Circular No. 98-Income Tax dated 16/12/1972

Explanatory Notes

INCOME-TAX (AMENDMENT) ACT, 1972

1. In the case of Indian Aluminium Co. Ltd. v. CIT [1972] 84 ITR 736, the Supreme Court virtually overruled its earlier decision in Travancore Titanium Products Ltd. v. CIT [1966] 69 ITR 277 and held that wealth-tax paid by an assessee in respect of business assets is deductible as a business expense in computing the assessee s income from business. With a view to restoring the position in this behalf as it obtained earlier, the President was pleased to promulgate the Income-tax (Amendment) Ordinance, 1972, on 15-7-1972. This Ordinance has since been replaced by the Income-tax (Amendment) Act, 1972 (hereinafter referred to as the Amending Act ). This circular explains the main provisions of the Amending Act.

INCOME-TAX (AMENDMENT) ACT, 1972

2. The Amending Act has amended sections 40 and 58, with retrospective effect from 1-4-1962. Under these amendments, wealth-tax payable by an assessee will not be allowed as a deduction in computing his income chargeable under the head Profits and gains of business or profession or Income from other sources . An independent provision has also been made in section 4 of the Amending Act in order to provide that wealth-tax will not be deductible in computing the taxable income under the head Profits and gains of business or profession or Income from other sources under the Indian Income-tax Act, 1922 (since repealed). For the purposes of these provisions, wealth-tax has been given an extended meaning and will mean :

i. wealth-tax chargeable under the Wealth-tax Act, 1957; or

ii. any tax of a similar character chargeable under any law in force in any foreign country; or

iii. any tax chargeable in a foreign country with reference to the value of asset of, or the capital employed in, a business or profession irrespective of whether or not the debts of business or profession are allowed as deduction in computing the tax base.

It has, however, been specifically provided that taxes which are levied in respect of particular assets (i.e., house tax levied on real property used for purposes of business or profession or motor vehicles tax levied on motor vehicles used for that purpose) will continue to qualify for deduction as at present.

The effect of the above provisions will, therefore, be that wealth-tax will not be allowed as deduction in computing the taxable income of an assessee for the assessment year 1957-58 or any subsequent year.

Saving – With a view to giving sanctity to the decision of the Supreme Court, it has been specifically provided that the provisions made under the Amending Act will not apply to the assessment of an assessee for a particular assessment year where the Supreme Court has, on an appeal in respect of the assessment of that assessee for that year, held before 15-7-1972, i.e., the date of promulgation of the Income-tax (Amendment) Ordinance, 1972, that wealth-tax paid by him should be allowed as deduction in computing his total income. It should be noted that the saving provisions apply only in relation to the particular year of assessment for which the Supreme Court has given a judgment adverse to the Revenue on an appeal made to that Court. The saving provisions will not, therefore, apply in relation to cases where the assessee who had gone up in appeal to the Supreme Court but had only entered as an intervener in any other case. Even in the case of assessees who had gone up in appeal to the Supreme Court, wealth-tax will be allowed as a deduction in computing the business income only in respect of the years for which appeals were preferred.