# MITSUI STEAMSHIP CO. LTD v. C.I.T. WEST BENGAL, II CALCUTTA February 7, 1975

- **Citation:** [1975] 3 S.C.R. 467
- **Court:** Supreme Court of India
- **Decided:** 1975-02-07
- **Case number:** Civil Appeals Nos. 1072 to · B 1079 of 1970
- **Bench:** H. R. Khanna, A. C. Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mitsui-steamship-co-ltd-v-c-i-t-west-bengal-ii-calcutta-february-7-1975-6418
- **Pages:** 8

## Headnote

467
Indian Incc>me-tax Act (11 of 1922) s. 10(2)(xv)
and Indian Income-tax
1ct (43 of 1961) s: 40, cl. (ii) (a) as amended by Amendment Act of l9i2~
Tax 011 property paid by ow11er-cum-trader-If deductible expenditure.
The appellants, non-resident companies wit;1 registered offices in Japan, had
been assessed to income-tax for the assessment years 1956-1961 under the Indian
lncome-tax Act, 19.22 in respect .of their Indian earnings. In the assessment proc~0dmgs they claimed as dedt•ct1ble allowance, under s. 10(2) (xv), the tax paid
by them on their business assets under the local tax law in force in Japan. But
the Income-tax Officer rejected the claim. The Appellate Assistant Commissioner,
however, allowed the claim and his order was confirmed by the Tribunal. On reference, the High Court, on a consideration of the various provisions of
the
Japanese statute, held that under the Japanese law it was the ownership of the assets that was material and not their actual user in business, and relying on the
decision of this Court in Tran//lcore Titanium Product Ltd. v. C.l. T. Kew/a ( 60
I.T.R. 277), decided in favour of the Revenue.
Allowing the appeal to tliis Court,
HELD: ( l) In Indian Aluminium Co. Ltd. v. C.l.T. West Be11gal (84 I.T.R.
735) this Court held that the test adopted in the Travancore Tita11i11111 case, that
to be a permissible deduction there must be a direct and intimate connection between the expend itL<re and the business, that is, between expenditure and the character of the assessee as a trader, and not as owner of the asset~, even if they arc
assets of the business, ''needs to be qualified by stating that 1f th~ expenditure is
laid out by the assessee as owner-cum-trader, and the expenditure is really incidental to the carrying on of his business, it must be treated tzi have been laid oct
by him as a trader and as incidental to bis business.
[470H-47 Jq
(2} The Income-tax Act, 1961, was amended by the Income-tax Amendment
Act, 1972. The amendments were introduced to restore the position established in
Travancore Titanium cas~ namely, that Wealth Tax paid by an assessee in respect of his business assets was not deductible as a business expense in computing
the assessee 's income from his business, which was virtually overruled by the later
decision in the Indian Aluminium Company case. But the amendments do not
appear to touch the principle laid down in the later case, that where a person has
a dual capacity of a trader-cum-owner, and be pays tax in respect of property
which is used for the purpose of the trade, the payment mu,t be taken to be in
the capacity of a trader. The Amendment Act only adds the sum paid on account
of wealth tax to the list of amounts no: deductible in computing the assessee's income from business. Therefore. any amount paid by the assessee on account of a
tax other than the wealth-tax on his business assets would be outside the scope of
the Amending Act and would continue 'to be governed by the law laid c:own itt
the Indian A/11mini11m case.
The ex!'lanation in s. 40 of ih~ Income-tax Act,
1961, which s. 4 of the Am~ndment Act adopts for the purpose of that 'ection
defines wealth tax to include, illler alia, besides wealth tax chargeable under the
Indian Wealth Tax Act, 1957, "any tax of a similar character chargeable under
any Jaw in force in any coun~ry outside India.
[4710-E; 4720-G]
(3) But, unlike the Wealth-tax in India the municipal property tax in ~apan
is a local tax imposed on certain specified properties by the city! town <;r v1lla.~e
in which the. property
is located.
The Indian. Wealth. Tax 1.s, a national. tax
chargeable on the net wealth of the person with certatn sμecmed exempt10ns.
