B.N Jha, J.:— The following question has been referred to this Court under Section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act), by the Appellate Tribunal. Patna for its opinion:—
“Whether on the facts and circumstances of the case, the sum of Rs. 125 payable by the assessee under the provisions of section 150-A of the Bihar and Orissa Municipal Tax Act, 1922, is allowable under the Indian Income-tax Act, 1922”
2. The assessee is an individual and carries on wholesale business in cloth under the name and style, Messrs Chunilal Rameshwarlal at Deoghar. For the purpose of determination of taxable income the assessee claimed deduction of a sum of Rs. 125 on account of the payment made by him to Deoghar Municipality as professional tax under Section 150-A of the Act for the assessment year of 1961–1962. Both the Income-tax Officer and the Appellate Assistant Commissioner of Income tax disallowed the deduction. However, the Income Tax Appellate Tribunal accepted the contention of the assessee that the tax paid to the municipality was not a personal tax levied on the profits or gains of any business or assessed in proportion to or otherwise on the basis of any such profits or gains but was a tax paid under section 150-A read with Section 82(1)(ff) of the Bihar and Orissa Municipal Act, 1922, in relation to the premises where the business was carried on; and, as such, the payment did not fall under section 10(4) of the Act. Hence, it allowed deduction under section 10(1) of the Act. In pursuance of an application by the Income Tax Commissioner, the aforesaid question has been referred to this Court by the Income-tax Appellate Tribunal, Patna, for its opinion. Section 82(1)(ff) of the Bihar and Orissa Municipal Act, 1922 (hereinafter referred to as the Municipal Act), empowers the Municipality to impose a tax within its limits on the trades, professions, callings and employments specified in the Fourth Schedule at such rates not exceeding the rates specified therein as may from time to time be determined by the Commissioners at a meeting subject to the approval of the State Government.
3. section 150-A of the Municipal Act provides for taking out a half-yearly licence by the person for carrying on professions, trades or employments specified in the Fourth Schedule and paying a tax assessed on him in pursuance of clause (ff) of sub-section (1) of section 82 of the Municipal Act. The second proviso of section 150A of the said Act provides for exemption of the payment of the tax in case of a person who exercises any such profession, trade, calling or holds any employment within the municipality and whose taxable income does not exceed fifteen hundred rupees, per annum or the value of whose place of business does not exceed ten rupees per mensem or whose income from employment does not exceed twenty-four hundred rupees per annum. The proviso contemplates three kinds of exceptions depending on
(i) the taxable income,
(ii) the valuation of the business premises and
(iii) the income from employment.
4. The relevant provisions made in the Fourth Schedule of the Municipal Act may be quoted here:—
“1. Every licence shall be granted under one or the other of the classes mentioned in the second column of the following table and there shall be paid half yearly from 1st April to 30th September and 1st October to 31st March, for the same a tax not exceeding the amount mentioned in that behalf in the third column of the table.
Serial No., Classes, Maximum half-yearly Tax
Rs. N.P
(a) Joint stock company transacting business within the Municipality for profit or as a benefit society of which the paid up Capital is equivalent to—
(a) Rs. 1,00,000 or more
125.00
(b) Rs. 75,000 or more but less than Rs. 1,00,000
100.00
(c) Rs. 50,000 or more but less than Rs. 75,000
75.00
(d) Less than Rs. 50,000
50.00
(b) Mill owner, merchant, banker, money-lender, trader, dealer, owners, owner of houses, public carrier vehicle, taxi cabs (exceeding two), Carriage (exceeding two), rickshaw (exceeding two) which ply on hire whose place of business is valued under this Act at—
(a) not less than Rs. 250 per mensem
125.00
(b) not less than Rs. 200 per mensem
100.00
(c) not less than Rs. 150 per mensem
75.00
… … … …
(h) not less than Rs. 10 per mensem
7.50
5. Explanation:— When a place of business occupies only a portion of one set of premises, the valuation thereof for assessment of the tax on profession, trade or calling shall be the rate per mensem at which such place or business might, in the opinion of the Commissioners, reasonably be expected to let and shall include godowns and other places for storing or keeping things of merchandise or other stores, required for the exercise of profession, trade and calling or carrying out any manufacture.
(c) Commissioner agent, broker (not included in serial no. 2), architect, engineer, contractor, medical practitioner (whether registered or not), owners of pathological laboratories and clinics, dentist, barrister, legal practitioner, ferry farmer and person holding employment—
(a) in respect of whose income, income-tax is assessed—
(i) having half-yearly income of not less than Rs. 15,000 … 125.00”
The aforesaid provisions clearly envisage three kinds of payment on account of professional tax on a graduated scale depending on (a) the amount of paid-up capital applied in the profession.
(b) the value of the business premises and
(c) the total yearly income.
6. The assessee falls within the second category, that is, under serial (b) of clause 1 of the Fourth Schedule and he made payment of the tax accordingly.
