1998 (11) TMI 102 - HC - Income Tax

Capital Expenditure Business Loss Developement Rebate Export Turnover Surtax Bank Guarantee

Summary

Issues Involved:
1. Deletion of bank charges and interest on unpaid purchase price.
2. Recompute capital employed in the industrial undertaking.
3. Addition of cost of purchasing old looms for depreciation.
4. Allowance of loss on the sale of Government securities.
5. Inclusion of customs duty drawback, excise duty refund, and premium gain on value of yarn entitlement in export turnover.
6. Inclusion of customs duty drawback, excise duty refund, and premium gain on value of yarn entitlement in total turnover.
7. Deduction of interest amount.
8. Application of Para. F of the First Schedule to the Finance Acts.
9. Deduction of tax paid under the Companies (Profits) Surtax Act, 1964.
10. Reduction of profit by development rebate allowance for section 80E deduction.
11. Disallowance of remuneration paid to certain ladies.
12. Disallowance of further expenditure incurred in litigation against M/s. Kutty Industrials.
13. Disallowance of legal expenses in connection with Bhiwani Textile Mills.
14. Deduction of trading loss due to devaluation of the rupee.
15. Taxability of amount deducted from deposits/salary of ex-employees.
16. Allowability of expenditure incurred in acquiring import entitlements.

Summary:

Issue 1: Deletion of Bank Charges and Interest on Unpaid Purchase Price
The Tribunal allowed the deduction of interest and bank charges on the unpaid purchase price of private forest land. The court upheld this, stating that the land purchase was closely related to the business, making the interest a revenue expenditure deductible u/s 37(1).

Issue 2: Recompute Capital Employed in the Industrial Undertaking
This question was returned unanswered as it became infructuous due to the Tribunal's order dated October 1, 1986.

Issue 3: Addition of Cost of Purchasing Old Looms for Depreciation
This question was not pressed by the Revenue in light of the Madhya Pradesh High Court decision in Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. CIT [1988] 173 ITR 126, and was returned unanswered.

Issue 4: Allowance of Loss on the Sale of Government Securities
The Tribunal allowed the deduction of the loss incurred on the sale of Government securities, noting that the purchase was made under governmental pressure. The court upheld this finding.

Issue 5: Inclusion of Customs Duty Drawback, Excise Duty Refund, and Premium Gain on Value of Yarn Entitlement in Export Turnover
The court decided this issue partly in favor of the Revenue and partly in favor of the assessee, following previous decisions. Drawback of customs duty and refund of excise duty were included, but premium gain on yarn entitlement was not.

Issue 6: Inclusion of Customs Duty Drawback, Excise Duty Refund, and Premium Gain on Value of Yarn Entitlement in Total Turnover
Similar to Issue 5, this issue was decided partly in favor of the Revenue and partly in favor of the assessee.

Issue 7: Deduction of Interest Amount
The court held that the assessee was not entitled to the deduction of interest amounts either u/s 36(1)(iii), u/s 37, or u/s 28, following previous judgments in favor of the Revenue.

Issue 8: Application of Para. F of the First Schedule to the Finance Acts
This question was not pressed and hence returned unanswered.

Issue 9: Deduction of Tax Paid under the Companies (Profits) Surtax Act, 1964
The court held that the tax paid under the Companies (Profits) Surtax Act was not a permissible deduction, following the Supreme Court decision in Smith Kline and French (India) Ltd. v. CIT [1996] 219 ITR 581.

Issue 10: Reduction of Profit by Development Rebate Allowance for Section 80E Deduction
The court held that the profit should be reduced by the amount of development rebate allowance, following the Supreme Court decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84.

Issue 11: Disallowance of Remuneration Paid to Certain Ladies
This question was not pressed by the assessee and was returned unanswered.

Issue 12: Disallowance of Further Expenditure Incurred in Litigation Against M/s. Kutty Industrials
This question was not pressed by the assessee and was returned unanswered.

Issue 13: Disallowance of Legal Expenses in Connection with Bhiwani Textile Mills
This question was not pressed by the assessee and was returned unanswered.

Issue 14: Deduction of Trading Loss Due to Devaluation of the Rupee
The court held that the trading loss due to devaluation of the rupee was deductible, following the decision in CIT v. V S. Dempo and Co. Pvt. Ltd. [1994] 206 ITR 291.

Issue 15: Taxability of Amount Deducted from Deposits/Salary of Ex-employees
This question was not pressed by the assessee and was returned unanswered.

Issue 16: Allowability of Expenditure Incurred in Acquiring Import Entitlements
The court held that the expenditure was allowable as a deduction in the assessment year 1970-71 when it was written off, following decisions in CIT v. Kusum Products Ltd. [1984] 149 ITR 250 and R. G. S. Industries v. CIT [1990] 183 ITR 31.