1986 (7) TMI 46 - HC - Income Tax

Deduction From Profits And Gains Export Market Development Allowance Income Tax Concession New Industrial Undertaking Perquisite Weighted Deduction

Issues Involved:
1. Capital vs. Revenue Expenditure on Exchange Rate Fluctuations
2. Classification of House Rent Allowance and Medical Reimbursement as Perquisites
3. Inclusion of Commission Paid to Directors under Section 40(c)
4. Classification of Deep Sea Fishing Division as an Industrial Undertaking
5. Eligibility of Export Agency Inspection Fees for Weighted Deduction under Section 35B
6. Inclusion of Capital Work-in-Progress in Capital Employed for Section 80J Relief
7. Pro Rata Basis for Deduction under Section 80J for Agricultural Pesticide Division

Issue-wise Detailed Analysis:

1. Capital vs. Revenue Expenditure on Exchange Rate Fluctuations:
The Tribunal held that the excess payments made due to fluctuations in the exchange rate of dollars for the repayment of loans from EXIM Bank and ICICI were capital expenditures and not allowable as revenue expenditures. This decision was based on the precedent set by CIT v. Bharat General & Textile Industries Ltd. and Bestobell (India) Ltd. v. CIT. The court answered the question in the negative and in favor of the Revenue, thereby declining to address the subsequent questions related to this issue.

2. Classification of House Rent Allowance and Medical Reimbursement as Perquisites:
The Tribunal was justified in holding that house rent allowance and reimbursement of medical expenses paid by the assessee-company to its employees are not perquisites within the meaning of section 40A(5)(a)(ii) of the Income-tax Act, 1961. This position was supported by multiple decisions of the court, including CIT v. Kaman Devan Hills Produce Company Ltd., Indian Leaf Tobacco Development Co. Ltd. v. CIT, CIT v. Alkali and Chemical Corpn. of India Ltd., and CIT v. General Marketing & Manufacturing Co. The court answered this question in the affirmative and in favor of the assessee.

3. Inclusion of Commission Paid to Directors under Section 40(c):
The Revenue did not press for answers to questions regarding the inclusion of commission paid to directors under Section 40(c). Consequently, the court declined to answer these questions.

4. Classification of Deep Sea Fishing Division as an Industrial Undertaking:
The Tribunal was correct in holding that the Deep Sea Fishing Division of the assessee was an 'industrial undertaking' within the meaning of sections 80J of the Income-tax Act, 1961. This conclusion was based on a prior judgment in the case of the same assessee, CIT v. Union Carbide India Ltd. The court answered this question in the affirmative and in favor of the assessee.

5. Eligibility of Export Agency Inspection Fees for Weighted Deduction under Section 35B:
The Tribunal allowed the weighted deduction under section 35B for export agency inspection fees paid by the assessee for obtaining a certificate required for the export of frozen shrimps. The court rejected the Revenue's reliance on V. D. Swami & Co. Pvt., Ltd. v. CIT, which pertained to a different sub-clause of section 35B. The court upheld the Tribunal's decision, noting that other High Courts have held that expenses under various sub-clauses of section 35B are eligible for weighted deduction even if incurred in India. The court answered this question in the affirmative and in favor of the assessee.

6. Inclusion of Capital Work-in-Progress in Capital Employed for Section 80J Relief:
The Tribunal's decision to include the value of capital work-in-progress in the computation of capital employed for the purpose of relief under section 80J was supported by previous decisions, including CIT v. Indian Oxygen Ltd. and CIT v. Union Carbide India Ltd. The court answered this question in the affirmative and in favor of the assessee.

7. Pro Rata Basis for Deduction under Section 80J for Agricultural Pesticide Division:
The Tribunal was justified in holding that the deduction under section 80J should be allowed for the entire period instead of on a pro rata basis, despite the agricultural pesticide division working for only four months during the assessment year. This decision was supported by CIT v. Oyster Packagers (P.) Ltd. The court answered this question in the affirmative and in favor of the assessee.

Conclusion:
The court provided detailed answers to the issues raised, favoring the assessee in most instances. The decisions were based on established precedents and interpretations of relevant sections of the Income-tax Act, 1961.

← Previous Next →