1995 (11) TMI 16 - HC - Income Tax

Assessment Year, Business Expenditure, Development Allowance, Electrical Machinery, Law Applicable To Assessment, Weighted Deduction

Summary

Issues Involved:
1. Applicability of section 144B for the assessment year 1975-76.
2. Justification of disallowing Rs. 7,11,612 under section 35B.
3. Deductibility of surtax in arriving at total income.
4. Allowability of extra-shift allowance of Rs. 3,66,496 for the plant.
5. Applicability of section 40A(5) for employment periods outside India.

Issue-wise Detailed Analysis:

1. Applicability of Section 144B for the Assessment Year 1975-76:
The Tribunal's decision that the provisions of section 144B, effective from January 1, 1976, apply to the assessment year 1975-76 was upheld. This issue is covered by the decision in Carona Sahu Co. Ltd. v. CIT [1995] 213 ITR 106, and thus, the question was answered in the negative and in favor of the Revenue.

2. Disallowance of Rs. 7,11,612 under Section 35B:
The assessee claimed a weighted deduction under section 35B for an overriding commission paid to foreign buyers. The Tribunal found that the payment was not for advertisement, publicity, or distribution but was effectively a rebate or discount reducing the sale price. The Tribunal's decision was based on the nature of the transaction and the lack of evidence showing an agent-principal relationship. The Tribunal's finding that the payment was a price reduction rather than an expenditure under section 35B was upheld. The court emphasized that nomenclature is not conclusive; the true nature of the payment, being a rebate, does not qualify for deduction under section 35B. Thus, question No. 2 was answered in the affirmative and in favor of the Revenue.

3. Deductibility of Surtax in Arriving at Total Income:
This issue is covered by the decision in Lubrizol India Ltd. v. CIT [1991] 187 ITR 25. The Tribunal's decision that surtax payable by the assessee is not deductible in arriving at the total income was upheld. The question was answered in the affirmative and in favor of the Revenue.

4. Allowability of Extra-Shift Allowance of Rs. 3,66,496 for the Plant:
The assessee's claim for extra-shift allowance on certain electrical items was rejected. The Tribunal found that these items fall under the category of electrical machinery, which is not eligible for extra-shift allowance as per Appendix I, Part I, Item III(iv) of the Income-tax Rules, 1962. The court interpreted "wiring" to include wiring for transformers and other stationary plant, not just for electric light and fan installations. Thus, the Tribunal's disallowance of extra-shift allowance was upheld, and question No. 4 was answered in the negative and in favor of the Revenue.

5. Applicability of Section 40A(5) for Employment Periods Outside India:
The assessee's counsel did not pursue this question due to insufficient facts. Therefore, the question was returned unanswered.

Conclusion:
The reference was answered with no order as to costs, reflecting the court's agreement with the Tribunal's findings on all issues except for the unanswered question No. 5.