# DEBRA DUN TEA CO. LTD. & ANR v. COMMISSIONER OF INCOME TAX, U.P., LUCKNOW

- **Citation:** [1973] 3 S.C.R. 83
- **Court:** Supreme Court of India
- **Decided:** 1972-12-12
- **Case number:** Civil Appeals No. 56 to 61 of 1970
- **Bench:** K. S. Hegde, P. Jaganmohan Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/debra-dun-tea-co-ltd-anr-v-commissioner-of-income-tax-u-p-lucknow-5957
- **Pages:** 4

## Headnote

Income-tax Act 1922 s. 10(2) (xv)-Deductib/e expenditure-Tax
paid by tea growers under U.P. Large Land Holdings Act XXXJ of 1951
whether deductible.
The assessee companies were growers of tea. Their income was taxed
under s. 10 of the Income-tax Act 1922 but under Rule 24 of the Rules
framed under the Act only 40% of their income was brought to tax.
The expenditure was also allowed to the extent of 40%. The companies
claimed that the tax paid by them under the U.P. Large Land Holdings
Tax Act 1957 was deductible under s. 10(2)(xv) of the Income-tax Act.
The claim was disallowed by the income-tax authorities. In a reference
under s. 66(1) the High Court, relying upon the deciaion of this Court
in Travancore Titanium Product Ltd. v. CJ.T. Kera/a (60 I.T.R. 277)
answered the questi0n in favour of t,he Revenue.
Jn these appeals the
companies relied on the decision of this Court in Indian A.lumlnhun Co.
Ltd. v. Commissioner of Income Tax, West Bengal (84 I.T.R. 735). It was
contended on behalf of the respondent that the decision in Indian Aluminium was inapplicable to the case since the tax under the U.P. Act was
laid on the companies as owners.
Allowing the appeal,
,
HELD : (i) Applying the ratio of the decision in the Indian Aluminium case to the facts of the present case it was clear that the lands
owned by the assessee companies were their business assets and the tax
paid threon under the U.P. Act XXX! of 1957 was an item of expenditure laid out by the assessee companies as traders and as incidental to their
business. Consequently the same must be treated as an item of expenditure under Section 10(2) (xv) of the .Act. [84-H]
The contention on behalf of the Revenue that the decision in Indian
Aluminium was inapplicable could not be accepted.
A tea-grower is
considered under the Act read with Rules as an owner-cum-trader. 'Iberafore any item of expenditure incurred by him must be considered as an
item of expenditure incurred by a trader in connection with hil bual·
ness activity. It is true that only 40 per cent of the net income of the
tea-growers is brought to tax under- the Ac!; but at the same time the
tea growers will also be entitled only to 40 per cent of the expenditure
incurred by them. [8SCDJ
Travancore Titanium Product Ltd. v. C.J.T, Kera/a.
60 l.T.R. 277
referred to.
Indian Aluminium.;Co. Ltd. v~ Commissioner of Income Tax, West
Bengal, 84 !.T.R. 735 applied.
(ii) Section 40 of the Income Tax Act 1961 as amended in 1972
had no bearing on the point arising for decilion in this case. [86A]
CML APPELLATE JURISDICTION : Civil Appeals No. 56 to 61
of 1970.
81
84
SUPREME COURT REPORTS
[1973) 3 S.C.R.
Appeals by special leave from the judgment and order dated
January 1, 1969 of the Allahabad High Court in l.T.R. No. 198
and 199 of 1965.
M. C. Chagla, A. K. Verma, J.B. Dadachanji, 0. C. Mathur
and R. Narain, for the respondents.
·
N. C. Kharkhanis, J. Ramamurthi and R. N. Sachthey for the
respondents.

