1996 (9) TMI 61 - HC - Income Tax

Actual Cost, Assessment Year, Profits Chargeable To Tax, Purchase Tax, Raw Material, Sales Tax

Summary

Issues:
1. Deletion of provision for purchase tax liability.
2. Deletion of provision for purchase tax and sales tax liability.
3. Deletion of unpaid wages and bonus written back to profit and loss account.
4. Consideration of payment to a foreign company as part of machinery cost for depreciation.

Analysis:

Issue 1 & 2 - Deletion of Provision for Purchase Tax Liability:
The case involved the assessment year 1979-80 of a company engaged in textile and chemical manufacturing. The Revenue challenged the deletion of provisions for purchase tax liability totaling Rs. 1,56,195 and Rs. 15,444 for purchase tax and Rs. 47,624 for sales tax. The Income-tax Officer disallowed the deduction as no demand was raised or quantified during the relevant period. However, the Tribunal upheld the deduction relying on the Supreme Court decision in Kedarnath Jute Manufacturing Co. Ltd. v. CIT [1971] 82 ITR 363. The Court agreed that if raw materials purchased against declaration forms were used for non-manufacturing purposes, the liability to pay purchase tax existed. The Court found no merit in Revenue's argument and upheld the deductions, citing the Kedarnath case. Therefore, questions 1 and 2 were answered in favor of the assessee and against the Revenue.

Issue 3 - Deletion of Unpaid Wages and Bonus:
Regarding the deletion of Rs. 1,08,281 representing unpaid wages and bonus written back to the profit and loss account, the Court referred to previous decisions in CIT v. General Industrial Society Ltd. [1994] 207 ITR 169 (Cal) and CIT v. Eastern Spinning Mills and Industries Ltd. [1994] 207 ITR 951 (Cal). The Court concurred with these decisions and answered the question in the negative and in favor of the Revenue.

Issue 4 - Consideration of Payment to Foreign Company for Depreciation:
The final issue pertained to considering a payment of 1,75,000 dollars to a foreign company as part of machinery cost for depreciation. This question was settled in a previous case, CIT v. Jiajee Rao Cotton Mills Ltd., where the Court followed its earlier decisions. The Court agreed with the previous rulings and answered the question in the affirmative and against the Revenue.

In conclusion, the Court upheld the deductions for purchase tax liability, disagreed with the deletion of unpaid wages and bonus, and confirmed the treatment of the payment to a foreign company for depreciation. The matter was to be remitted to the Tribunal promptly, and no costs were awarded due to the unique circumstances of the case.