1996 (7) TMI 101 - HC - Income Tax

Backward Area, Business Expenditure, Expenditure On Repair, Industrial Undertaking, Retrospective Effect, Sales Tax, Special Deduction, Total Income

Summary

Issues:
1. Disallowance of expenses on repairs and maintenance of cars under section 37(3A) of the Income-tax Act.
2. Treatment of unpaid sales tax liability under section 43B of the Income-tax Act.
3. Deduction under sections 80HH and 80-I without deducting earlier years' losses from the current year's income.

Analysis:

Issue 1: Disallowance of expenses on repairs and maintenance of cars under section 37(3A)
The Tribunal held that expenses on repairs and maintenance of cars, fully allowable under section 31 of the Income-tax Act, cannot be partly disallowed under section 37(3A). The Assessing Officer disallowed the expenses, including those on repairs and maintenance of cars, considering the entire expenses unitwise. The Tribunal disagreed with the Assessing Officer's approach, citing the Bombay High Court decision in CIT v. Chase Bright Steel Ltd. The High Court agreed with the Revenue's view, emphasizing that expenses should not be disallowed partially under section 37(3A).

Issue 2: Treatment of unpaid sales tax liability under section 43B
The assessee claimed an unpaid sales tax liability of Rs. 1,49,988, which the Assessing Officer disallowed under section 43B. However, the Commissioner of Income-tax (Appeals) allowed the claim based on a circular by the Central Board of Direct Taxes, stating that the amount shall be deemed paid for the purposes of section 43B. The Tribunal upheld the assessee's claim, considering the benefit of deferred payment scheme. The High Court concurred with the Tribunal, ruling in favor of the assessee due to the circular's clarifications.

Issue 3: Deduction under sections 80HH and 80-I without deducting earlier years' losses
The assessee claimed deductions under sections 80HH and 80-I without deducting earlier years' losses from the current year's income. The Assessing Officer deducted the losses first, reducing the allowable deductions significantly. The Commissioner of Income-tax (Appeals) directed to allow the full deduction without deducting earlier losses. The Tribunal upheld this decision, emphasizing a positive approach towards incentives for industries in backward areas. The High Court agreed, holding in favor of the assessee and against the Revenue, affirming the importance of the benefits under these sections.

In conclusion, the High Court ruled in favor of the Revenue regarding the disallowance of expenses under section 37(3A) but sided with the assessee on the treatment of unpaid sales tax liability under section 43B and the deduction under sections 80HH and 80-I without deducting earlier losses.