## Text

8
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DEBRA DUN TEA CO. LTD. & ANR.
v.
COMMISSIONER OF INCOME TAX, U.P., LUCKNOW
December 12, 1972
[K. S. HEGDE AND P. JAGANMOHAN REDDY, JJ.]
Income-tax Act 1922 s. 10(2) (xv)-Deductib/e expenditure-Tax
paid by tea growers under U.P. Large Land Holdings Act XXXJ of 1951
whether deductible.
The assessee companies were growers of tea. Their income was taxed
under s. 10 of the Income-tax Act 1922 but under Rule 24 of the Rules
framed under the Act only 40% of their income was brought to tax.
The expenditure was also allowed to the extent of 40%. The companies
claimed that the tax paid by them under the U.P. Large Land Holdings
Tax Act 1957 was deductible under s. 10(2)(xv) of the Income-tax Act.
The claim was disallowed by the income-tax authorities. In a reference
under s. 66(1) the High Court, relying upon the deciaion of this Court
in Travancore Titanium Product Ltd. v. CJ.T. Kera/a (60 I.T.R. 277)
answered the questi0n in favour of t,he Revenue.
Jn these appeals the
companies relied on the decision of this Court in Indian A.lumlnhun Co.
Ltd. v. Commissioner of Income Tax, West Bengal (84 I.T.R. 735). It was
contended on behalf of the respondent that the decision in Indian Aluminium was inapplicable to the case since the tax under the U.P. Act was
laid on the companies as owners.
Allowing the appeal,
,
HELD : (i) Applying the ratio of the decision in the Indian Aluminium case to the facts of the present case it was clear that the lands
owned by the assessee companies were their business assets and the tax
paid threon under the U.P. Act XXX! of 1957 was an item of expenditure laid out by the assessee companies as traders and as incidental to their
business. Consequently the same must be treated as an item of expenditure under Section 10(2) (xv) of the .Act. [84-H]
The contention on behalf of the Revenue that the decision in Indian
Aluminium was inapplicable could not be accepted.
A tea-grower is
considered under the Act read with Rules as an owner-cum-trader. 'Iberafore any item of expenditure incurred by him must be considered as an
item of expenditure incurred by a trader in connection with hil bual·
ness activity. It is true that only 40 per cent of the net income of the
tea-growers is brought to tax under- the Ac!; but at the same time the
tea growers will also be entitled only to 40 per cent of the expenditure
incurred by them. [8SCDJ
Travancore Titanium Product Ltd. v. C.J.T, Kera/a.
60 l.T.R. 277
referred to.
Indian Aluminium.;Co. Ltd. v~ Commissioner of Income Tax, West
Bengal, 84 !.T.R. 735 applied.
(ii) Section 40 of the Income Tax Act 1961 as amended in 1972
had no bearing on the point arising for decilion in this case. [86A]
CML APPELLATE JURISDICTION : Civil Appeals No. 56 to 61
of 1970.
81
84
SUPREME COURT REPORTS
[1973) 3 S.C.R.
Appeals by special leave from the judgment and order dated
January 1, 1969 of the Allahabad High Court in l.T.R. No. 198
and 199 of 1965.
M. C. Chagla, A. K. Verma, J.B. Dadachanji, 0. C. Mathur
and R. Narain, for the respondents.
·
N. C. Kharkhanis, J. Ramamurthi and R. N. Sachthey for the
respondents.
The Judgment of the Court was delivered by
HEGDE, J.
These are appeals by special leave.
They are
directed agains.t the decision of the High Court of Allahaba:i in
B
a reference under Section 66 (1) of the Indian Income Tax Act
C
1922 (to be hereinafter referred to as the Act). The common
question of law referred in these appeals was :
"Whether the tax paid by the assessee company on
the tea-garden lands under the U.P. Large Land Holdings Tax Act, 1957 (U.P. Act XXXI of 1957) is liable
to be deduoted under Section 10(2) (xv) ?"
D
The High Court answered this question in favour
of the
Revenue.
It did so following the decision of this Court in
Travancore Titanium Product Ltd. v. C.1.T. Kerala( 1).
l't may be noted that the assessee companies (there are two
companies) are taxed under Section
10 of the Act.
Their
income is considered as business income.
The assessee companies are tea-growers and the activity they carry on is a business
activity.
Therefore, the question is whether the tax paid by
them under the U.P. Act XXXI of 1957 is an item of expendi·
ture coming within the scope of Section 10(2) (xv) of the Act.
In Indian Aluminium Co. Ltd. v. Commissioner of Income Tax,
West Bengal('), a Five-Judge Bench. of this Court modified the
decision of this Court in Travancore Titanium Products case
