1989 (12) TMI 296 - HC - Income Tax

Summary

Issues Involved:
1. Deductibility of surtax liability.
2. Allowability of gratuity liability without provision.
3. Weighted deduction for freight and insurance u/s 35B.
4. Proportionate head office expenses u/s 35B.
5. Legal expenses for amalgamation.
6. Revaluation of closing stock.

Summary:

1. Deductibility of Surtax Liability:
The Tribunal held that the surtax liability of Rs. 2,66,405 is not deductible in computing the income from business under the provisions of the Income-tax Act, 1961. This issue is concluded by the judgment in Molins of India Ltd. v. CIT [1983] 144 ITR 317, and thus, the question is answered in the affirmative and in favor of the revenue.

2. Allowability of Gratuity Liability:
The Tribunal held that the liability for gratuity of Rs. 17,15,175 is not allowable when no provision has been made in the books of account. This issue is covered by the Supreme Court decision in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585, and the question is answered in the affirmative and in favor of the revenue.

3. Weighted Deduction for Freight and Insurance u/s 35B:
The Tribunal held that the amounts of Rs. 9,26,963 as freight and Rs. 1,641 as insurance are not covered for weighted deduction u/s 35B of the Income-tax Act, 1961. This issue is covered by the judgment in Bharat General & Textile Industries Ltd. v. CIT [1985] 153 ITR 747, and the question is answered in the affirmative and in favor of the revenue.

4. Proportionate Head Office Expenses u/s 35B:
The Tribunal confirmed the disallowances made by the Commissioner of Income-tax (Appeals) and restricted the claim of Rs. 1,87,978 to Rs. 1,08,155 for proportionate head office expenses u/s 35B. The Tribunal did not commit any error in principle, and the question is answered in the affirmative and in favor of the revenue.

5. Legal Expenses for Amalgamation:
The Tribunal deleted Rs. 22,221 being the legal expenses incurred for the amalgamation of a subsidiary, holding it as revenue expenditure. However, the High Court held that the expenditure was to alter the framework or structure of the company, thus it is of capital nature. This question is answered in the negative and in favor of the revenue.

6. Revaluation of Closing Stock:
The Tribunal held that the revaluation of closing stock by including the subsidy as part of the sale price was not proper. The subsidy did not accrue simultaneously with the sale and hence was not part of the sale price. The High Court upheld this view, and the question is answered in the affirmative and in favor of the assessee.

Conclusion:
The questions raised by the assessee are answered in the affirmative and in favor of the revenue. The first question raised by the revenue is answered in the negative and in favor of the revenue, while the second question is answered in the affirmative and in favor of the assessee. There will be no order as to costs.