1978 (5) TMI 128 - AT - Income Tax

Summary

Issues Involved:
1. Computation of deduction under section 80-I of the Income-tax Act, 1961.
2. Deductibility of development rebate and depreciation in computing profits and gains for section 80-I.
3. Claim for deduction under section 80-J.
4. Disallowance of certain small expenditure items.

Detailed Analysis:

1. Computation of Deduction under Section 80-I
The core issue was whether the deduction under section 80-I should be computed on the profits and gains of the priority industry before or after deducting depreciation and development rebate. The Tribunal examined whether these deductions should be applied when calculating the eligible profits for section 80-I benefits.

2. Deductibility of Development Rebate and Depreciation
The assessee argued that development rebate and depreciation should not be deducted in computing the profits and gains of the priority industry for section 80-I. The Tribunal noted that the Income-tax Officer (ITO) had deducted Rs. 34,64,271 for depreciation and Rs. 6,58,720 for development rebate from the profits. The Appellate Assistant Commissioner (AAC) upheld this view, leading to the assessee's appeal.

The Tribunal reviewed various High Court decisions and the statutory provisions. It concluded that the expression "profits and gains" in section 80-I should be interpreted as profits computed in accordance with sections 30 to 43A of the Act, which includes deductions for depreciation and development rebate. The Tribunal emphasized that the Income-tax Act, being a self-contained code, necessitates such deductions to determine the net profits.

3. Claim for Deduction under Section 80-J
The assessee contended that the AAC failed to consider the claim for deduction under section 80-J based on gross assets without deducting liabilities. The Tribunal restored this issue to the AAC for reconsideration and appropriate disposal in accordance with the law.

4. Disallowance of Certain Small Expenditure Items
The Tribunal addressed several smaller disallowances made by the AAC:

- Presentation Articles: The AAC disallowed Rs. 1,868 for presentation articles. The Tribunal allowed all except Rs. 447, which was for sarees, as the assessee could not justify their business relevance.

- Patent Expenses: The AAC disallowed Rs. 1,815 for patent-related expenses. The Tribunal sustained disallowance of Rs. 710 for new patents but allowed the remaining amount as it related to renewal and protection of existing patents.

- Air Freight on Slag Cement Samples: The AAC disallowed Rs. 1,314 for air freight on samples sent for testing. The Tribunal found that the production of slag cement was an existing business activity, not a new one, and allowed the expenditure.

Conclusion
The Tribunal dismissed the assessee's contention regarding the computation of deduction under section 80-I, affirming the inclusion of depreciation and development rebate in the computation. It restored the issue of section 80-J deduction to the AAC and provided partial relief on the disallowed small expenditure items. The appeal was partly allowed.