The difference in the manner of determination of the taxable basis of the proper-
468
SUPREME COURT REPORTS
[1975) 3 S.C.R ..
lie; aml the r.t'.es of ta1rntion emphasize the basic difference between :lr: two
taxes notwi1h>ianding ce:tain points of similarity.
[473H-474Bl
·
( 4) The facts al

## Text

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MITSUI STEAMSHIP CO. LTD.
v.
C.I.T. WEST BENGAL, II CALCUTTA
February 7, 1975.
[H. R. KHANNA AND A. C. GUPTA, JJ)
467
Indian Incc>me-tax Act (11 of 1922) s. 10(2)(xv)
and Indian Income-tax
1ct (43 of 1961) s: 40, cl. (ii) (a) as amended by Amendment Act of l9i2~
Tax 011 property paid by ow11er-cum-trader-If deductible expenditure.
The appellants, non-resident companies wit;1 registered offices in Japan, had
been assessed to income-tax for the assessment years 1956-1961 under the Indian
lncome-tax Act, 19.22 in respect .of their Indian earnings. In the assessment proc~0dmgs they claimed as dedt•ct1ble allowance, under s. 10(2) (xv), the tax paid
by them on their business assets under the local tax law in force in Japan. But
the Income-tax Officer rejected the claim. The Appellate Assistant Commissioner,
however, allowed the claim and his order was confirmed by the Tribunal. On reference, the High Court, on a consideration of the various provisions of
the
Japanese statute, held that under the Japanese law it was the ownership of the assets that was material and not their actual user in business, and relying on the
decision of this Court in Tran//lcore Titanium Product Ltd. v. C.l. T. Kew/a ( 60
I.T.R. 277), decided in favour of the Revenue.
Allowing the appeal to tliis Court,
HELD: ( l) In Indian Aluminium Co. Ltd. v. C.l.T. West Be11gal (84 I.T.R.
735) this Court held that the test adopted in the Travancore Tita11i11111 case, that
to be a permissible deduction there must be a direct and intimate connection between the expend itL<re and the business, that is, between expenditure and the character of the assessee as a trader, and not as owner of the asset~, even if they arc
assets of the business, ''needs to be qualified by stating that 1f th~ expenditure is
laid out by the assessee as owner-cum-trader, and the expenditure is really incidental to the carrying on of his business, it must be treated tzi have been laid oct
by him as a trader and as incidental to bis business.
[470H-47 Jq
(2} The Income-tax Act, 1961, was amended by the Income-tax Amendment
Act, 1972. The amendments were introduced to restore the position established in
Travancore Titanium cas~ namely, that Wealth Tax paid by an assessee in respect of his business assets was not deductible as a business expense in computing
the assessee 's income from his business, which was virtually overruled by the later
decision in the Indian Aluminium Company case. But the amendments do not
appear to touch the principle laid down in the later case, that where a person has
a dual capacity of a trader-cum-owner, and be pays tax in respect of property
which is used for the purpose of the trade, the payment mu,t be taken to be in
the capacity of a trader. The Amendment Act only adds the sum paid on account
of wealth tax to the list of amounts no: deductible in computing the assessee's income from business. Therefore. any amount paid by the assessee on account of a
tax other than the wealth-tax on his business assets would be outside the scope of
the Amending Act and would continue 'to be governed by the law laid c:own itt
the Indian A/11mini11m case.
The ex!'lanation in s. 40 of ih~ Income-tax Act,
1961, which s. 4 of the Am~ndment Act adopts for the purpose of that 'ection
defines wealth tax to include, illler alia, besides wealth tax chargeable under the
Indian Wealth Tax Act, 1957, "any tax of a similar character chargeable under
any Jaw in force in any coun~ry outside India.
[4710-E; 4720-G]
(3) But, unlike the Wealth-tax in India the municipal property tax in ~apan
is a local tax imposed on certain specified properties by the city! town <;r v1lla.~e
in which the. property
is located.
The Indian. Wealth. Tax 1.s, a national. tax
chargeable on the net wealth of the person with certatn sμecmed exempt10ns.
The difference in the manner of determination of the taxable basis of the proper-
468
SUPREME COURT REPORTS
[1975) 3 S.C.R ..
lie; aml the r.t'.es of ta1rntion emphasize the basic difference between :lr: two
taxes notwi1h>ianding ce:tain points of similarity.
