1985 (2) TMI 36 - HC - Income Tax

Business Expenditure, Capital Employed, Export Market Development Allowance, Gratuity, Income, New Industrial Undertaking, Weighted Deduction

Summary

Issues Involved:
1. Taxability of cash assistance on exports as revenue receipts.
2. Entitlement to weighted deduction for expenses on freight, loading charges, insurance, etc., under section 35B.
3. Computation of capital employed for deduction under section 80J.
4. Allowability of liability for gratuity as a deduction without provision in the books of account.

Issue-wise Detailed Analysis:

1. Taxability of Cash Assistance on Exports as Revenue Receipts:
The first issue concerns whether the sum of Rs. 1,94,776 received as cash assistance on exports should be assessed as revenue receipts. The court affirmed this, referencing the decision in Jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448, confirming that such cash assistance is indeed taxable as revenue receipts. Thus, the Tribunal's holding was correct and in favor of the Revenue.

2. Entitlement to Weighted Deduction for Expenses on Freight, Loading Charges, Insurance, etc., under Section 35B:
The second issue pertains to whether expenses on freight, loading charges, insurance, etc., incurred in connection with export business qualify for weighted deduction under section 35B. The court examined Section 35B, which provides for export markets development allowance, and concluded that such expenses do not qualify for weighted deduction. The court referenced multiple judgments, including CIT v. Kasturi Palayacat Co. [1979] 120 ITR 827 and CIT v. K. N. Oil Industries [1982] 134 ITR 651, which clarified that expenses on carriage of goods to their destination outside India or on the insurance of such goods while in transit are not eligible for weighted deduction. Hence, the Tribunal's decision was upheld, and the question was answered in the affirmative, favoring the Revenue.

3. Computation of Capital Employed for Deduction under Section 80J:
The third issue involves the method of computing the capital employed for the purpose of deduction under section 80J. The court referred to Section 80J and Rule 19A, which specify that for assets entitled to depreciation, the written down value should be used rather than the original cost. The court emphasized that adopting the original cost would result in double benefits for the assessee, which is not intended by the provisions. Therefore, the Tribunal's decision to use the written down value was correct, and the question was answered in the affirmative, favoring the Revenue.

4. Allowability of Liability for Gratuity as a Deduction without Provision in the Books of Account:
The fourth issue is whether the liability for gratuity amounting to Rs. 56,025 is an allowable deduction in computing the total income of the assessee when no provision has been made in the books of account. The court referenced the decision in CIT v. New Swadeshi Mills of Ahmedabad Ltd. [1984] 147 ITR 163, which held that such liability is not an allowable deduction if no provision has been made in the books. Consequently, the Tribunal's decision was upheld, and the question was answered in the affirmative, favoring the Revenue.

Conclusion:
The court affirmed the Tribunal's decisions on all four issues, ruling in favor of the Revenue. There was no order as to costs.