Case: C0Mmnr. Of Income Tax, New Delhi Vs. Oriental Fire &amp; General Insurance Co.Ltd

is charged is what is left after you have paid all the necessary expenses to earn that profit. Profit is a plain English word; that is 2 what is charged with income tax. But if you confound what is the necessary expenditure to earn that profit with the income tax, which is a part of the profit itself, one can understand how you get into the confusion which has induced the learned counsel at such very considerable length to point out that this is not a charge upon the profits at all. The answer is that it is. the income tax is a charge upon the profits; the thing which is taxed is the profit that is made, and you must ascertain what is the profit that is made before you deduct the tax you have no right to deduct the income tax before you ascertain what the profit is. I cannot understand how you can made the income tax part of the expenditure" 24. Yet again in Allen (H.M. Inspector of Taxes) v. Farquharson Brothers and Company [XVII Tax Cases 54], it was held : "Now it is not necessary for me to discuss, and I do not need to discuss, in detail or, indeed, at all, although my attention was properly called to it by counsel, the exact nature of the Income Tax and its distinction from Excess Profits Duty. The distinction, of course, is perfectly familiar and, in a general way, is recollected by anybody who has ever had anything to do with these things. Income Tax is not a deduction before you arrive at the profits; it is a part of the profits. It is, as has been expressed by some well-known person I cannot remember who, but it does not matter the Crowns share of the profits. Excess Profits Duty was quite a different sort of thing. That was a deduction, the sum to be deducted before you arrived at the profits for the purpose of computation, with the result that you deducted the Excess Profits Duty in arriving at the computation and then if, as sometimes happened, later on, some Excess Profits Duty was got back, that Excess Profits Duty had to be brought in." 25. The said principle has been applied by this Court in Bharat Commerce & Industries Ltd. v. Commissioner of Income Tax, Central-II [(1998) 3 SCC 510] , stating : "6. The expenses in that case were incurred for a very different purpose from the purpose for which the assessee has paid interest in the present case. When interest is paid for committing a default in respect of a statutory liability to pay advance tax, the amount paid and the expenditure incurred in that connection is in no way connected with preserving or promoting the business of the assessee. This is not expenditure which is incurred and which has to be taken into account before the profits of the business are calculated. The liability in the case of payment of income tax and interest for delayed payment of income tax or advance tax arises on the computation of the profits and gains of business. The tax which is payable is on the assessees income after the income is determined. This cannot, therefore, be considered as an expenditure for the purpose of earning any income or profits. The ratio of Birla Cotton Mills case is not applicable in the present case." 26. It is, therefore, evident that the provision of income tax being not an expenditure, the Assessing Officer could not have exercised its jurisdiction in relation thereto. 27. Reliance has been placed by the learned Additional Solicitor General on Madras Motor & General Insurance Co. Ltd. v. Commissioner of Income Tax, Madras [1979 (117) ITR 534]. In the said decision also, the Madras High Court categorically held that the provision for payment of income-tax is a liability and not an expenditure. The question again came up for consideration recently in General Insurance Corporation of India v. Commissioner of Income Tax, Bombay [(1999) 8 SCC 60] wherein this Court rejected the contention of the learned counsel for the assessee therein, in the fact situation obtaining in that case, opining : "19. There is another approach to the same issue. Section 44 of the Income Tax Act read with the rules contained in the First Schedule to the Act lays down an artificial mode of computing the profits and gains of insurance business. For the purpose of income tax, the figures in the accounts of the assessee drawn up in accordance with the provisions of the First Schedule to the Income Tax Act and satisfying the requirements of the Insurance Act are binding on the assessing officer under the Income Tax Act and he has no general power to correct the errors in the accounts of an insurance business and undo the entries made therein." 28. Section 40(a)(ii) of the 1961 Act, it will bear repetition to state, provides for a non-obstante clause. It is of wide magnitude. Sections 32 to 38 of the 1961 Act refer to expenditure admissible under the Act. Section 40, however, seeks to make an exception thereto stating that some expenditures would not be allowed. Section 40(a)(ii), however, does not say that the income-tax would be an expenditure. It does not provide as to how a total income of a person should be computed. It provides for other types of taxes. The said provision has, therefore, no application in the instant case. 29. So far as the question of bad and doubtful claims is concerned, again the same is not an expenditure. Section 36(1)(vii) of the Act whereupon the learned Additional Solicitor General placed strong reliance, cannot be said to have any application whatsoever in the instant case. It is not relevant for computing the profit under the 1961 Act. In any event, Section 44 of the Act provides for a non -obstante clause and, thus, would prevail over the former. 30. For the reasons aforementioned, we

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Section 40(a)(ii) of the 1961 Act, it will bear repetition to state, provides for a non-obstante clause. It is of wide magnitude. Sections 32 to 38 of the 1961 Act refer to expenditure admissible under the Act. Section 40, however, seeks to make an exception thereto stating that some expenditures would not be allowed. Section 40(a)(ii), however, does not say that the income-tax would be an expenditure. It does not provide as to how a total income of a person should be computed. It provides for other types of taxes. The said provision has, therefore, no application in the instant case.