1996 (6) TMI 25 - HC - Income Tax

Business Expenditure Commission Paid To Directors Industrial Undertaking In Backward Area Raw Material Sales Tax Special Deduction

Summary

Issues:
1. Interpretation of sections 80-HH and 80-I of the Income-tax Act, 1961.
2. Application of section 40(c) of the Income-tax Act, 1961.

Analysis:
1. The case involved a reference under section 256(1) of the Income-tax Act regarding the entitlement of a new private limited company to benefits under sections 80-HH and 80-I. The Assessing Officer disallowed the deductions under these sections, contending that the company did not establish a new industrial unit as it inherited the business from a predecessor firm. However, the appellate authority and the Tribunal found that the company had taken over certain assets, but crucially, had obtained new sales tax and central excise numbers, labor licenses, and opened new branches. The court held that these actions indicated the emergence of a new company, not a mere reconstruction of the old firm. The court, based on the admitted facts, ruled in favor of the assessee, concluding that the company qualified for the deductions under sections 80-HH and 80-I.

2. Regarding the disallowance under section 40(c) of the Income-tax Act related to commission payments to directors, the Tribunal and the appellate authority both upheld that the commission was distinct from salary and was paid for financial involvement and loan guarantees, not in lieu of full-time services. The court concurred with the lower authorities, emphasizing the independence of the commission from salary and the absence of excessiveness warranting disallowance. Thus, the court ruled in favor of the assessee on this issue as well. The judgment favored the assessee on both questions raised by the Revenue, emphasizing the factual findings and the absence of grounds to deviate from the lower authorities' conclusions.