# T. S. KRISHNA v. C: I. T. MADRAS

- **Citation:** [1973] 2 S.C.R. 533
- **Court:** Supreme Court of India
- **Decided:** 1972-10-03
- **Case number:** Civil Appeal No. 1671 of 1969
- **Bench:** P. Jaganmohan Reddy, l. D. DUA, H. R. Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/t-s-krishna-v-c-i-t-madras-5872
- **Pages:** 8

## Headnote

IVeaith Tax Act read n·itli S.
.51(iii) of the
Jnco111t..·
Tax ActJlt'ht:t/zer Wealth Ta:c paid can be deducted as an e:cpel1di1ure ulloll'aftle
11111/<·r S. 57(iiil of the /nconre Tax Ac·t, 1961.
During the accounting period 1962-63, the assessee paid Wealth Tax
oi Rs. 21.963/- in respect of the shares held by him and deducted this
•ln1ount from his dividend income and interest as an expen.diturc alloY.'•
aok under S. 57(iii) of the Income Tax Act. 1961. The l.T.O. rejected
the ch1im on the ground that there was no connection between the payn1cnt of Wealth Tax and the earning of dh,;den'd income and both.
the Appellate Assistant Co1n1nissioner as well as the Tribunal confirmed
the order of the I.T.O.
The Hig;h Court. on a refcrcnL"e, also r~jected
th.;
~ontcntion of the assessCc.
The appellant contended that the pre-
:i:r,:r' atiun of assets is incidental for ~,"..fning income and that the assets
th~n1scl\.cs produce income.
Therefore. payment of Wealth Tax \\'rut
virtu;illv a condition for earning income and default in payment of such
tax \\ill endanger the O\\•ncrship of the asset and will gr;idually destroy
the vcrv source .of incon1c.
Disn1issin~ the appeal.
HELD :(i) The Income T"x (Amendment) Ordinance of July 15,
1972 and the Income-Tax (Amendment) A<t of, 197'.?. )\ave provided
for <lisallo,\'ing: the \Vcalth Tax p~id as an expenditure in respect of in·
comes derived from other sources.
I ii) Even aptlrt fron1 the an1enOo1cnt disallo,ving the deduction. the
vcr~ nature of lhe income from .. dividends in respect of which dcductiort
of \Vealth Tax is clain1c<l does not, bear ;.1ny
relationship
direct
or
in.:idcntal 10 the earni'1g of that income and cannot he h1iJ out or cxpc':lJed cxclusiv\.!ly for the purpose of making or earning such income
"·ithin the n1caninJ? of Sub-clause (iii) of S. 57 of the Act. or unC~r
th.: c0rrcsponding pr0'Visions of S.
IO(:!)(XV) of the Jndinn Income Tax.
Act 1911. (540 Fl
Tn11·ancore Titaniu111 Prod11£'IS Lui. v. C.l.T. Kcrala: 60 l.T.R. ~77 and
Indian Alu111inh1111 Co Ltd .. v. C.l.T.: 84 I.T.R. 735 referred to.
The asscsscc therefore cannot treat the Wealth Tax pt.iJ as an expenditure allo\\'i.lhlc u1u.lcr S. 57 (iii) of the · 1 ncon1c Tax Act J 961.
CrvtL APPELLATE JURISDICTION: Civil Appeal No. 1671 of
1969.
Appeal 1'v certificate from the judgment and order
dated
September 27. 1967 of the Madras High Court in T. C. No. 219
of 1965.
H
S. S1rami11atha11. D. P. Moha11thy and S. Gopttlkri.</11w11 for
the appellant.
B. D. Sharma and R. N. Sachthey for the respondent.
534
SUPREME COURT REPORTS
[1973] 2 S.C.lt,

## Text

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T. S. KRISHNA
v.
C: I. T. MADRAS
October 3, 1972
53 3
[P.
JAGANMOHAN REDDY, l. D. DUA AND H. R. KHANNA, JJ.]
