1989 (4) TMI 113 - AT - Income Tax

Issues Involved:
1. Entitlement to agricultural development allowance under Section 35C.
2. Deduction of central subsidy from the value of assets for depreciation/development rebate.
3. Disallowance of managing director's remuneration.
4. Weighted deduction under Section 35B for traveling expenses.
5. Investment allowance under Section 32A.
6. Disallowance of insurance premiums under the group gratuity scheme.

Issue-Wise Detailed Analysis:

1. Entitlement to Agricultural Development Allowance under Section 35C:
The primary issue revolves around whether the assessee company, engaged in processing and selling hybrid seeds, is entitled to agricultural development allowance under Section 35C of the IT Act, 1961. The Income Tax Officer (ITO) initially allowed the deduction for the assessment year 1975-76, but the Commissioner of Income Tax (CIT) revised this, directing the ITO to scrutinize the eligibility and the amount of expenses qualifying for the allowance. The ITO later allowed only a minimal amount, directly connected to the services and facilities provided to farmers. The CIT(A) allowed the majority of expenses claimed by the assessee for all years in question. The Tribunal held that Section 35C applies to companies engaged in processing agricultural products, and since the assessee processes hybrid seeds, it is entitled to the deduction. However, the Tribunal remanded the case to the ITO to scrutinize the expenses in detail, ensuring only those expenses directly connected to the services and facilities provided to farmers, and not charged to them, qualify for the deduction.

2. Deduction of Central Subsidy from the Value of Assets for Depreciation/Development Rebate:
In ITA 3782/BOM/85, the issue was whether the CIT(A) erred in directing the ITO not to deduct the central subsidy from the value of assets for granting depreciation/development rebate. The Tribunal found this issue covered in favor of the assessee by a Special Bench decision, and thus, decided against the Revenue.

3. Disallowance of Managing Director's Remuneration:
In C.O. 257/BOM/85, the assessee objected to the disallowance of Rs. 12,000 out of the managing director's remuneration. The CIT(A) noted confusion regarding the actual claim, directing the ITO to verify the facts. The Tribunal found no immediate issue for the assessee to appeal, as the ITO would verify the facts, allowing the assessee to explain its viewpoint.

4. Weighted Deduction under Section 35B for Traveling Expenses:
In the same cross-objection, the assessee claimed the CIT(A) erred by not directing the ITO to allow weighted deduction under Section 35B for traveling expenses of Rs. 14,000. The Tribunal clarified that the CIT(A) had already deleted this disallowance, finding no further action required.

5. Investment Allowance under Section 32A:
In C.O. 258/BOM/85, the assessee contested the CIT(A)'s decision not to allow an investment allowance of Rs. 16,484 due to the absence of a statutory reserve. The Tribunal upheld the CIT(A)'s decision, stating the law is explicit on the need for a statutory reserve for such an allowance.

6. Disallowance of Insurance Premiums under the Group Gratuity Scheme:
In C.O. 259/BOM/85, the assessee objected to the disallowance of Rs. 14,000 paid under the group gratuity scheme. The Tribunal agreed with the CIT(A) that the expense pertained to a previous year and should have been claimed then, thus upholding the disallowance.

Conclusion:
The Tribunal's decisions largely focused on remanding cases back to the ITO for detailed scrutiny of expenses under Section 35C, ensuring only eligible expenses are considered. It upheld the CIT(A)'s decisions on central subsidy, managing director's remuneration, investment allowance, and insurance premiums, while clarifying the already resolved issue of traveling expenses under Section 35B. The cross-objections filed by the assessee were dismissed, and the appeals by the Revenue were allowed for statistical purposes.

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