1991 (8) TMI 337 - HC - Income Tax

Issues Involved:
1. Deduction of Rs. 71,395 as a trading loss from fabricated purchase.
2. Deduction of Rs. 19,199 as trading loss from investment in U.P. State Development Loan.
3. Deduction of Rs. 36,745 payable as interest under section 3(3) of the U.P. Sugarcane (Purchase) Tax Act, 1961.
4. Deduction of Rs. 3,572 paid as interest under section 220(2) of the Income-tax Act, 1961.
5. Calculation of extra shift depreciation allowance for double and triple shift working.

Issue-wise Detailed Analysis:

1. Deduction of Rs. 71,395 as a trading loss from fabricated purchase:
The assessee-company claimed a deduction of Rs. 71,395 as a trading loss due to fabricated parchis by the mills staff in collusion with the society's staff and some farmers. The Tribunal concluded that the sum was not an accrued or ascertained liability during the assessment year in dispute. The Tribunal's decision was based on the fact that the liability was disputed by the assessee and was only settled on 30-9-1964, after the close of the accounting period. The court upheld the Tribunal's view, referencing the case of CIT v. Oriental Motor Car Co. (P.) Ltd., where it was held that a liability crystallizes only when the dispute is settled. Thus, the deduction of Rs. 71,395 was not allowed for the assessment year in dispute.

2. Deduction of Rs. 19,199 as trading loss from investment in U.P. State Development Loan:
The assessee incurred a loss of Rs. 19,199 from the resale of U.P. Government securities, which were purchased at the instance of District authorities. The Tribunal initially disallowed this deduction, stating there was no direct nexus between the investment and the business benefits. However, the court referenced the case of CIT v. S.B. Sugar Mills and the Supreme Court decision in Patnaik & Co. Ltd. v. CIT, which allowed such losses as business expenditure due to business expediency. Consequently, the court held that the assessee was entitled to the deduction of Rs. 19,199 as trading loss.

3. Deduction of Rs. 36,745 payable as interest under section 3(3) of the U.P. Sugarcane (Purchase) Tax Act, 1961:
Both parties conceded that this issue was governed by the Supreme Court's decision in Mahalakshmi Sugar Mills Co. v. CIT and the Full Bench decision in Triveni Engg. Works Ltd. v. CIT. These cases established that such interest payments are deductible. Therefore, the court held that the assessee was entitled to the deduction of Rs. 36,745.

4. Deduction of Rs. 3,572 paid as interest under section 220(2) of the Income-tax Act, 1961:
The court referenced the decisions in CIT v. Oriental Carpet Mfrs. (India) (P.) Ltd. and Dhampur Sugar Mills Ltd. v. CIT, which held that interest paid under section 220(2) for delayed payment of income-tax dues is not incidental to the business. Consequently, the court ruled that the Rs. 3,572 paid as interest was not allowable as a deduction under section 37(1) and/or section 28 of the Income-tax Act.

5. Calculation of extra shift depreciation allowance for double and triple shift working:
The court referred to the Full Bench decision in Dhampur Sugar Mills Ltd. v. CIT, which dealt with a similar situation. It was held that extra shift depreciation allowance should be calculated proportionately for the period the factory worked triple shifts, rather than at 100% of the normal depreciation allowance. Therefore, the court upheld the Tribunal's decision that the extra shift depreciation allowance should be calculated proportionately.

Conclusion:
The court answered the questions as follows:
1. Affirmative, against the assessee.
2. Negative, in favor of the assessee.
3. Negative, in favor of the assessee.
4. Negative, against the assessee.
5. Affirmative, against the assessee.

The assessee was entitled to costs of Rs. 300 from the department due to largely succeeding in the reference.

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