(supra) holding that if the expenidture laid out by the assessee
is as an owner'cum-trader and the expenditure is really incidental
to the carrying on of his business it must be treated to have been
laid out by him as a trader and as incidental to his business.
On
the basis of tliat ru1e it came to the conclusion that the weajth
tax paid by a trader on his business assets is liable. to be deducted
under Section 10(2)(xv) of the Act.
Applying the ratio of that
decision to the facts of the pr=nt case it is clear that the 1ands
owned by the assessee companies are its business assets and the
tait.paid thereon under the U.P. Act XXXI of 1957 is an item of
extl'enditure Jaid out by the assessee companies as traders and as
incidental -Mi their business. · Consequently the same must be
(I) 60 I.T.R. 2n.
(2) 84 I.T.R. 735.
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DEHRADUN TEA co. v. C.I.T. (Hegde, I.)
85
treated as an item of expenditure under Section 10(2) (xv) of the
Act.
Mr. Karkhanis appearing for the Revenue contended that so
far as tea-growers arc concerned they are both the owners of lands
as well as traders.
It is for that reason they are assessed only on
40 percent of their net income, applying Rule 24 of the Rules
framed under the Act.
According to him the tax paid under the
U.P. Act XXXI of 1957 is a tax levied on the owners and not on
the traders.
Consequently the ratio of the decision of this Court
in Indian Aluminium Company's case (supra) is inapplicable.
We are unable to accept this contention as correct. A tea-grower
is considered under the Act, read with Rules as an owner-cumtrader.
Therefore, any item of expenditure incurred by him must
be considered as an item of expenditure incurred by a trader in
connection with his business activity.
It is true that only 40 per
cent of the net income of the tea-growers are brought to tax under
the Act; but, at the same time, the tea-growers will also be entitled
only to 40 per cent of the exp~nditure incurred by them.
Under
Rule 24, only 40 per cent of the net income is brought to tax.
Hence we are unable to accept the contention of Mr. Karkhanis
that the ratio of the decision of this Court in the Indian Aluminium Company's case (supra) is inapplicable to t~e facts of this
case.
Lastlv. Mr. Karkhanis contended that in view of the
Income-tax (Amendment) Act 1972, an assessee company is noi
entitled to claim any deduction in respect of the tax paid by them.
In this connection he relies on Section 2 of the Amendment Act
of 1972. That section reads :
"2. Amendment of Section 40. In Section 40 of
the Income-tax Act, 1961 ( 43 of 1961) (hereinafter
referred to as the principal Act), after sub-clause (ii) of
clause (a), the following sub-clause shall be, and shall
be deemed always to have been, inserted, namely :-
" ( iia) any sum pa1d on account of wealth-tax."
Explanation :-For the purposes of this sub-clause,
"wealth-tax" means wealth-tax chargeable under
the
Wealth-tax Act, 1957 (27 of 1957), or an}' tax of a
similar character chargeable under any law in force in
any country outside India or any tax chargeable under
such Jaw with reference to the value of the assets of,
or the capital employed in, a business or profession,
carried on by the assessee, whether or not the debts of
the business or profession are allowed as a deduction in
computin!l; the amount with reference to which such
tax is charged, but d0>~ not include any tax chargeable
with reference to the value of any particular asset of
ihe business or profession;".
86
SUPREME COURT llEPO!lTS
[1973] 3 S.C.ll.
We are unable to accept the co~tion of Mr. Karkhanis is
that this Section· has any bearing on the point arising for decision
in this case. Herein we are not dealing with Wealth-tax, I.e.
a tax on net assets nor with any of the taxes referred in the
explanation.
In the result these _appeals are allowed and the answer given
by the High Court is revoked and the question referred to the
B
High Court is answered in favour of the assessee. In other words,
the answ~r to the question is that on the facts and in the circumstances of the case the tax paid under the U.P. Large Land Holdings Tax Act, 1957, is an admissible deduction from the taxable
income of the assessee companies.
The appellants are entitled
to the costs of these appeals in this Court as well as in the High c
Court but there will be only one hearing fee.
G.C.
Appeals allowed.