1981 (8) TMI 10 - HC - Income Tax

Summary

Issues involved:
1. Interpretation of relief under section 84/80J of the Income Tax Act for the installation of a fourth kiln at Sikka.
2. Allowability of amounts paid to Cement Allocation and Co-ordinating Organisation (CACO) as business expenditure under section 37 of the Act.
3. Treatment of provision for liability payable to the State Trading Corporation of India (STC) by CACO as a contingent liability for the assessment year 1969-70.

Interpretation of relief under section 84/80J:
The case involved the installation of a fourth kiln at Sikka by an assessee-company for the manufacture of Portland cement. The company claimed relief under section 84/80J of the Income Tax Act for the assessment years 1964-65 to 1970-71. The High Court found that the conditions for claiming relief under these provisions were satisfied as there was substantial expansion, fresh capital investment, increased production capacity, employment of additional labor force, and a separate identity for the new unit. The Court relied on Supreme Court decisions to uphold the Tribunal's decision in favor of the assessee-company.

Allowability of amounts paid to CACO:
The issue revolved around the deduction of amounts paid by the assessee-company to CACO in the assessment years 1968-69 and 1969-70. CACO was formed to ensure equitable distribution of cement post-decontrol. The Tribunal allowed the deduction, stating that the payments were made out of commercial expediency and business obligation. The High Court upheld this view, emphasizing that the contributions to CACO were necessary for the business operations of the assessee-company.

Treatment of provision for liability to STC by CACO:
The dispute centered on a provision for liability payable to the STC by CACO for the assessment year 1969-70. The Tribunal allowed the deduction, considering it as an ascertained liability. However, the High Court disagreed, noting that the liability was contingent as per the company's accounts. The Court highlighted that the liability was for the calendar year 1966 and not ascertained for the assessment year in question. Therefore, the deduction claimed by the assessee was disallowed, contrary to the Tribunal's decision.

Conclusion:
The High Court answered the questions raised in the reference, affirming the Tribunal's decision on the relief under section 84/80J and the deduction of amounts paid to CACO. However, the Court disagreed with the Tribunal's treatment of the provision for liability to STC by CACO, ruling it as a contingent liability and disallowing the deduction for the assessment year 1969-70.