1988 (3) TMI 91 - AT - Income Tax

Summary

Issues Involved:
1. Assessee's claim for terminal allowance of Rs. 1,99,800.
2. Disallowance of Rs. 10,800 being bonus paid to employees earning more than Rs. 1,600 per month.
3. Treatment of unabsorbed loss/depreciation of Ugachem Pvt. Ltd. post-amalgamation.

Issue-wise Detailed Analysis:

1. Assessee's Claim for Terminal Allowance of Rs. 1,99,800:

The first point in the appeal preferred by the assessee pertains to the assessee's claim for terminal allowance of Rs. 1,99,800 in respect of certain machineries discarded by it. The ITO disallowed the claim, stating that the assets were taken over at WDV by the amalgamated company from amalgamating companies and the scheme of writing them off immediately after amalgamation was an attempt to save taxes. The ITO also pointed out that the conditions laid down in s. 32(1)(iii) of the IT Act were not met, particularly regarding the actual discarding of the assets and the determination of their scrap value.

The Commissioner(A) confirmed the ITO's action, finding no basis for interference. However, the learned counsel for the assessee argued that the machineries were discarded due to corrosion, supported by a certificate from a Technical Expert. The assessee had included income from the sale of scrap in its total income in relevant years.

Upon consideration, the Tribunal found the assessee's stand well-founded, noting that the assessee complied with the provisions of s. 32(1)(iii) of the Act. The Tribunal allowed the assessee's claim for terminal allowance, noting that the ITO had not disallowed Rs. 1,99,800 in computing the total income, hence there would be no difference in the total income.

2. Disallowance of Rs. 10,800 Being Bonus Paid to Employees Earning More Than Rs. 1,600 Per Month:

The next point in the assessee's appeal pertains to the disallowance of Rs. 10,800 being bonus paid to employees earning more than Rs. 1,600 per month. The ITO disallowed the claim, stating the provisions of the Payment of Bonus Act were not applicable to such employees.

The Commissioner(A) confirmed the ITO's action, stating that if an item of expenditure is covered by a specific section, it cannot be allowed under a general section like s. 37. The learned counsel for the assessee argued that the bonus paid was reasonable and should be allowed under s. 37(1) of the Act.

The Tribunal found considerable force in the assessee's submissions, noting that the lower authorities failed to comprehend the provisions of ss. 36 and 37 of the Act. The Tribunal directed the ITO to accept the assessee's claim for deduction of Rs. 10,800, noting that the second proviso to s. 36(1)(ii) and s. 37(1) of the Act were applicable.

3. Treatment of Unabsorbed Loss/Depreciation of Ugachem Pvt. Ltd. Post-Amalgamation:

The only point involved in the appeal filed by the Revenue pertains to the treatment of unabsorbed loss/depreciation of Ugachem Pvt. Ltd. prior to its amalgamation with Farmson Pharmaceuticals Gujarat Pvt. Ltd. The ITO denied the carry forward and set off of unabsorbed loss/depreciation, citing ss. 72A and 79 of the Act and arguing that a new entity had come into existence post-amalgamation.

The Commissioner(A) accepted the assessee's contention, noting that the amalgamation was approved by the Hon'ble Gujarat High Court and the change of name was also approved by the concerned authorities. The Commissioner(A) held that the assessee was entitled to the set-off of its own past losses and depreciation, as the provisions of s. 72A were not applicable and the decision in CIT vs. Shree Subhlaxmi Mills Ltd. was applicable.

The Tribunal upheld the Commissioner(A)'s order, noting that the point at issue was fully covered by the decision of the Hon'ble Gujarat High Court in the case of Shree Subhlaxmi Mills Ltd. The Tribunal found no merit in the Revenue's contention and dismissed the appeal filed by the Revenue.

Conclusion:

In the result, the appeal filed by the assessee is allowed, and the appeal filed by the Revenue is dismissed.