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Issues Involved:
1. Entitlement to relief under section 80-I of the Income-tax Act, 1961, on the profits of the priority industry before setting off the unabsorbed development rebate. 2. Classification of cash allowance as perquisites under section 40(a)(v) of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Entitlement to Relief under Section 80-I The main question was whether the assessee was entitled to relief under section 80-I on the profits of the priority industry before setting off the unabsorbed development rebate. The Tribunal had previously ruled that the assessee was entitled to such relief on the profits of the priority industry before setting off the unabsorbed development rebate. The Tribunal's decision was upheld by the Appellate Assistant Commissioner (AAC) who relied on the decisions in Indian Transformers Ltd. and Gurjargravures Pvt. Ltd. The court examined the relevant provisions of section 80-I, which provided for a deduction from the profits and gains of priority industries. The section was designed to encourage the development of priority industries by allowing deductions from such profits and gains. The court noted that the expression "gross total income" must be computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A. The court referred to the Supreme Court's decision in P. K. Badiani v. CIT, which emphasized that the term "profits" in various sections of the income-tax Acts could mean either commercial profits or assessable profits, depending on the context. The court also referred to the decision in CIT v. S. S. Sivan Pillai, where it was held that the profits of an industrial undertaking had to be determined under section 10 of the Indian Income-tax Act, 1922. The court analyzed the decision in Cambay Electric Supply Industrial Co. Ltd. v. CIT, where the Supreme Court held that in computing the total income of the assessee carrying on the business of a specified industry, the balancing charge under section 41(2) and unabsorbed depreciation and development rebate had to be deducted before arriving at the figure from which the 8% deduction under section 80E was to be made. The court noted that the decision in Cambay Electric Supply was not directly applicable to the present case as it dealt with section 80E and not section 80-I. The court also referred to the decision in Cloth Traders (P.) Ltd. v. Addl. CIT, where the Supreme Court held that the deduction permissible under section 80M was to be calculated with reference to the full amount of dividends received from a domestic company and not with reference to the dividend income as computed in accordance with the provisions of the Act. The court noted that the decision in Cloth Traders (P.) Ltd. was rendered by a larger Bench and was more relevant to the present case. The court concluded that the expression "profits and gains attributable to priority industry" in section 80-I should be understood in the commercial sense and not in accordance with the provisions of the Income-tax Act. Therefore, the assessee was entitled to a deduction of 8% under section 80-I without deducting the unabsorbed depreciation and development rebate. Issue 2: Classification of Cash Allowance as Perquisites The second issue was whether the cash allowance paid to employees by the assessee-company amounted to perquisites and could be considered in making disallowance under section 40(a)(v) of the Income-tax Act, 1961. The ITO had disallowed Rs. 16,678, which included a cash allowance of Rs. 8,623, on the grounds that the value of perquisites exceeded 1/5th of the employees' salary. The AAC, following the decision of the Tribunal in the case of Blue Star Engineering Co., accepted the assessee's contention that the cash allowance did not amount to perquisites and deleted the disallowance of Rs. 8,623. The Tribunal upheld the order of the AAC. The court referred to the decision in CIT v. Kanan Devan Hills Produce Co. Ltd., where it was held that cash allowances paid to employees did not amount to perquisites. The court concluded that the Tribunal did not misdirect itself in law in holding that the sum of Rs. 8,623 being cash allowance paid to the employees did not amount to perquisites. Therefore, the Tribunal was justified in deleting the disallowance of this sum made by the Revenue authorities. Conclusion The court answered the first question in the affirmative, holding that the assessee was entitled to relief under section 80-I on the profits of the priority industry before setting off the unabsorbed development rebate. The second question was answered in the negative, holding that the Tribunal was right in holding that the cash allowance did not amount to perquisites. The court granted a certificate for appeal to the Supreme Court on the first question, as it involved the interpretation of two different decisions of the Supreme Court.
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