children and with a view to make it compulsory within ten years 514 According to section 29 all immovable property on which the road and public works cesses were assessed were to be liable to the payment of primary education cess
The rates on which the education cess was to be levied varied according as the property consisted of mines and quarries or of tramways railways and other immovable property
As regards mines and quarries it was to be levied at the rate of three and a half piece on each rupee of annual net profits
Now it is quite clear that the aforesaid cesses would be allowable deductions either under clause ix or clause xv of sub section
2 of section 10 unless they fell within section 104
We have already referred to the provisions of both Acts under which the cesses are levied which show that their assessment is not made at a proportion of the profits of the assessee s business
What has to be determined is whether the assessment of the cesses is made on the basis of any such profits
The words profits and gains of any business profession or vocation which are employed in section 104 can in the context have reference only to profits or gains as determined under section 10 and cannot cover the net profits or gains arrived at or determined in a manner other than that provided by s10 The whole purpose of enacting sub section
4 of section IO appears to be to exclude from the permissible deductions under clauses ix and xv of sub section
2 such cess rate or tax which is levied on the profits or gains of any business profession or vocation or is assessed at a proportion of or on the basis of such profits or gains
In other words sub section
4 was meant to exclude a tax or a cess  or rate the assessment of which would follow the determina tion or assessment of profits or gains of any business profession or vocation in accordance with the provisions of section 10 of the Act
The road cess and public works cess are to be assessed on the annual net profits under sections 72 to 76 of the Cess Act 1880
The net annual profits have to be calculated on the average of the net profits for the last three years of the mine or the quarry and if the annual net profits of the property cannot be ascertained in the aforesaid manner then it is left to the Collector to determine the value of the property first in such manner as he considers expedient and determine 6 per cent on that value which would be deemed to be the annual net profits The Cess Act of 1930 follows the same pattern so far as the ascertainment of annual net profits is concerned
These profits arrived at according to the provisions of the two Cess Acts can by no stretch of reasoning be equated to the profits which are determined under section 10 of the Act
It is not possible to see therefore how section 104 could be applicable at all in the present case
Thus on the language of the provisions both of the Act and the two Cess Acts the applicability of section 104 cannot be attracted
But even according to the decided cases 515 such cesses cannot fall within section 104
The Privy Council in Commissioner of Income tax Bengal vs Gurupada Dutta  Others1 had to consider whether the rate imposed under the provisions of the Bengal Village Self Government Act 1919 on a person occupying a building and using the same for the purpose of business was an allowable deduction in computing the profits of the business under section 10 of the Act
Their Lordships laid down the law in the following words  
It will be noted that in the absence of the necessary powers and machinery which are not provided by the Act the estimate of the annual income from business can only proceed on a rough guess which is in no way comparable with the ascertainment of profits and gains under the Income tax Act an d in the opinion of their Lordships the inclusion of this element of business income as part of the circumstances of the assessee with a view to the imposition of the union rate does not fall within sub section 4 of Section 10 of the Income tax Act
It is conceded that the union rate is not levied on the profits or gains which clearly implies an ascertainment of such profits and gains and the words  assessed  on the basis of any such profits or gains in the later part of the sub section must also be so limited
No such ascertainment of the profits and gains of the business can be undertaken for the purposes of the union rate
 The main argument for the Crown therefore fails
 In our judgment this decision is quite apposite and fully covers the points under consideration
It has been followed by the Allahabad High Court in Simbholi Sugar Mills Ltd vs Commi ssioner of Income tax Up  Vp2 in which the question related to the deductibility of tax payable under the UP District Boards Act 1922 which was imposed on persons assessed according to their circumstances and property