IVeaith Tax Act read n·itli S.
.51(iii) of the
Jnco111t..·
Tax ActJlt'ht:t/zer Wealth Ta:c paid can be deducted as an e:cpel1di1ure ulloll'aftle
11111/<·r S. 57(iiil of the /nconre Tax Ac·t, 1961.
During the accounting period 1962-63, the assessee paid Wealth Tax
oi Rs. 21.963/- in respect of the shares held by him and deducted this
•ln1ount from his dividend income and interest as an expen.diturc alloY.'•
aok under S. 57(iii) of the Income Tax Act. 1961. The l.T.O. rejected
the ch1im on the ground that there was no connection between the payn1cnt of Wealth Tax and the earning of dh,;den'd income and both.
the Appellate Assistant Co1n1nissioner as well as the Tribunal confirmed
the order of the I.T.O.
The Hig;h Court. on a refcrcnL"e, also r~jected
th.;
~ontcntion of the assessCc.
The appellant contended that the pre-
:i:r,:r' atiun of assets is incidental for ~,"..fning income and that the assets
th~n1scl\.cs produce income.
Therefore. payment of Wealth Tax \\'rut
virtu;illv a condition for earning income and default in payment of such
tax \\ill endanger the O\\•ncrship of the asset and will gr;idually destroy
the vcrv source .of incon1c.
Disn1issin~ the appeal.
HELD :(i) The Income T"x (Amendment) Ordinance of July 15,
1972 and the Income-Tax (Amendment) A<t of, 197'.?. )\ave provided
for <lisallo,\'ing: the \Vcalth Tax p~id as an expenditure in respect of in·
comes derived from other sources.
I ii) Even aptlrt fron1 the an1enOo1cnt disallo,ving the deduction. the
vcr~ nature of lhe income from .. dividends in respect of which dcductiort
of \Vealth Tax is clain1c<l does not, bear ;.1ny
relationship
direct
or
in.:idcntal 10 the earni'1g of that income and cannot he h1iJ out or cxpc':lJed cxclusiv\.!ly for the purpose of making or earning such income
"·ithin the n1caninJ? of Sub-clause (iii) of S. 57 of the Act. or unC~r
th.: c0rrcsponding pr0'Visions of S.
IO(:!)(XV) of the Jndinn Income Tax.
Act 1911. (540 Fl
Tn11·ancore Titaniu111 Prod11£'IS Lui. v. C.l.T. Kcrala: 60 l.T.R. ~77 and
Indian Alu111inh1111 Co Ltd .. v. C.l.T.: 84 I.T.R. 735 referred to.
The asscsscc therefore cannot treat the Wealth Tax pt.iJ as an expenditure allo\\'i.lhlc u1u.lcr S. 57 (iii) of the · 1 ncon1c Tax Act J 961.
CrvtL APPELLATE JURISDICTION: Civil Appeal No. 1671 of
1969.
Appeal 1'v certificate from the judgment and order
dated
September 27. 1967 of the Madras High Court in T. C. No. 219
of 1965.
H
S. S1rami11atha11. D. P. Moha11thy and S. Gopttlkri.</11w11 for
the appellant.
B. D. Sharma and R. N. Sachthey for the respondent.
534
SUPREME COURT REPORTS
[1973] 2 S.C.lt,
The Judgment of the Court was delivered by
A
}AGANMOHAN REDDY, J. This appeal is by certificate against
'the judgment. of the Madras High Court on a reference under
s. 256(1) of the Income-tax Act, 1961, (hereinafter called the
'Aci') answering the question referred to it by the Tribunal
.against the assessee.
B
During the relevant accounting period 1962-63 the assessee
paid wealth-tax of Rs. 21,963/- in respeot of the shares held by
him and claimed to have this amount deducted from the dividend
income and interest as an expenditure allowable under s. 57(iii)
Qf the Act.
The Income-tax Officer rejected the claim on the
ground 'th~t there was no direct or immediate connection between
the payment of the wealh-tax and the .earning of the
dividend
income.
