1994 (3) TMI 78 - HC - Income Tax

Summary

Issues:
1. Whether commission paid to managing director is deductible under section 40(c) of the Income-tax Act.
2. Whether deduction for gratuity liability is allowable based on actuarial valuation.
3. Calculation of extra-shift depreciation for a seasonal factory.
4. Whether the assessee had the option to decline grant of depreciation allowance under sections 32 and 34 of the Act.

Analysis:

Issue 1: Commission Payment Deductibility
The court referred to a previous decision in CIT v. Kores India Pvt. Ltd. [1989] 176 ITR 500 to rule in favor of the Revenue, stating that the commission paid to the managing director is not excluded for the purpose of remuneration deduction under section 40(c) of the Act.

Issue 2: Deduction for Gratuity Liability
The court relied on the Supreme Court decision in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 to support the Revenue's position, denying the deduction for gratuity liability based on actuarial valuation for the relevant assessment years.

Issue 3: Extra-Shift Depreciation Calculation
The controversy involved the allowance of extra-shift depreciation for a seasonal factory. The court discussed circulars and letters from the Board regarding the calculation of extra-shift allowance. Despite the assessee's argument that both factories should be treated as one concern, the court held that the factories were independent concerns, denying the claim for full extra-shift depreciation.

Issue 4: Option to Decline Depreciation Allowance
In reference to the decision in CIT v. Shri Someshwar Sahakari Sakhar Karkhana Ltd. [1989] 177 ITR 443, the court ruled in favor of the assessee, stating that the assessee had the option to decline the grant of depreciation allowance under sections 32 and 34 of the Act.

In conclusion, the court answered questions 1, 2, and 4 in favor of the Revenue and against the assessee. Question 3, regarding extra-shift depreciation calculation, was answered in favor of the Revenue. The judgment provided detailed reasoning for each issue, citing relevant legal provisions and precedents to support the decisions.