[473H-474Bl
·
( 4) The facts also disclosed that the assets b~longing lo the appellant:; were
used by them in their business during the relevant prev10us years andalso that
the payment of tax under the Japanese law was incidental to th~ carr; mg on of
the business of the assessee.
[473A-B1
A
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1072
to · B
1079 of 1970.
Fro~ the judgment and order date<l th~ 1st July, 1969 cif the
Calcutta High Court in Income Tax References Nos. 170, 17 4, 175,
186 and 184. 189, 177 & 176 of 1964.
Scl;in Chaudhuri (in C.As. Nos. 1076-1079;70), T. A. Nwwichandran and D. N. Gupfll, for the appellants (In all the appeals).
s. C. Manchanda, (ln C.As. Nos. 1076-1079) s. P.
Nayar
and R. N. Sachthey, for the respondent (In all the appeals).
The Judgment of ~e Court was delivered by
Gu PTA, J .-These/ two groups of appeals, brought Qn certificates
granted by the Highi Court ~t Calcutta, arise out of two r~feren~s
under sec. 66(2) of the lndian Income-Tax Act,
1922
mvolvrng
similar questions of law. /
Mitsui Steamship Co. ltd,.
appellant in Civil
Appeals
Nos.
1072-1075 of 1970 and M/s. Kawasaki Kisen Kaisha Ltd., appellant
in Civil Appeals Nos. 1076-1079 of 1970, are both non-resident
shipping companies having their registered offices in
Japan.
Civil
Appeals Nos. 1072-1075 of 1970 relate to assessment years 1957-.
58, 1958-59, 1959-60 and 1960-61 for which
the
previous years
were the financial years ending on the 31st March, 1957, 1958, 1959
and 1960 respectively Civil Appeals Nos. 1076-1079 of 19/0 relate
to assessment years 1956-57, 1957-58, 1958-59 and 1959-60, the
corresponding previo.us years being the financial years ending on the
31st March 1956, 1957, 1958 and 1959 respectively. The appellant
in each case had been assessed to income-tax for the years mentioned
above u;idcr the Indian Income-Tax Act, 1922 (hereinafter l'.eferred
to as the Act of 1922) in respect of its net Indian earnings.'. In the
assessment proceedings the appellant companies
had
claimed
as
deductib:e allowance under sec. 10(2) (xv) of the Act of 1922 the
~x paid by them on tht:ir business assets under the Local Tax Law
Ill force in Japan. The Income-tax Officer rejected the claim on the
view that the incidence of tax uD.der the Japanese law falls on the
~ssessee companies in their capacity as the owners of the business
a~sets and not as traders. On appeal preferred by the assessees , the
Appellate Assistant Commissioner took the view that the tax onid
under the Local Tax Law in Japan was an allowable expenditure
Under sec. 10(2 l (xv) of the Act of 1922. The Tribunal also affirmed
the view taken by the Appellate Assistant Commissioner overruling
t~e contention raised on behalf of the' revenue that the miture of tax
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MITSUI STEAMSHIP co. v. C.I.T. (G.upta, J.)
·469
A
imposed by the Japanese statute was similar to the wealthrtax payable in India which was not
permissible
deduction
under
sec.
10(2) (xv).
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E
F
G
H
In Civil Appeals Nos. 1_072-75 of 1970 the question
referred
under sec .. 66(2) was :
"Whether on the facts and in circumstances of the case,
the property tax and vessels tax paid by the assessee
in -
Japan on its land, buildings and other tangible assets and
ships were allowable as deduction under sec. 10(2)(xv) of
the Income-Tax Act, 1922 ?"
Jn Civil Appeals Nos. 1076-1079 of 1970 the question referred
tvas :
"Whether on the facts and in the circumstances of the
case the property tax paid by the assessee in Japan on its
vessels was allowable as deduction under sectio:ii 10(2) (xv)
of the Income-Tax Act, 1922 ?"
The two questipns, though worded a little differently, depend for
their answers on a correct appreciation of
the character of the
Japanese tax.