In the. S!!bsequem appeals against this order, bjoth the
Appellate Assistant Commissione!' as well as the Tribunal confirmed the order of the Income-tax Officer. The High Court on
a reference in that case as well as in others raising a similar
question, while rejecting tlie contention of the assessee, observed
that the wealth-tax was paid by him as the owner and on ilie
value of the totality of his assets which has nothing to do with
his making or earning income from such assets and that the production of the income from the assets appeared to it to be wholly
unconnected with the payment of wealth-tax.
The Court drew
support from the Kumbakonam Electric Supply Corporation Ltd.
v. Commissioner of Income-tax, Madras('') and Travancore Titanium Products Ltd. v. C.l.T. Kerala(2). The learned advocate
who appeared for the assessee and who has also addressed his
argument before us had contended before the High Court that
the preservation of assets is incidental to the purpose of making
or earning income, that these are cases in which the assets themselves automatically produced income and that therefore payment
of wealth-tax was virtually a condition for making or earning
income because default in payment of such tax will endanger
the ownership of the asse1 which in its turn will destroy
the very source of income, Several cases were cited in support
of that proposition but the High Court after distinguishing them
-0bserved :-
"We find it difficult to hold that the wealth-tax was
paid by each of the assessees in these cases as incidental
to making or earning income. In a sense it may be that
in order to preserve the total net assets, the assessee
has to pay wealth tax and that without such assets
there can. be no qur-stion of making or earning the income.
But these facts do not establish the nexus
(!) 50 I. T. R 809.
(2) 60 I. T. R. 277.
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T. s. KRISHNA V. CJ.T. (Jaganmohan Reddy, J.)
535
required for the expenditure by way ol wealth tax to
be ·a permissible deduction.
The connection, if any,
of t!ie expenditure by way of wealth tax with the assessee's making or earning the income appears to be too
remote.
The expenditure in order to be a permissible
deduction, should be directly connected with the purpose of making or earning of income for, otherwise it
cannot be said that the expenditure is for the purpose
of making or earning income."
The case of Travancore Titanium Products decided ~· thi, Court
was dealing with tl!e deduction o,f excess profits tax on the asset
which a trader owned and which was employed in the business.
The assessee had in that case sought to claim under s. 10(2) (xv)
of the Income-'lax Act, 1922, deduction of the excess profits tax
paid on the asset so utilised in earning the business income. It
was observed by this Court:
"In determining whether an amount expended by
the assessee is deductible under s. 10(2) (xv) of the
Indian Income-tax Act, the nature of the expenditure
or outgoing must be adjudged in the light of accepted
commercial pi:actice and tri!dling prin~ples. The eixpenditure 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 must be laid out by the tax payer in his
character as a trader.
To be a pennissible deduction,
there must be a direct and ,intimate connection bletween
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 dichetomy between the trader owning an asset and his utilisation of it in earning a business income therefrom, according
to this Cuort,. lac.ked the nexus for holding that the asset was
directly and intimately connected with the business and was laid
out by the assessee in his character as a trader. A larger Bench of
this Court recently in Indian Aluminium Co. Ltd. v. C.l.T. (')
has not accepted the test adopted in Travancore Titanium case
that:
"io l;je a permissible deduction, there must be a direct
and intimate connection between the expenditure and
the business i.e.
betw:een the
expenditure and the
character of the asses see as a trader, and not as owner
of assets, even if they are. assets of the business."
(I) 84 I.. T. R. 735.
5:!6
SUPREME COURT REPORTS
(1973) 2 S,C.R.
