1999 (12) TMI 869 - HC - Income Tax

Summary

Issues:
1. Whether Central and State subsidies should be reduced from the cost of assets for depreciation calculation.
2. Whether commission and brokerage paid to indentors should be disallowed under section 37(3A) of the Income-tax Act.

Analysis:

*Issue 1:*
The case involved a limited company receiving Central and State subsidies. The Assessing Officer deducted a balance amount from the cost of assets for depreciation, which was challenged by the assessee. The Commissioner of Income-tax (Appeals) ruled in favor of the assessee, and the Tribunal upheld this decision based on precedent. The Tribunal cited a previous decision of the court to support its ruling. The Supreme Court judgment in the case of CIT v. P. J. Chemicals Ltd. clarified that government subsidies are not to be deducted from the 'actual cost' for depreciation calculation. Consequently, the Tribunal's decision favoring the assessee was upheld.

*Issue 2:*
Regarding the disallowance of commission and brokerage paid to indentors under section 37(3A) of the Income-tax Act, the Assessing Officer viewed it as sales promotion expenses. However, the Commissioner of Income-tax (Appeals) disagreed and deleted the addition. The Tribunal, relying on the Calcutta High Court decision, supported the Commissioner's decision. Various High Courts' judgments were referenced to establish that commission and brokerage payments do not fall under sales promotion expenses and should not be disallowed under section 37(3A). The Tribunal's decision was challenged, arguing that the payments were not related to sales promotion activities. The court concluded that the Tribunal erred in upholding the deletion of commission and brokerage payments from disallowance under section 37(3A).

In conclusion, the Tribunal's decision on the first issue was upheld in favor of the assessee based on the Supreme Court precedent. However, the Tribunal's decision on the second issue was overturned, stating that commission and brokerage payments should not have been excluded from disallowance under section 37(3A).