1994 (7) TMI 106 - AT - Income Tax

Assessment Order, Assessment Year, Deduction In Respect, New Industrial Undertaking, Orders Prejudicial To Interests, Profits And Gains, Purchase Price, Sales Tax

Issues Involved:
1. Applicability of Section 43B to royalty payments.
2. Allowability of additional royalty fixed by the Gujarat Government.
3. Allowance of deficiency under Section 80J(3).
4. Grant of extra-shift allowance on specific facilities.
5. Disallowance of sales-tax reimbursed to the Government of Gujarat.
6. Depreciation on 'Vanganga' building.
7. Addition of unpaid sales-tax liability at the end of the year.
8. Deduction of royalty payments not pertaining to the current year.

Detailed Analysis:

1. Applicability of Section 43B to Royalty Payments:
The primary issue was whether the royalty payable by the assessee to the Government of Gujarat falls under the purview of Section 43B. The Commissioner of Income-tax (CIT) had categorized the royalty as a duty, thereby making it subject to Section 43B. However, the assessee contested this, arguing that the royalty was a purchase price rather than a tax or duty. The Tribunal referenced various judgments, including the Supreme Court's distinction between 'tax' and 'fees' in Om Prakash Agarwal v. Giri Raj Kishori, and concluded that royalty payments, being akin to a purchase price, do not fall under Section 43B for the assessment year 1985-86. The Tribunal set aside the CIT's order and restored the original assessment, directing the Assessing Officer to ensure no double deduction was allowed.

2. Allowability of Additional Royalty Fixed by the Gujarat Government:
For the assessment year 1986-87, the assessee raised an additional ground regarding the allowability of Rs. 2,71,855 as additional royalty. The Tribunal entertained this ground but decided against the assessee on merits, noting that the matter was kept alive due to ongoing litigation in another related appeal. The Tribunal allowed the assessee to agitate this point again if the High Court reversed the Tribunal's decision for the assessment year 1985-86.

3. Allowance of Deficiency under Section 80J(3):
The assessee contended that the deficiency under Section 80J(3) should be allowed against profits from other units and trading activities. The Tribunal upheld the CIT(A)'s decision, agreeing that Section 80J(3) confines the set-off of deficiency to profits derived from the same industrial undertaking. The Tribunal referenced various judicial decisions, including the Kerala High Court's ruling in CIT v. Kerala Balers Ltd., and concluded that the assessee's claim was unfounded as the new industrial undertaking had incurred a loss.

4. Grant of Extra-Shift Allowance on Specific Facilities:
The assessee claimed extra-shift allowance on Tubewell & Water Supply facility, Electric sub-station, and Well. The Tribunal restored this issue to the Assessing Officer for fresh consideration, directing that the matter be decided in light of the Tribunal's directions for the assessment year 1985-86 and any additional relevant decisions.

5. Disallowance of Sales-Tax Reimbursed to the Government of Gujarat:
The Assessing Officer had disallowed Rs. 1,93,016 as unpaid sales-tax on royalty. The Tribunal found that the sales-tax was payable by the forest department and not the assessee, thus Section 43B was not applicable. The Tribunal directed the Assessing Officer to cancel the addition, ensuring no double deduction was allowed in subsequent years.

6. Depreciation on 'Vanganga' Building:
The Tribunal rejected the revenue's appeal against the CIT(A)'s decision to allow depreciation on 'Vanganga' building, referencing a prior Tribunal order and the Supreme Court's rejection of the department's SLP.

7. Addition of Unpaid Sales-Tax Liability at the End of the Year:
The Tribunal upheld the CIT(A)'s decision to allow Rs. 4,71,123 of the unpaid sales-tax liability, as it was paid within the statutory time. This decision was supported by previous Tribunal rulings and confirmed by the Gujarat High Court in CIT v. Chandulal Venichand.

8. Deduction of Royalty Payments Not Pertaining to the Current Year:
The Tribunal agreed with the CIT(A) that the short provision of Rs. 9,864 from the financial year 1983-84, adjusted in the year under consideration, was rightly allowed. The Tribunal found no justification for interference, confirming the CIT(A)'s directive to allow the deduction.

Conclusion:
The Tribunal's judgment addressed multiple issues concerning the applicability of Section 43B, the allowability of additional royalty, deficiency under Section 80J(3), extra-shift allowance, sales-tax reimbursement, depreciation, unpaid sales-tax liability, and royalty payments from previous years. The Tribunal provided detailed reasoning for each issue, ensuring compliance with relevant legal precedents and statutory provisions. The assessee's appeal was partly allowed, and the department's appeal was dismissed.

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