Th~1t view was qualified by stating that if the expenditure is laid
out by the assessee as owner-cum-trader, and the expenditure i>
really incidental to the carrying on bf his business, it. must be
treated to have been laid out by him as a trader and as incidental
to his business. It further held that in the case of individuals who
have boih business assets and debts and non-business assets and
deqts, it should not be difficult to evolve a principle or .fran1e
st:rtutory rules to find out the proportion oi the wealth-tax which
is really incidental ·to the carrying on of the trade. Immediately
after the .iudgment was rendered the President issued the Income-tax (Amendment) Ordinance on July 15, 1972 by the ad-
.dition of sub-cl. (iia) to cl. (a) of s. 40 and sub-s. (IA) to s.58.
This was followed by •the Income-tax (Amendment) Act 41 of
1972, the preamble of which enacted that it was "further to
amend ·the Income-tax Act, 1961 and to provide for barring in
the computation o.f total income in respect of ci;rtain assessment
years prior to the assessment year 1962-63, deduction of amounts
paid on account of wealth-tax''.
It may be observed that both
the Trnrancore Titanium Products case as well as the Indian
Aluminium case dealt with deductions of Excess Profits tax as an
Expenditure in respect of business income. They were not dealing
with deduction of wealth-tax paid l:iy iildividuals on
the assets
owned by them from income derived from other sources under
1he Income-tax Act, but even so the ordim1nce and the Act have
made provision for disallowing the wealth tax paid as an expenditure in respect of both the above categories of income.
It is contended before us by
the
learned
advocate
that
notwithstanding these amendments, wealth-tax paid on particular assets of the business or profession have been excluded from
the disallowance under the amended sub-s. (IA) of s. 58 which
by reference incorporates· sub-cl.(iia) of cl. (a) to s. 40 added
hly 1he Amending Act. S. 40 of the Act inhibits the deduction
of :iny expenditure specified therein notwithstanding anything to
:he comraiy in ss. 30 to 39 which permit deductions of certain
it~ms of expenditure incurred by the assessee in respect of his
business or profession.
Similarly, under s. 58 or the Act the
expenses categorised therein are not to be deducted in computing
the income chargeable under the head ."income from
other
sources" notwithstanding that under s. 57 certain deductions are
permissible in respect of that category of income.
It may be
specified that in so far as dividend income or interest derived by
1he assessee is concerned sub-s. (i)
and
sub-s. (iii)
of s. 57
pernfrt deductions in computing assessable income as follow~ :-
(i) in the case of dividends, any
reasonable
sum paid by way of commission or remuneration to a
banker or any other person for the purpose of rea Jising
such dividend on biehalf of the assessee:
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T. s. KRISHNA V. C.I.T. (l"agannzohan Reddy,)~)
537
(ii)
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(iii) any other expenditure (not bemg in the
nature of capital expenditure) laid out or
ex~ended
wholly and exclusively for the purpose of makmg or
earning such incom~."
•
The amendments 'to ss. 40 and 58 as stated earlier do not allow
deduction of wealth-tax or tax of similar character etc.
where
it is levied and paid under ·the law of any country outside India.
The following are the relevant ,Provisions of
the
Amendment
Act:-
"(2) Jn section 40 of the lncome-'lax Act, 1961
(hereinafter referred to as the principal Act), after subclause (ii) of clause (a), the following sub-clause sh~ll
be, and shall be deemed always to have been, inserted,
namely:-
, (iia) any sum paid on account of wealth-ta.\.
Explanation.-For the
pu~poses of this
sub-clause,
"wealth-tax" means wealth-tax chargeable under
the
Wealth-tax Act, 1957 or any tax of a similar character
chargeable under any law in force
in
any
country
ou1side India or any tax chargeable under such law
with reJ'erence 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 b:Usiness or profession are allowed
as
a
deduction in
computing the amount with reference to which such tax
is charged, but does not include any
tax
chargeable
wiih reference to the value of any particular asset of
the business or profession;
3. Section 58, as
originally
enacted,
of the
principal Act sh~ll be deemed always to have been renumbered as sub-section ( 1) thereof, and alter subsection, the following sub-section shall be, and
shall
be deemed always to have been, inserted, namely :-
'(IA) The provisions of sub-clause (iia)
of
~lause (al. of secti?n 40 shall. so far as may be, apply
In computmg the mcome chargeable under the
head
'.'income. from other sources" as •they apply in computm~ the mco1~e chargeable under the head "Profits and
gams of husmess or profession."'
