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Issues Involved:
1. Whether the expenditure incurred for modernisation and rehabilitation of machinery is revenue or capital expenditure. 2. Whether the computation of incremental liability for gratuity is correct. 3. Whether the expenditure on new electricity line and power house cable replacement is capital or revenue expenditure. 4. Whether the bonus paid in excess of statutory bonus is deductible. 5. Whether the surcharge payable under the Kerala State Electricity Supply Order is deductible. Summary: 1. Expenditure for Modernisation and Rehabilitation: The common question across multiple references was whether the expenditure incurred for modernisation and rehabilitation of machinery was revenue or capital expenditure. The court held that the expenditure incurred by the assessee for the years 1973-74 and 1974-75, amounting to Rs. 95,111 and Rs. 4,38,191 respectively, was deductible as revenue expenditure. The Tribunal found that the expenses were for replacing unserviceable parts and did not bring into existence any new asset. The court relied on the precedent set by Mahalakshmi Textile Mills' case [1967] 66 ITR 710 (SC), stating that the expenditure was for the better conduct and improvement of the existing business and not for a fresh venture. 2. Incremental Liability for Gratuity: For the assessment year 1975-76, the court addressed whether the computation of incremental liability for gratuity was correct. Following the decision in CIT v. Chembra Peak Estates Ltd. [1990] 185 ITR 556 (Ker), the court held that incremental liability is not a concept germane to section 40A(7)(b)(ii) of the Income-tax Act. Therefore, the Tribunal was not justified in allowing the claim for Rs. 34,152 representing incremental liability for gratuity. 3. Expenditure on New Electricity Line and Power House Cable Replacement: The court examined whether the expenditure on a new electricity line and power house cable replacement was capital or revenue expenditure. For the new electricity line costing Rs. 51,940, the court held that the expenditure was for carrying on the business efficiently and effectively and thus was a revenue expenditure. Similarly, the expenditure of Rs. 4,02,552 for power house cable replacement was considered current repairs and hence, revenue expenditure. 4. Bonus Paid in Excess of Statutory Bonus: The court addressed whether the bonus paid in excess of statutory bonus was deductible. It was held that the Tribunal did not adjudicate whether the bonus paid met the conditions specified in section 36(1)(ii) of the Income-tax Act. The court directed the Tribunal to reconsider the matter in light of relevant decisions, including CIT v. Kerala Agra Industries Corporation [1990] 183 ITR 197 (Ker). 5. Surcharge Payable under Kerala State Electricity Supply Order: For the assessment year 1979-80, the court considered whether the surcharge of Rs. 2,97,034 payable under the Kerala State Electricity Supply (Kerala State Electricity Board-Licensee's Areas) Surcharge Order, 1968, was deductible. The court held that the liability arose in the year the surcharge order was passed, and since the assessee followed the mercantile system of accounting, the liability should have been accounted for in the relevant year. Thus, the surcharge was not deductible in the assessment year 1979-80. Disposition of References: The court answered the questions in the respective references as follows: - Income-tax References Nos. 105 and 106 of 1989: Affirmative, in favour of the assessee. - Income-tax Reference No. 426 of 1985: Questions 1 and 2 in the negative, against the assessee; Question 3 in the affirmative, in favour of the assessee. - Income-tax Reference No. 60 of 1983: Negative, in favour of the assessee. - Income-tax Reference No. 383 of 1985: Affirmative, in favour of the assessee. - Income-tax Reference No. 384 of 1985: Affirmative, in favour of the assessee. - Income-tax References Nos. 66 and 67 of 1986: Affirmative, in favour of the assessee. - Income-tax Reference No. 379 of 1985: Negative, in favour of the Revenue. - Income-tax Reference No. 87 of 1986: Question 1 in the affirmative, in favour of the assessee; Question 2 declined to answer. - Income-tax Reference No. 84 of 1986: Question 1 in the affirmative, in favour of the assessee; Question 2 declined to answer. - Income-tax Reference No. 52 of 1986: Affirmative, in favour of the Revenue.
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