7. Serial (b) of clause 1 clearly shows that the amount of tax to be paid is co-re-lated to the valuation of the business premises. If the valuation of the premises is not less than Rs. 250 per mensem. Rs. 125 is the maximum half-yearly tax to be paid, but if the valuation is not less than Rs. 10 per mensem Rs. 7.50 is to be paid as half-yearly tax. As stated above, the second proviso to section 150-A of the Municipal Act provides that no tax is to be paid if the valuation of the place of business does not exceed Rs. 10 per menses the Fourth Schedule also does not make any provision for the payment of half-yearly tax by a person if the valuation of the business premises of a person is less than Rs. 10 per mensem. Though the tax is a tax on trades, professions, callings or employments, the payment of it does not depend on the income or profits from the earnings of a person, but depends on the valuation of the premises where the business of the assessee is carried on irrespective of whether the assessee earns profit or suffers loss the assessee may not have taxable income under the Income-tax Act, yet if he carries on business in premises within the municipal area and the value of such premises falls within the taxable limit as provided in the Fourth Schedule, he has to pay such professional tax as mentioned therein.
8. Clause 2 of the Fourth Schedule provides that where the owner or occupier of any place of business is required to take out a licence, the licence shall be taken out by the occupier if the business is carried on by occupier, but otherwise by the owner. The payment of the tax may be regarded as part of the expenditure of the person which is essential for carrying on the business within the municipal limit as any other expenditure. Serial (a) of clause 1 makes provision for the payment of the tax on trade, profession, etc. carried on by a joint stock company depending on the amount of assessee belongs, could, by no stretch of capital applied in the trade, profession, etc. The amount of capital is the measuring rod for payment of tax. Serial (c) of clause 1 provides for the payment of tax by Commission agent, broker (not included in serial no. 2), architect, engineer, contractor, medical practitioner (whether registered or not), owners of pathological laboratories and clinics, dentist, barrister, legal practitioner, ferry farmer and person holding employment in proportion to his income. Here the professional tax depends on the amount of income and the tax has to be paid out of the income.
9. The main question for consideration in the circumstances of the case is whether the amount of Rs. 125 paid by the assessee is deductible under clause (ix) of sub-section (2) of Section 10 of the Indian Income-tax Act, 1922, while computing his taxable income under section 10(1) of that Act or also whether such deduction is not permissible in view of sub-section (4) of Section 10 of the said Act. The relevant provision of section 10 of the Indian Income-tax Act, 1922, reads as follows:—
“10(1) The tax shall be payable by an assessee under the head ‘Profits and gains of business, profession or vocation, in respect of the profit or gain of any business, profession or vocation carried on by him
(2) Such profits or gains shall be computed after making the following allowances namely:—
(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 purposes of the business, profession or vocation;
(4) Nothing in clause (ix) or clause (xv) of sub-section (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:”
10. Sub-section (4) of section 10 of the Indian Income-tax Act, 1922 clearly says that if any sum is 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, it is not to be deducted. The impugned tax paid to the municipality, as has been found above, was not paid on profits or gains or on the basis of any such profits or gains of the business but was paid for carrying on the business by the assessee in the particular premises the monthly valuation of which was more than Rs. 250. Therefore, payments made as professional tax under serial (c) of the Fourth Schedule of the Municipal Act could bp regarded as a payment on the gains or profits, but payment under Serial (b), to which category this imagination, be regarded as payment on gains or profits of the business. Therefore, sub-section (4) does not stand in the way of the assessee for getting deduction on account of the aforesaid tax so paid by him.
11. The Bihar and Orissa Municipal Act, 1922, in clause (b) of sub-section (1) of section 82 provides for the imposition of a tax on a holding situated within the municipality, different from the tax on trades, professions, calling and employments described in clause (ff) of the same sub-section; but, by virtue of the Fourth Schedule (already quoted), for certain categories of taxes on trades, professions, callings and employments, the value of the premises, where the business is carried on, is taken as the basis. But, on that account, it cannot be said to be a tax on a holding. Clause (ix) of sub-section (2) of Section 10 of the Income-tax Act does not refer either to a holding tax or a tax on professions, but merely says that the sum paid on account of municipal tax in respect of such part of the premises as is used for the purposes of the business, profession or vocation shall be deductible.
12. It is well known that the expression “in respect of” is of wider connotation than the word “in” or “on”. Hence, a class of municipal tax, though not a tax on the premises or buildings, may nevertheless be a tax in respect of the premises or building used for the business.
13. Hence, the payment of the impugned amount of Rs. 125 as professional tax under section 150-A read with section 82(1)(ff) of the Municipal Act is in substance a municipal tax in respect of the business premises, and is covered by Clause (ix) of sub-section (2) of Section 10 of the Income-tax Act. The assessee is entitled to get allowance for the same under section 10(1) of the Indian Income-tax Act, 1922. The Appellate Tribunal was right in giving allowance to the assessee for a sum of Rs. 125 paid by him under the Bihar and Orissa Municipal Act, 1922.
14. In the circumstances stated above, the question is answered in the affirmative.
15. The assessee is entitled to costs. Hearing fee: Rs. 100.
16. Narasimham, C.J:— I agree.
TVN/D.V.C
17. Reference answered in the affirmative.