1992 (3) TMI 118 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Public Relation Expenses
2. Disallowance under Rule 6B of IT Rules
3. Disallowance under Section 40(c) of IT Act
4. Disallowance of Bonus Payment under Section 36(1)(ii) of IT Act
5. Disallowance of Technical Collaboration Agreement Payment
6. Addition to the Value of Closing Stock
7. Deletion of Incentive Bonus Payment

Detailed Analysis:

1. Disallowance of Public Relation Expenses:
Issue: The Assessing Officer disallowed Rs. 3,555 under the head 'Public Relation Expenses,' considering them as entertainment expenses.

Judgment: The Tribunal, after considering the assessee's argument and Explanation 2 to Section 37(2A) of the IT Act, directed that 25% of the disallowance be treated as expenses incurred on employees and reduced the disallowance accordingly.

2. Disallowance under Rule 6B of IT Rules:
Issue: Disallowance of Rs. 4,807 by the Assessing Officer based on a statement showing the total value of presents exceeding Rs. 50.

Judgment: The Tribunal upheld the disallowance, following the precedent set in the assessee's own case for earlier years, as the articles intended for presentation did not contain any advertisement or publicity value.

3. Disallowance under Section 40(c) of IT Act:
Issue: Disallowance of Rs. 6,600 for the Managing Director's free use of car with driver.

Judgment: The Tribunal accepted the assessee's submission that the cars were for official use, including the Managing Director's official use, and deleted the disallowance since the car was not provided for personal use.

4. Disallowance of Bonus Payment under Section 36(1)(ii) of IT Act:
Issue: Disallowance of Rs. 2,76,069 paid as statutory minimum bonus and additional payment under a memorandum of settlement.

Judgment: The Tribunal held that the statutory minimum bonus of Rs. 2,76,069 should be allowed under Section 36(1)(ii) of the IT Act. The additional payment of Rs. 2,78,218 under the memorandum of settlement was considered outside the purview of the Payment of Bonus Act and allowable under Section 37(1) of the IT Act as it was made to secure industrial harmony and peace.

5. Disallowance of Technical Collaboration Agreement Payment:
Issue: Disallowance of Rs. 2 lakhs paid under a technical collaboration agreement with a German company for technical know-how.

Judgment: The Tribunal found that the lump sum payment was for the use of technical know-how and not for acquiring it. Following precedents, the Tribunal held that the payment was revenue expenditure and directed the Assessing Officer to allow the payment.

6. Addition to the Value of Closing Stock:
Issue: The assessee contended that this ground was not considered by the CIT(A).

Judgment: The Tribunal remitted the matter back to the CIT(A) to deal with the issue.

7. Deletion of Incentive Bonus Payment:
Issue: The Department appealed against the deletion of Rs. 1,18,546 being incentive bonus paid to workers.

Judgment: The Tribunal upheld the CIT(A)'s decision, noting that the payment was made under an incentive scheme formulated by the company and was not considered bonus under the Payment of Bonus Act. The payment was treated as an addition to wages and allowed.

Conclusion:
The Tribunal partly allowed the assessee's appeal and dismissed the departmental appeal, providing detailed reasoning for each issue based on legal precedents and the specific facts of the case.