1998 (2) TMI 19 - HC - Income Tax

Summary

Issues:
1. Deduction under section 37 of the Income Tax Act for additional payment made pursuant to a settlement under the Industrial Disputes Act.
2. Allowance of extra-shift depreciation on machinery additions.

Analysis:

Issue 1: Deduction under section 37 of the Income Tax Act for additional payment made pursuant to a settlement under the Industrial Disputes Act:
The case involved a dispute regarding the deductibility of an additional payment made by the assessee to its employees under a settlement agreement. The payment was made in consideration of the assurance of trade unions to extend their cooperation for better productivity. The Income Tax Officer disallowed the additional payment, citing the proviso to section 36(1)(ii) of the Act, which limits deductions. However, the Commissioner of Income-tax and the Commissioner (Appeals) held that the payment was allowable under section 37(1) of the Act as it was in the nature of additional wages. The Tribunal disagreed, considering it as bonus and disallowed the deduction. The High Court analyzed the nature of the payment and held that it was made for business considerations to secure cooperation and better production. The court referred to a similar case where such payments were allowed under section 37 of the Act. Therefore, the court ruled in favor of the assessee, allowing the deduction under section 37 and rejecting the Tribunal's decision based on section 36(1)(ii).

Issue 2: Allowance of extra-shift depreciation on machinery additions:
The assessee claimed extra-shift allowance on machinery additions, which was initially refused by the Income Tax Officer based on a court decision. However, the Commissioner (Appeals) allowed the claim, relying on a Board's Circular. The Tribunal later denied the allowance, restricting it to machinery actually worked during double or triple shifts. The High Court referred to a Supreme Court decision that clarified the calculation of extra-shift allowance based on the number of days workers worked double or triple shifts, not limited to specific machinery. Therefore, the court ruled in favor of the assessee, allowing the extra-shift depreciation on machinery additions. The court answered both questions of law in the negative, in favor of the assessee, and awarded costs to the assessee.