Similarly in Commissioner of Income tax Delhi and Rajasthan vs Banarsi Dass  Sons3 the Punjab High Court held that a tax imposed under the UP District Boards Act on circumstances and property could be legitimately claimed as an allowance and the above decision of the Privy Council was followed
In the Income tax Act 1961 section 28 relates to the income which shall be chargeable to income tax under the head profits and gains of business or profession 
Section 30b ii is equivalent to cl
ix of section 102 of the Act Section 40 a ii corresponds to section 10 4 of the Act
It is significant that in spite of the decision of the Privy Council in 1 3 2 516 Gurupada Dutta s case1 the Parliament did not make any change in the language of the provisions corresponding to section 104
It can therefore legitimately be said that the view of the Privy Council with regard to the true scope and ambit of section 104 of the Act was accepted
We are unable to concur in the reasoning or the conclusion of the Calcutta High Court in Commissioner of Income tax West Bengal vs West Bengal Mining Co2 in which it was held that the two cesses being related to profits would attract section 104 of the Act
In the result Civil Appeals Nos 1102 to 1105 of 1971 which are by special leave are allowed and the answers returned by the High Court are discharged
The questions referred shall stand answered in favour of the assessees and against the Revenue
The assessee shall be entitled to their costs in this Court
Civil Appeals Nos 1910 to 1912 of 1968 and 2112 of 1968 in which the certificates are defective and have to be revoked shall stand dismissed
GC Ordered accordingly


Summary:
The appellant was a public limited company
It carried on the business of raising coal from coal mines and selling the same
It had taken on lease several mines from the owners of the coal bearing lands
As lessee of the mines the appellant incurred liability for payment of i Road and Public Works cess under the Bengal Cess Act of 1880 ii Education Cess levied under the Bengal Rural Primary Education Act 1930
The amounts payable by the assessee on account of the aforesaid cesses were claimed by it as a deduction under section 10 of the Income tax Act 1922
The Income tax authorities disallowed that claim relying on section 104 of the Act
The Tribunal and the High Court decided against the appellant
In appeal to this Court by special leave the question for determination was whether the cesses levied under the aforesaid Bengal Acts fell within the mischief of section 104 of the Act
It was common ground that these cesses were not levied on the profits or gains of any business profession or vocation but it was claimed on behalf of the Revenue that the cesses were assessed on the basis of such profits and gains and therefore they would be covered by the said provision
HELD  i The words profits and gains of any business profession or vocation which are employed in section 104 can in the context have reference only to profits or gains as determined under section 10 and cannot cover the net profits or gains arrived at or determined in a manner other than that provided by section 10
The whole purpose of enacting sub section
4 of section 10 appears to be to exclude from the permissible deduction under cis
ix and xv of sub section
2 such cess rate or tax which is levied on the profits or gains of any business profession or vocation or is assessed at a proportion of or on the basis of such profits or gains
In other words sub section
4 was meant to exclude a tax or a cess or a rate the assessment of which would follow the determination or assessment of profits or gains of any business
profession or vocation in accordance with section 10 of the Act
514 D E iii The road cess and public works cess are to be assessed on the annual net profits under sections 72 and 76 of the Cess Act 1880
The net annual profits have to be calculated on the average of the net profits for the last three years of the mine or the quarry and if the annual net profits of the property cannot be ascertained in the aforesaid manner then it is left to the Collector to determine the value of the property first in such manner as he considers expedient and determine 6 per cent on that value which would be deemed to be the annual net profits
The Cess Act of 1930 follows the same pattern so far as the ascertainment of annual net profits is concerned
These profits arrived at according to the provisions of the two Cess Acts can by no stretch of reasoning be equated to the profits which are determined under section 10 of the Act
It is not possible to see therefore how section 104 could be applicable at all in the 511 present case
Thus on the language of the provisions both of the Act and the two Cess Acts the applicability of section 104 cannot be attracted
514 F H Commissioner of Income tax Bengal vs Gurupada Datta  applied
Simbholi Sugar Mill Ltd vs Commissioner of Income tax UP  Rajasthan vs Banarsi Dass  Sons  approved
Commissioner of Income tax West Bengal vs West Bengal Mining Co  disapproved