The High Court on a consideration of the various provisions of
the Japa~se statute held that under the Local Tax Law in Japan it
was the ownership of the assets that was material and not their actual
user in business, and relying on the decision of this Court in Travancore Titanium Product Ltd. v. Commissioner of Income-tax, Kerala( 1)
answered the question referred to it' in both cases in, the negative and
in favour of the revenue. 'In the case of Travancore Titanium Product Ltd. ( 1) this Court was considering the question whether a sum
paid as wealth-tax was deductible from the profits and gains of the
assessee's business under sec. 10(2) (xv) of the Act of 1922. In ho~d
ing that the amount of tax paid on the net wealth of an assessee under
the Wealth-Tax Act was not a permissible
deduction.
this
Court
observed:
·
"The expenditure must be incidental to the business and
must be necessitated or justified by commercial expediency.
It must be directly and intimately connected with the business
and be laid out by the tax-payer in his character as a trader.
To be a permissible deduction, there must be a direct and
intimate connection between the expenditure and the business, i.e., between the expenditure and the character of the
assessee as a trader, and not as owner of assets, even if
they are assets of the business."
The Judgment of the High Court mainlv turned on Article 341 ( 4)
of the Japanese statute. From an English translation of the statute
filed before the tribunal it appears t]iat the statute is
divided
into
(l) 60 J.T.R. 277
470
SUPREME COURT REPORTS
[1975] 3 s.c.R.
four Books. All the Articles to •.•:hich we will refer for the purpose
of these appeals are in Chapter III, Section 2 of Book Four which
contains Artic:le 341 to 7 46.
Chapter III bears the heading "Ordinary Taxes of City, Town or Village" and Section 2 deals
with
"Municipal Property Tax .. " Article 341 defiaes certaini terms concerning municipal property tax, and in so far as it is relevant for the
present purpose, it reads as follows :
I
''With respect to municipal property tax, the terms listed
in the following items shall havt< the definition given to them
under the: respective items :
(1) Property : Land, houses and depreciable assets;
(2) Lands :
x
x
x
(3) Houses :
x
x
x
( 4) Depreciable assets : Assets (excluding the
mining
rights, fishing right, patent right and other depreciable intangible property) other than land and house
which can be used for business purpose and
the
amount of depreciation of which is included in the
loss or m:cessary expenditures in the computation
of income as provided for in the Corporation Tax
Law or the Income-Tax Law (including the
pro1perty similar to those properties which are owned
by the person upon whom the corporation tax or
the income itax has not been imposed). However,
automobiles and bicycles which are the objects of
the automobile tax, and bicycles and carts which are
the objects of the cart tax respectively
shall
be
excluded;"
Referring to the definition of 'depreciable assets' the High Court
pointed out that under the Japanese law the assets which could be
used for business purpose· were subjected to tax arld it was not
·: · required that !these assets should in fact be used for business purpose .
. The High Court took the view .that the tax paid by the
assessees
· under the Japanese law was in their capacity as owners of the aissets
and not as traders, and applying the. te~t adopted in the Travancore
Titanium case (supra) the High Court held that the tax paid by the
assessees under the Local Tax Law in Japan was riot deductible as
a busine~s expense under the Act of !922.
Travcncore Titanium Product case(!) was decided by a Division
Bench of this Court in the year 1966. The impugned orders of the
High Court in the two references out of which these appeals arise
were both made in 1969. In 1972 a larger Benj::h of this Court expressed the view in the case of Indian Aluminium Co. Ltd. v. Com"
missioner of Income-Tax, West Bengal(2) that the test adopted in
T__ravan_c_01:__~ __ Ti!f!!!!1!1!_1_ Prod1!ct case(1) that to be permissible deduc-
(J) 60 J.T.R. ?.77.
i ·
(2) 84 J.T.R. 735.·
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MITSUI STEAMSHIP co. v. C.I.T. (G,upta, J.)
471
A tion thete must be a direct and intimate connection between the ex-
. penditure and the bus1ness, i.e., between the expenditure
and the
· · chaq1cter of the assessee as a trader, and not as owner of assets, even
. . if they are assets 0f the business "needs to be qualified by stating that
• ·0 •. ,if the expenditure is laid out by the assessee as owner-cumtrader,
· 'D'. and the expenditure is really incidental to the carrying on of his
B
busin~ss, it must be treated to have been laid out by him as a trader
c
and as incidental to his business". It was held in In4ian Aluminium
Company's case( 1) that the wealth-tax paid on assets held by the
assessee for the purpose of his business, was deductihle as a business
,
expense in computing the assessee's income from business.
