1991 (3) TMI 386 - HC - Income Tax

Summary

Issues Involved:
The judgment involves issues related to the deduction of bonus payments and provision, profits attributable to a priority industry for deduction under section 80-1 of the Income-tax Act, 1961, disallowance of expenses on maintenance of rest houses, and change of accounting method for bonus liability.

Deduction of Bonus Payments and Provision:
The assessee, a company engaged in paper manufacturing, claimed a deduction for bonus payments and provision during the assessment year 1971-72. The Income Tax Officer (ITO) disallowed the claim for the provision for bonus, stating that the assessee could not change its method from cash to mercantile system. However, the Appellate Authority Commissioner (AAC) allowed the provision for bonus based on a Supreme Court decision. The Tribunal upheld the AAC's decision, stating that the deduction for bonus should be allowed as the change in accounting method was bona fide and regularly followed by the assessee.

Profits Attributable to Priority Industry:
The assessee, being a priority industry, claimed deduction under section 80-1 for certain amounts received as technical collaboration fees, interest, and rent. The ITO excluded these amounts from the profits of the priority industry, reducing the deduction allowable to the assessee. The AAC accepted the assessee's claim, which was further upheld by the Tribunal based on previous orders in the assessee's case for earlier years.

Disallowance of Expenses on Maintenance of Rest Houses:
The assessee claimed a deduction for expenses incurred on maintaining two rest houses, but the claim was disallowed by the ITO, AAC, and Tribunal due to non-maintenance of a register to show who utilized the guest house facility. The Tribunal rejected the distinction made by the assessee between 'rest house' and 'guest house,' stating that the provisions of section 37(3) and 37(4) were applicable, disallowing the expenditure.

Change of Accounting Method for Bonus Liability:
The assessee changed its accounting method for bonus liability during the relevant year based on a communication from the Federation of Indian Chambers of Commerce and Industry. The Tribunal held that the change in method was bona fide and consistently followed by the assessee, allowing the deduction for bonus liability on both cash and mercantile basis for the year under consideration.

Separate Judgment:
The second question referred by the Commissioner was answered in favor of the assessee based on a previous decision by the Bombay High Court in the assessee's case. No costs were awarded in the judgment.