4. Nothing contained in the Indian Income-tax
Act, 1922 shall be deemed to authorise. or shall be
deemed e,ver to have authorised, any deduction in the
computahon of the income oi. any assessee chargeable
538
SUPREME COURT REPORTS
(1973j 2 S.C.R.
'
u.nder the head ··profits and gains of busines>, profession or vccation"' or ""Income from other sources" for
.. the assessment year commencing on the l~t day of
April, 1957 or any subsequem assessment year, of any
sum paid on account of wealth-tax.
Explanation-For the purpose of this section,
··11eahh-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 Act.
5. Where, before 'lhe 15th day of
July
1972
(being the date en which the
Inoome-tax
(Amendment) Ordinance, 1972 came into force, the Supreme
Court has. on an appeal in respect of the assessment
of an assessee for any particular assessment year. held
that wealth-tax paid by the assessee is
deductible
in
computing the tO'lal income of that year. then. nothin2
contained in sub-clause (iia) of clause· (a) ·of sec":.
tion 40, or sub-section 1 (A) of section 58,
of the
principal Ac·t. as amended by this Act. or, as the case
. may be, section 4 of this Act, shall apply tel the assessment of such assessee for that particular year:·
It will be observed from s. 5 of the Amendment Act that the
judgment of this Court in •the /11dia11 A/11111i11i11m Co. case in so
far as the deduction of the wealth-tax was held to be allowable .in
computing the assessee's income in ihat case, was left untouched
but any sum paid on account of wealth-tax in respect of assessment years prior to 1962-63 and those under the Income-tax
Act, 1922 in respect of assessments commencing on the 1st day
of April 1957 or on any subsequent year. the amendment was
given retrospective
operation.
The
changes
introduced
in
sections 40 and 58, we should have thought, were clear in disallowing any deduction of the wealth-tax from the computntion
oi an assessee"s income.
The learned -advocate for the assessee
however has made a valiant attempt which at·tempt we think is
totally al:Jortive even if we were inclined to stretch and strain
interpretation in favour of the assessee because neither the language nor the diction of the amended provisions permit the construction sought to be placed on the amendments.
What 'lhe learned advocate seeks to contend is that the Explanation to sub-clause (iia) of cl. (a) of s. 40 which Explanation mutatfr mlllandis is by reference to be read into sub-s. ( lA)
of s. 58 so far ac may be applicable in computing the income
chargeable under the income from 'other sources' as they apply
in computing: th1:' income chargeable under the head "profits and
gains of business an.ct :lifrnfe.ssion"' saves th~" excess
profits
tax
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T. s. KRISHNA V. C.J.T. (Jaganmohan Reddy, /.)
539
chaFe•1ble with reference to the value of any particular asset of
the business or profession.
In other words,
this
contention
am0\!ms to saying that the legislature left untouched the decision
of this Court in Indian Aluminium Company: Reliance for this
sutimis<;ion is based on the words "but does not include any tax
chargeable with reference to the value of any particular asset of
the bu; \ness or profession" in the last part of the Explanation to
the 'aid sub-clause because according to him the prohibition to
ded;.ction under s. 2 of the Amending Act is the amount paid
on
~~count of wealth-tax which expression has been given an
extended meaning to cover the wealth-tax payable
under the
Wealth-tax Act in this country as well as taxes of similar character
and 0!her taxes on assets, of or the capital employed in the business
or profession carried on by ·the assessee payable under the law
of any country outside Iridia.
The learned advocate
further
proceeds to submit that the Explanation however excludes from
the prohibition to deduct sum wealth-tax under the sub-clause or
subrsection the tax chargeable with reference
to
a ·particular
asset whether such charge is either under the laws of this country
i.e. the Wealth-tax Act or und~r the laws in force outside India.
