T. S. KRISHNA vs. C. I. T. MADRAS

CIVIL APPEAL No. 1671/1969Supreme Court[1973] 2 S.C.R. 53303 October 1972Bench: 3 JudgesAuthor: P. JAGANMOHAN REDDY, I.D. DUA, HANS RAJ KHANNA8 pages
AI SummaryDismissed

What were the facts?

The assessee, during the accounting period 1962-63, paid Wealth Tax of Rs. 21,963/- on shares held by him. He claimed this amount as a deduction from his dividend and interest income under Section 57(iii) of the Income Tax Act, 1961, arguing it was an expenditure incurred for earning that income. The Income Tax Officer (ITO) rejected the claim, finding no direct connection between Wealth Tax payment and dividend income generation. This decision was upheld by the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal. Subsequently, the High Court, on a reference, also rejected the assessee's contention.

What did the Supreme Court hold?

The Supreme Court held that Wealth Tax paid cannot be treated as an expenditure allowable under Section 57(iii) of the Income Tax Act, 1961. The Court noted that subsequent amendments (Income Tax (Amendment) Ordinance of July 15, 1972, and the Income-Tax (Amendment) Act of 1972) explicitly disallowed Wealth Tax paid as expenditure for incomes derived from other sources. Even apart from these amendments, the Court found that the nature of dividend income does not bear a direct or incidental relationship to the payment of Wealth Tax. The expenditure was not laid out or expended exclusively for the purpose of making or earning such income, as required by Section 57(iii). The Court referred to its earlier decisions in Travancore Titanium Products Ltd. v. C.I.T. Kerala and Indian Aluminium Co. Ltd. v. C.I.T. to emphasize the need for a direct and intimate connection between the expenditure and the earning of income. The appeal was dismissed.

What were the issues?

1. Whether Wealth Tax paid can be deducted as an expenditure under Section 57(iii) of the Income Tax Act, 1961, in respect of income derived from dividends and interest. Assessee's Contention: The assessee argued that the preservation of assets is incidental to earning income, as assets themselves produce income. Therefore, paying Wealth Tax was virtually a condition for earning income, as default could endanger ownership of the assets and thus the source of income. They relied on precedents to support this. Revenue's Contention: The revenue contended that there was no direct or immediate connection between the payment of Wealth Tax and the earning of dividend income. The High Court observed that Wealth Tax was paid as the owner on the totality of assets, unrelated to making or earning income from those assets, and the production of income appeared wholly unconnected with the Wealth Tax payment.

Which sections of the Income-tax Act were involved?

Section 57(iii),Section 10(2)(xv),Section 256(1)

AI-generated summary — verify with the full judgment below

A B c D E F G 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 Act- Jlt'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 pay- n1cnt 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 paym

The order continues below.

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