1990 (6) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Deduction of purchase tax in the assessment year 1977-78.
2. Eligibility for allowance u/s 80J for the entire business.
3. Entitlement to investment allowance on diesel generator and transformer u/s 32A.

Summary:

Issue 1: Deduction of Purchase Tax in Assessment Year 1977-78

The primary issue was whether the assessee could claim a deduction for the provision of purchase tax amounting to Rs. 2,86,436, which related to the assessment year 1975-76, in the subsequent assessment year 1977-78. The court noted that the assessee followed the mercantile method of accounting, where liabilities accrue in the year the transactions occur. The Full Bench decision in CIT v. Karim (K. A.) and Sons [1982] 133 ITR 515 established that liabilities must be accounted for in the year they arise. The court found that since the liability arose in 1975-76 and the assessee had already claimed it then, it could not be claimed again in 1977-78. The Appellate Tribunal's reasoning was inconsistent and contrary to established law. Therefore, the court answered question No. 1 in the negative, against the assessee and in favor of the Revenue.

Issue 2: Eligibility for Allowance u/s 80J

The second issue was whether the assessee's entire business was eligible for the allowance u/s 80J. The court referred to its earlier decision in CIT v. Marwell Sea Foods [1987] 166 ITR 624, which held that processing prawns amounts to the production of articles, qualifying the business as an industrial undertaking. Consequently, the court affirmed that the assessee was entitled to the allowance u/s 80J. Thus, question No. 2 was answered in the affirmative, against the Revenue and in favor of the assessee.

Issue 3: Entitlement to Investment Allowance u/s 32A

The third issue was whether the assessee was entitled to investment allowance on the diesel generator and transformer u/s 32A. Given the court's decision on issue 2, it followed that the assessee was also entitled to this allowance. Therefore, question No. 3 was answered in the affirmative, against the Revenue and in favor of the assessee.

Conclusion:

- Question No. 1: Answered in favor of the Revenue and against the assessee.
- Questions Nos. 2 and 3: Answered against the Revenue and in favor of the assessee.

The reference was answered accordingly.