1998 (11) TMI 39 - HC - Income Tax

Depreciation, Actual Cost, Salary, Meaning Of Salary, Literal Interpretation, Words And Phrases

Summary

Issues:
1. Whether the subsidy received by the assessee should be deducted from the actual cost of assets for depreciation and investment allowance.
2. Whether the commission payments made to employees should be considered part of salary.

Analysis:

*Issue 1: Subsidy Deduction*
The court referred to the Supreme Court's decision in CIT v. P. J. Chemicals Ltd., emphasizing a liberal interpretation of "actual cost" under section 43(1) of the Income-tax Act, 1961. The subsidy received by the assessee was deemed not deductible from the actual cost for depreciation calculations. The judgment supported the view that the subsidy did not meet the conditions for deductibility from actual cost under the Income-tax Act, 1961.

*Issue 2: Commission Payments*
The case involved commission payments made to employees in addition to their salaries. The assessee argued that the commission was for securing export orders and should be considered business income, not part of salary. Reference was made to the House of Lords' decision in Hochstrasser v. Mayes, where compensation for losses was not considered taxable profit. However, the court differentiated this case, stating that the commission paid to employees should be regarded as part of their salary under section 17(1) of the Act. The Tribunal's decision to treat the commission separately was deemed erroneous.

In conclusion, the court ruled in favor of the assessee regarding the subsidy deduction issue but in favor of the Revenue regarding the commission payments being part of salary. The judgment highlighted the importance of statutory definitions and the inclusive nature of the term "salary" under the Income-tax Act, emphasizing that the label given to payments does not determine their classification.