Within a few months of the decision in Indian Aluminium Com~
pany's case( 1) which was rendered on March 29, 1972, Income Tax
(Amendment) Odinance 1972 (7 of 1972) was
promulgated
on
July 15, 1972 with the object of barring, in the computation of total
income in respect of certain assessment years prior to the assessment
year 1962-63, deduction of amounts paid on account of wealth-tax.
The Ordinance was later repealed and replaced by the Income-Tax
(Amendment) Act, 1972 (41 of 1972) containing similar provisions.
D ·The Amendment Act which received the asseJlit of the President on
August 28. 1972 sought to restore, as the Statement of Objects and
Reasons says, the position established in the case
of Travancore
Titanium Products Ltd. v. Commissioner of
Income-tax,
(supra)
which was virtually overruled by the later decision in Indian Aluminium Co. Ltd. v. Commissioner of Income tax,(1)
that
wealthE
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tax paid by an assessee ill respect of his business assets
was
not
deductible as a business expense in computing the assessee's income
from business. Section 2 of the Amendment Act inserted with retrospective effect a new sub-clause (iia) in clause (a) of section 40 of
the Income-Tax Act, 1961 which specifies the amounts not dedueti1
ble inl computing the income chargeable under the head "Profits and
gains of business or profession". Subi·clause (iia) adds to the list of
amounts not to be deducted "Any sum paid on account of wealthtax". To this sub-clause an explanation was added extending
th.e
meaning of the expression Wealth-tax for the purpose of the subclause. The Explanatio!l reads:
"Explanation.-For the
purposes of this
sub-clause,
"wealth-tax means wealth-tax chargeable under the Wealth1~x Act, 1957 (27 of 1957), or any tax of a similar charac- .
ter chargeable under any law in force in any country outside India or any tax chargeable under
such
law
with
reference to the value of the assets
of, or the capital
employed in, a busi*ss or profession carried on by the
n_ssessee, whether or not the debts of the business cir profes,h
sion are allowed as a deduction in computing the amount
with reference to Which such tax is charged, but does not
include any tax chargeable with reference to the value of any
Particular asset of the business or profession;"
(I) 84 T.T.R. 735.
472
SUPREME C9URT REPORTS
(1975) 3 S.C.R.
Section 4 of the Amendment Act which bears directly on the
appeals before us provides:
·
"4. Wea/,th·tax not deductible in comp~lting the.
tot~l
income for certain assessment years.-Nothmg contamed m
the Indian Income-tax A.ct, 1922 ( 11 of 1922), sh al; be
deemed to authorise or shall be deemed
ever
to ha vc
authorised, any dedu~tion in the computation of the income
of any assessee chargeable under the head "Profits
and
gains of business, profession or vocation" or "In~ome from
other sources" for the assessment year commencmg on the
1st day of April, 1957, or any.subsequent assessment year,
of section 40 of the principal Act."
To this section also an explanation was added saying :
"Explanation.·-For the
purposes
of
this,
section,
"wealth-tax" shall have the same meaning as is assigned
·to it in the Explanation to sub-clause (iia) of clause (a)
of section 40 of the principal Aot."
Section 5 of the Amendment Act contains a saving clause to which
it is not necess.ary to rder for the purpose of these appeals.
We have mentioned earlier the assessment years concerned in the
instant appeals. The que1;tion is, what is the effect of the . Income>-·
Tax (Amendment) Act, 1972 on these appeals. The
amendments
introduced do not appear to touch the principle laid down in Indian
Aluminium Company's case (supra) that when a person has a dual
capacity of a trader-cum-owner, and he pays tax in respect of property w'hich is used for the purpose of 1trade, the payment must be
taken to be in the capacity of a trader. The Amendment Act only
adds the sum paid on account of wealth tax to the list of amounts
not deductible in computing the assessee's income
from
business.
Therefore, any amount paid by the assessee on account of a tax
other than the wealth.-tax on his business assets would be outside
the scope of the Amendment Act and would continue <to be governed
by the law laid down in Indian Aluminium Company's case (supra).
