Continental Tourist Home vs Commissioner of Income Tax

V.V. Kamat, J.—The question in this reference is as to whether the payment of building tax by the assessee could be considered as business income or capital expenditure. This appears before us with regard to the assessment year 1985-86 in the context of the assessee who is running a tourist home and a bar at Thodupuzha. He paid an amount of Rs. 81,955 towards payment of building tax and claimed deduction contending that it is business income. This was not allowed by all the three authorities. The Tribunal relied on its own decision in I. T. A. No. 578/Coch. of 1986, dated November 29, 1991.

The questions that come up for consideration are as follows :

"1. Whether, on the facts and in the circumstances of the case, the payment of building tax of Rs. 81,955 by the assessee could be considered as payment in the character of a trader-cum-owner ?

Whether, on the facts and in the circumstances of the case, the sum of Rs. 81,955 paid by the assessee as building tax was legally deductible as a business expenditure in computing the assessee''s income from business ?

Whether the building tax paid u/s 5 of the Kerala Building Tax Act, 1975, is a tax on the capital value of the building or a tax levied with reference to the value of the asset ?"

In view of the decision of this court in Michael Joseph and Company Vs. Commissioner of Income Tax, (to which one of us-myself-was a partner), the questions are now beyond the province of any debate in regard thereto. The Kerala Building Tax Act, 1975, provides for the levy of tax on buildings. Section 5 of the said Act is the charging provision requiring payment of tax on the construction of building and it is not of a recurring nature. Once the payment is made on completion of the building, it is once and for all. It is thus clear that the payment of tax under the above provision would have to be understood as forming part of the capital asset as it remains with the building just like the bricks or tiles. If that is so, the conclusion follows as a necessary sequitur that the amount would be categorised as capital expenditure. In order to attract the claim for deduction as allowable, the amount of tax has to be a payment for the purpose of business or profession, which is not the position.

In the above situation, we answer the questions as follows :

Question No. 1 is answered in the negative--in favour of the Revenue and against the assessee. Question No. 2 is also answered in the negative--in favour of the Revenue and against the assessee. Question No. 3 is answered in the affirmative that the building tax is on the capital value of the building and levied with reference to the value of the asset--in favour of the Revenue and against the assessee.

A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench, for passing consequential orders.