1982 (6) TMI 6 - HC - Income Tax

Summary

Issues involved:
1. Deduction of interest payment in assessment year 1970-71.
2. Entitlement to claim development rebate at 35% for machinery used in the manufacture of yarn.

Deduction of interest payment:
The assessee, a co-operative society, imported machinery from Japan and claimed deduction for interest paid on the sixth instalment in the assessment year 1970-71. The Revenue disallowed the deduction, arguing that the interest accrued in the previous year. The Tribunal held that the method of accounting followed by the assessee, though not strictly mercantile, had been consistently accepted by the Revenue in previous years. As the true profits could be ascertained using this method, the Tribunal allowed the deduction, emphasizing that the Revenue cannot now challenge the accounting method accepted earlier.

Entitlement to development rebate:
The second issue revolved around the entitlement of the assessee to claim a development rebate at 35% for machinery used in manufacturing cotton yarn. The Revenue contended that since the assessee was not a manufacturer of textiles but only of cotton yarn, it was not eligible for the rebate. However, the Tribunal upheld the claim, interpreting entry 32 of Schedule V to include cotton yarn as part of textiles. Citing a previous decision, the court agreed with the Tribunal's interpretation, allowing the development rebate for the machinery used in manufacturing cotton yarn.

In conclusion, the High Court of Madras upheld the Tribunal's decisions on both issues, ruling in favor of the assessee. The court found that the assessee's method of accounting, though not strictly mercantile, was consistently accepted by the Revenue in previous years, allowing for the deduction of interest payment. Additionally, the court agreed with the Tribunal's interpretation of entry 32 of Schedule V, considering cotton yarn as part of textiles and thus eligible for the development rebate. The reference was answered in the affirmative against the Revenue, with costs awarded to the assessee.