There is no warrant for this construction because the words upon
which reliance has been placed are related to the tax chargeable
under a law in force in any country outside India with reference
to the value of the assets of/or employed in a business or profession carried on by the assessee.
The exclusion contemplated
by the exception on which emphasis is placed is wholly unrelated
to the scheme of the Wealth-tax Act because wealth-tax under
that Act is not chargeable with reference to the value of any
parti~ular asset of the business or profession but under s. 3 the
charge is in respect of the net wealth on the corresponding valuation date of every individual Hindu undivided family and company at the rate or rates specified in the Schedule.
"Net wealth"
under s. 2(m) means the amount which the
aggregate
value
computed in accordance with the provisions of the
Wealth-tax
A ct of all the assets, wherever located, belonging to the asseoiee
on the valuation date, including assets required to be included in
h1; nee wealth as on that date under hat Act is in excess o.f the
aggregate value of all the debts owed bjy the
assessee on the
v'.1.lmition da•te o.ther than those specified in items (i). (ii) and
(" 1) ot that section. S. 4 includes certain assets' in the net wealth
wh!le '· 5 provides for exemption in respect of specified assets on
11h1ch wealth-tax is not payable and such assets are not to be
~aken into account in computing the net wealth of the assessee.
S. 6 concerns with the exclusion of assets and debts outside India
and s. 7 deals with the cietermination of 'the value of the assets
which are to be included in the net wealth.
[1 is thus clear tlwt
under the scheme nf the Wealth-tax Act. tax is leviable not on
I 7-l498SupC'I /7.'
540
SUPREME COURT REPORTS
(1973] 2 S.C.R.
any separate or particular asset but on the neit wealth as defineli
11nder that Act.
The learned advocate wanted us to read "anv
particular asset" in Explanation to sub-cl. (iia) of cl. (a) of s. 40
.. as the aggregate of the assets as defined in 'net· wealth'·· under
s. 2(m).
To accept such an argument would be to give a go
by to the scheme of the Wealth-tax Act where though each asset
comprised in the net wealth can be separately valued under s. 7,
nevertheless net wealth would be the amount by which tlle aggregate value o' all those assets, exceed '111e aggregate value of de~s
owed by the assessee on the valuation date.
Even otherwise to
read the exception "but does no include any tax chargeable with
reference to the value of any particular asset of the business or
prcfession" with the first part of the Explanation "wealth-tax"
means wealth-tax chargeable under the Wealth-tax Act·
1957
"would not grammatically make any sense. These two read together would make the following
senter.ce"
'wealth-tax'
means
wealth-tax chargeable under the Wealth-tax Act, 1957. but does
not indude any tax chargeable with reference to the value of any
particular asset of the business or profession." As already pointed out, on the scheme of the Act there is no logical connection
between the import of each of the two parts of that sentence, the
first definitely indicates the wealth-tax
chargea\j)e
under
the
wealth-tax Act while the latter se~ks to except a tax chargeable
with reference to the value of any particular business or professivu
which is not a tax Jeviable as such under the wealth-tax Act ana
hence does not relate to that part of the Explanation where
wealth-tax in sub-cl. (iia} means tt,at it is the wealth-tax chargeable under the Wealth-tax Act.
In our view, sub-section (IA)
of section 58 clearly excludes any deduction as claimed.
Even apart from the amendment disallowing the deduction
the very nature of the income from dividend in respect of which
deduction of wealth-tax is claimed does not, as pointed out by
1he High Court, bear any relationship direct or incidental to the
earning of that income and cannot therefore be said fo be laid
cut or expended exclusively for the purpose of making or earning such income within tlle meaning of sub-cl. (iii) of s.57 of
the Act or under the corresponding provisions of s.10 (2) (xv)
of the Indian Income-tax Act, 1922. In any view of the matter,
the answer to the question rendered by tlle High Court is unexceptionable and the appeal is consequently dismissed with costs.
s.c.
Appeal dismissed.
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