1991 (6) TMI 15 - HC - Income Tax

Summary

Issues Involved:
1. Compensation for early retirement as revenue expenditure.
2. Deduction of incentive wages paid to employees.
3. Investment allowance on assets like electrification, fire extinguishers, and time-office equipment.

Summary:

1. Compensation for Early Retirement as Revenue Expenditure:
The Tribunal was justified in sustaining the order of the Commissioner of Income-tax (Appeals) allowing the assessee's claim for compensation paid to employees for early retirement, treating the same as a revenue expenditure. The Tribunal relied on the decision in CIT v. Assam Oil Co. Ltd., where it was held that payments made for rationalization and economy, without creating an asset of enduring nature, are allowable as revenue expenditure. The Supreme Court's decision in Indian Cable Co. Ltd. v. Their Workmen supported this view, stating that such payments are for commercial expediency and allowable u/s 37(1) of the Income-tax Act.

2. Deduction of Incentive Wages Paid to Employees:
The Tribunal was justified in sustaining the order of the Commissioner of Income-tax (Appeals) allowing the assessee's claim for deduction of Rs. 75,000 in respect of incentive wages paid to employees for better performance. The payment was considered an incentive, inextricably connected with the business, and incurred wholly and exclusively for the purpose of business, thus allowable as a deduction.

3. Investment Allowance on Assets:
The Tribunal's view that electrification, fire extinguishers, and time-office equipment were eligible for investment allowance was partially overturned. The court held that fire extinguishers and time-office equipment are not eligible for investment allowance as they are not inextricably connected with the production of articles or things. Regarding electrification machinery, the court found insufficient details to decide its eligibility for investment allowance and remanded the matter to the Tribunal for further determination, allowing the parties to adduce fresh evidence if necessary.

Conclusion:
The Tribunal's decisions on compensation for early retirement and incentive wages were upheld, while the decision on investment allowance for fire extinguishers and time-office equipment was overturned, and the matter of electrification machinery was remanded for further consideration.