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1991 (3) TMI 9 - HC - Income Tax

Issues Involved:
1. Applicability of section 40(c) and section 40A(5) on commission payments to directors and senior management.
2. Deduction of liability to tax under the Companies (Profits) Surtax Act, 1964.
3. Admissibility of investment allowance u/s 32A for new canteen equipment.
4. Allowability of provision for differential excise duty and consequent increase in sales tax.
5. Deduction of initial contribution to the approved superannuation fund u/s 36(1)(iv).

Summary:

1. Applicability of section 40(c) and section 40A(5) on commission payments:
The Tribunal's decision, holding that commission payments to directors and senior management are to be considered u/s 40(c) and section 40A(5) of the Income-tax Act, 1961, is affirmed. This conclusion follows the Supreme Court's decision in Gestetner Duplicators P. Ltd v. CIT [1979] 117 ITR 1, thus the question is answered in the affirmative and in favor of the Revenue.

2. Deduction of liability to tax under the Companies (Profits) Surtax Act, 1964:
The Tribunal's decision that liability to tax under the Companies (Profits) Surtax Act, 1964, is not an admissible deduction in computing the assessee's income under 'Profits and gains of business or profession' is upheld. This follows the precedent set by Molins of India Ltd v. CIT [1983] 144 ITR 317, and the question is answered in the affirmative and in favor of the Revenue.

3. Admissibility of investment allowance u/s 32A for new canteen equipment:
The Tribunal's decision denying investment allowance u/s 32A for new canteen equipment is upheld. The Tribunal concluded that the canteen equipment does not qualify as plant and machinery used for the purpose of manufacture or production of any article or thing as required by section 32A(2)(b)(iii). The canteen, while necessary for employee welfare, is not integral to the manufacturing process. Therefore, the question is answered in the affirmative and in favor of the Revenue.

4. Allowability of provision for differential excise duty and consequent increase in sales tax:
The Tribunal's decision that the provision of Rs. 65,76,148 for differential excise duty and consequent increase in sales tax is not allowable as a deduction is upheld. The liability was deemed contingent, as it depended on the outcome of ongoing litigation and was not a present obligation. The balance-sheet of Electric Lamp Manufacturing Co. (India) Ltd. treated the liability as contingent. Thus, the question is answered in the affirmative and in favor of the Revenue.

5. Deduction of initial contribution to the approved superannuation fund u/s 36(1)(iv):
The Tribunal's decision allowing the assessee's appeal for the entire amount of Rs. 50,79,655 as a deduction for the initial contribution to the approved superannuation fund is upheld. This follows the precedent set in CIT v. Union Carbide India Ltd., and the question is answered in the affirmative and in favor of the assessee.

Conclusion:
All questions referred to the court are answered in the affirmative, with the decisions favoring the Revenue on issues 1, 2, 3, and 4, and favoring the assessee on issue 5. There will be no order as to costs.

 

 

 

 

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