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2004 (11) TMI 37 - HC - Income TaxDeduction u/s 32(1) Depreciation Revenue receipt Bonus paid in excess of salary - Whether Tribunal is correct in holding that the bottles and shells constitute plant and depreciation is admissible thereon u/s 32(1)(ii)? This question is answered against the Revenue and in favour of the assessee - Whether Tribunal is correct in law in holding that the amount of Rs. 5, 46, 000 (payment of Rs. 5, 46, 000 was directly related to the bottles which were destroyed under the supervision of the Corporation) received by the assessee from M/s. Coca-Cola Export Corporation does not constitute a revenue receipt in the assessee s hands? This question is answered in favour of the Revenue and against the assessee - Whether Tribunal ought to have upheld the disallowance of Rs. 36, 404 made by the Income-tax Officer in respect of bonus paid in excess of 8.33 per cent. of the salaries paid? - there is no dispute that the bonus that was paid was customary bonus. Therefore it could not be said that the bonus paid in excess of 8.33 per cent of the salaries had to be included in the income. This question is also answered against the Revenue
Issues:
1. Depreciation on bottles and shells under section 32(1)(ii) of the Income-tax Act for the assessment year 1979-80. 2. Taxability of compensation received from M/s. Coca-Cola Export Corporation. 3. Valuation of stock of Coca-Cola and Fanta bottles. 4. Disallowance of bonus paid in excess of 8.33% of salaries. Issue 1: Depreciation on bottles and shells: The case involved a private limited company importing Coca-Cola concentrate and manufacturing soft drinks. The company faced unforeseen circumstances when the Government prohibited the use of the concentrate, rendering all bottles useless. The company claimed deduction under section 32(1)(iii) of the Income-tax Act for the useless bottles. The Commissioner and the Tribunal accepted this claim, allowing a deduction of Rs. 17,14,341. However, an additional compensation of Rs. 5,46,000 received from Coca-Cola Corporation was disputed. The Tribunal determined that the compensation was a revenue receipt, taxable under section 28 of the Act, as it was related to the closure of the business, not the price of the bottles. Issue 2: Taxability of compensation: The compensation received by the company from Coca-Cola Corporation was deemed taxable under section 28 of the Income-tax Act as a revenue receipt. The Tribunal concluded that the compensation was not for the bottles but for the closure of the business, making it subject to income tax. The Tribunal's decision was based on the clear terms of the letter from Coca-Cola Corporation, which outlined the compensation as being tied to the destruction of the bottles and their costs, establishing it as a revenue receipt. Issue 3: Valuation of stock of bottles: The Tribunal upheld the contention of the company that the bottles had become useless due to the ban on Coca-Cola concentrate production. The company claimed a deduction under section 32(1)(iii) for the useless bottles. The Commissioner and the Tribunal accepted this claim, allowing a deduction of Rs. 17,14,341 for the value of the useless bottles. The valuation was based on the company's assessment, and the Tribunal agreed that the bottles had no commercial value and were unusable. Issue 4: Disallowance of bonus payment: The Tribunal determined that the bonus paid by the company, in excess of 8.33% of salaries, was customary bonus and not subject to inclusion in the income. Citing a Supreme Court judgment, the Tribunal held that customary bonus was exempt from inclusion in income. Therefore, the Tribunal ruled against the Revenue and in favor of the company regarding the disallowance of the bonus payment. In conclusion, the judgment addressed various issues concerning depreciation on bottles, taxability of compensation, valuation of stock, and bonus payment disallowance. The decision favored the company on some issues, such as the taxability of compensation and bonus payment, based on the provisions of the Income-tax Act and relevant case law.
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