1993 (8) TMI 32 - HC - Income Tax

Assessment Year, Business Expenditure, Development Allowance, Development Rebate Reserve, Income Tax Act, Special Deduction, Weighted Deduction

Issues Involved:
1. Entitlement to weighted deduction under section 35B for commission paid to P.E.C. and S.T.C.
2. Entitlement to deduction under section 80G for donations to Viswamangal Trust.
3. Entitlement to weighted deduction under section 35B for audit fees and sales commission incurred in Malaysia.
4. Allowance of bonus deduction in the computation of income.
5. Creation of reserve for development rebate for the assessment year 1975-76.
6. Carry forward of development rebate for the assessment year 1976-77.
7. Entitlement to weighted deduction under section 35B for commission paid to P.E.C. of India Limited.
8. Entitlement to deduction under section 80G for donations to Viswamangal Trust.
9. Entitlement to weighted deduction under section 35B for audit fees and sales commission incurred in Malaysia.
10. Justification of bonus liability deduction in computing total income for the assessment year 1978-79.

Detailed Analysis:

1. Entitlement to Weighted Deduction under Section 35B for Commission Paid to P.E.C. and S.T.C.:
The Tribunal directed the Income-tax Officer to allow weighted deduction on the commission paid to P.E.C. and S.T.C., following the decision of the Special Bench of the Tribunal in the case of J. Hemchand and Company. The Kerala High Court in CIT v. Kerala Nut Food Co. [1991] 192 ITR 585 held that weighted deduction is admissible on commission paid in India to agents who rendered services for marketing the assessee's goods outside India. This court also held in CIT v. G. E. C. of India Ltd. [1991] 192 ITR 559 that commission paid in India to Project and Equipment Corporation Ltd., who obtained orders for export, is entitled to weighted deduction under section 35B. Thus, the court answered questions Nos. 1 and 7 in the affirmative and in favor of the assessee.

2. Entitlement to Deduction under Section 80G for Donations to Viswamangal Trust:
The answers to questions Nos. 2 and 8 are covered against the assessee by the decision in CIT v. Upper Ganges Sugar Mills Ltd. [1985] 154 ITR 308. Therefore, both these questions were answered in the negative and in favor of the Revenue.

3. Entitlement to Weighted Deduction under Section 35B for Audit Fees and Sales Commission Incurred in Malaysia:
No weighted deduction is admissible for payment of audit fees as it does not fall under any specified items in clause (b) of section 35B(1). However, weighted deduction is admissible on the commission paid in Malaysia for maintaining a foreign branch, as decided in CIT v. Chloride India Ltd. [1992] 193 ITR 355. Thus, questions Nos. 3 and 9 were answered partly in favor of the assessee and partly in favor of the Revenue.

4. Allowance of Bonus Deduction in the Computation of Income:
The Tribunal found that the assessee-company had been paying bonus at rates between 10 and 12 percent of salaries and wages in earlier years. The payment of 10.5 percent as bonus was neither unreasonable nor excessive. The Tribunal held that the liability for bonus provided in the accounts for the calendar year 1974 was a statutory legal liability. Therefore, the disallowance of Rs. 22,49,424 on account of bonus by the Income-tax Officer was deleted. The court answered question No. 4 in the affirmative and in favor of the assessee.

5. Creation of Reserve for Development Rebate for the Assessment Year 1975-76:
The assessee-company did not create any reserve in the calendar year 1974 as it had no taxable income. The Tribunal found that the assessee had no taxable income in the previous year relevant to the assessment year 1975-76. Therefore, there was no need to create any development rebate reserve for that year. The full development rebate reserve was created for the calendar year 1975 corresponding to the assessment year 1976-77. Thus, the Tribunal was justified in directing the carry forward of development rebate. Questions Nos. 5 and 6 were answered in the affirmative and in favor of the assessee.

6. Carry Forward of Development Rebate for the Assessment Year 1976-77:
As discussed in issue 5, the Tribunal was justified in directing the carry forward of development rebate to the previous year relevant to the assessment year 1976-77. Thus, question No. 6 was answered in the affirmative and in favor of the assessee.

7. Justification of Bonus Liability Deduction in Computing Total Income for the Assessment Year 1978-79:
The alternative claim for deduction of Rs. 22,49,424 on account of bonus in the assessment for the year 1978-79 was raised. The court found it more appropriate to allow the bonus as a business deduction in the previous year relevant to the assessment year 1975-76. Therefore, the only question in Income-tax Reference No. 209 of 1984 for the assessment year 1978-79 was answered in the negative and in favor of the Revenue.

Conclusion:
The court delivered a detailed judgment addressing each issue comprehensively, favoring the assessee on some points and the Revenue on others. The judgment provided clarity on the application of sections 35B, 80G, and the allowance of bonus and development rebate in the respective assessment years.

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