The explanation to the n,ew sub-clause ( iia) inserted in section 40
of the Income-Tax Act, 1961 which section 4 of the Amendment
Act adopts for the purposes of that section, defines "wealth-tax" to
include, inter alia, besides wealth-tax chargeable under the WealthTax Act. 1957, "any tax of a similar· character chargeable under any
law in. force in any country outside India". The only
contention
raised before us on behalf of the revenue was that the nature of the
tax paid by the assessees in Japan an their business assets is similar
ro the wealth-tax payable under the Wealth-Tax Aot.
1957.
This
leads to a comparison of the two statutes, Wealth-Tax· Act. 1957 and
the Local Tax Law of Japan. to find out whether they are of a similar charndter. The supplementary statement of case drawn nn bv the
T,ribunal pursuant to an order of this Court dated April 11.
1973
·discloses that the assets belonging- to·-tbe appellants with which we
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MITSUI STEAMSHIP co. v. C.I.T. ( G,upta, J.)
4 7 3
are concerned in these appeals were all used by them in their busines_s during the relevant previous years and also thait the payment
9f tax under the Japanese law was incidental to the carrying .on of the
business of the assessees.
From an examination of the provisions contained in Book Four
of the Japanese statute, it appears to us that there is a basic difference
between the Wealth-Tax Act, 1957 and 1the Local Tax Law of Japan.
Wealth tax in: India is charged on the net wealth of the assessee. Net
wealth as defined in sec. 2(m) of the Wealth-Tax Act, 1957 means,
broadly. the aggregate value of all the· assets, wherever located, belonging to the assessee minus the total amount of the debts, with
certain exceptions, owned by him. Generally speaking, by the value
of an asset, other than cash_,_ is mea!llt its . market value. 'Asse's' has
been defined in clause (e) of sec. 2 of the Act as including property
of every description, moveable or immoveable, with certain specified
exemptions. Wealth-tax in India is a national tax charged
by
the
Central Government. The municipal property tax in Japan is imposed
on prope1;ty as defined ill/ Article 341 (1). In this definition, property
includes only land, houses and depreciable assets and not property
of every description. Depreciable assets has been defined in Article
341 ( 4), inter alia, as assets other than la<ad and house which can
be used for business purpose, but these assets
again exclude all
depredable intangible property and property which are the objects of
other taxes like automobiles, bicycles and carts. Article 342
lays
down t'i:it the municipal· property tax shall be imposed on property
by the city, town or village in which the property concerned is located
and provides that with respect to vessels, vehicles and other objects
similar in nature which are included in depreciable assets, the city,
town. :rnd village in which the principal port of anchorage or regular
kc~p
:1~ place is located shall be the city, town or village authorised
to i pose 1the municipal property tax. Further, it appears that under
the Japanese law, tax is charged at the standard rate of 1.4 per cent
on the value of the property computed in the manner laid down in
th~ sta1 ute providing the taxable basis, and in certain special cases
1
it
rr/ay go up to 2.5 per cent, which is the maximum; in India,
the
rates of wealth tax vary, increasing progressively with the am0unt of
net w:::11th of the assessee.
The broad features of the two statutes we
have noted
above
reveal their basic dissimilarity. Unlike the wealth tax in India,
the
munidpal property tax of Japan is a local tax imposed on certain
specified properties by the city, town or village in which the
prop~rties arc located. The wealth tax is a national tax chargeable on tAe
474
SUPREME COURT REPORTS
[1975] 3 s.c.R.
net wealth of a person with certain specified exemptions. The difference in the manner of determination of the taxabe basis of the: properties and the rates of taxation emphasize the basic difference between the two taxes. Of course, there are certain points of similarity
between the two laws, as there must be, both being taxing sta.tutes,
but these similarities do not remove the fundamental
difference in
the aim, object and the basic structure of the two Acts.
Accordingly we allow the appeals, discharge the answers given
by the High Court to the questions referred to it in these two cases,
and answer the questiions in the affirmative and in favour .of the
asse~sees. In the circumstances Qf the case we direct the parties to
bear their own costs both here and -in the High Court.
V.P.S.
Appeals allowed.
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