1982 (3) TMI 39 - HC - Income Tax

Deduction, Developement Rebate, Income From House Property, Priority Industry, Urban Land Tax

Summary

Issues:
1. Deduction of urban land tax in computing income from property.
2. Entitlement to development rebate under section 80-I of the Income-tax Act, 1961.

Analysis:
The judgment delivered by the High Court of Madras in this case involved two references concerning the assessment of income tax for the assessment year 1970-71 of an assessee named East India Industries (Madras) Private Limited. The assessee was engaged in manufacturing waterproof paper and also owned house property. The Tribunal resolved all questions in favor of the assessee, but the Commissioner raised specific questions for reference. The first issue was whether the assessee was entitled to deduct the entire urban land tax paid during the relevant accounting year in computing income from a specific property, regardless of the year to which the payment related. The High Court, relying on a previous decision, held that any urban land tax paid during the relevant year should be deductible in the computation of income from house property, irrespective of the year it pertained to.

Regarding the second issue, the assessee claimed entitlement to a higher development rebate under section 80-I of the Income-tax Act, 1961, based on the nature of its manufacturing process and product. The dispute centered on whether manufacturing waterproof paper qualified as a priority industry under the relevant schedule entries. The Income Tax Officer (ITO) initially held that waterproof paper manufacturing did not fall within the scope of the relevant entry. However, the Tribunal disagreed, stating that the waterproof paper manufactured by the assessee should be considered as falling within the definition of "paper" in the schedules. The High Court upheld the Tribunal's decision, emphasizing that the manufacturing process and end product of the assessee aligned with the relevant schedule entries.

Additionally, a separate issue arose in T.C. No. 758 of 1979 regarding the creation of a development rebate reserve for claiming a higher rebate percentage. The Tribunal had allowed the higher rebate without fully considering the reserve created by the assessee. The High Court noted that the Tribunal had not adequately addressed the implications of granting the higher rebate without ensuring the creation of the necessary reserve. As a result, the High Court refrained from answering the question in T.C. No. 758 of 1979, indicating that the Tribunal needed to reexamine the matter comprehensively, considering all aspects related to the grant of development rebate and the creation of the reserve to determine the appropriate relief for the assessee.