1989 (8) TMI 107 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of bank guarantee commission.
2. Commission paid to M/s. Tara Agencies.
3. Disallowance under section 40A(5).
4. Disallowance under section 35B.
5. Cash compensatory support.
6. Commission paid to M/s. Bhansali Brothers.
7. Replanting expenses and upkeep of new clearings.
8. Maintenance of bungalow at Prospect Estate.
9. Consultancy fees to M/s. Nonsuch Tea Estates.
10. Deepawali expenses.
11. Disallowance of bonus.
12. Excess salary paid to directors.
13. Classification as an industrial company.
14. Investment allowance on tea packing machine.
15. Interest claim.

Detailed Analysis:

1. Disallowance of Bank Guarantee Commission:
The assessee claimed a deduction for a bank guarantee commission of Rs. 51,833 paid to Bank of India and Union Bank of India for guaranteeing compliance with the terms of the contract for purchasing estates. The Income-tax Officer (I.T.O.) disallowed this, but the Tribunal allowed it, following the Andhra Pradesh High Court's decision in Addl. CIT v. Akkamba Textiles Ltd., holding it as revenue expenditure.

2. Commission Paid to M/s. Tara Agencies:
The assessee paid a 5% commission to M/s. Tara Agencies for services rendered. The I.T.O. allowed only 2% for the assessment year 1978-79 and 1% for 1979-80. The Tribunal allowed the full 5% commission, noting the services provided were substantial and the agreement was genuine.

3. Disallowance Under Section 40A(5):
The I.T.O. disallowed certain expenses for maintenance of buildings and cars provided to managers. The Tribunal, following the Kerala High Court's decision in Toshiba Anand Lamps Ltd., allowed the expenses, limiting the disallowance to Rs. 2,351 for 1978-79 and Rs. 28,446 for 1979-80.

4. Disallowance Under Section 35B:
The Tribunal disallowed the claim for weighted deduction on freight but allowed 75% of salary and bonus, 50% of other expenses, and 50% of motor car expenses. Interest on shipping loans was allowed, but not on other interest payments. The Tribunal allowed 50% of the cost of packing materials and printing but disallowed excise duty and tea export duty.

5. Cash Compensatory Support:
The Tribunal allowed the assessee's claim that cash compensatory support received from the government was not taxable, following the Delhi B Bench's decision in Godore Tools (India) (P.) Ltd. v. ITO.

6. Commission Paid to M/s. Bhansali Brothers:
The assessee paid a 5% commission to M/s. Bhansali Brothers. The I.T.O. disallowed it due to lack of details. The Tribunal allowed the commission, noting the services provided were similar to those by M/s. Tara Agencies and the agreement was genuine.

7. Replanting Expenses and Upkeep of New Clearings:
The Tribunal allowed the claim for replanting expenses and upkeep of new clearings, following the Board's Circular No. 37 of 1932 and Rule 8(2) of the I.T. Rules.

8. Maintenance of Bungalow at Prospect Estate:
The Tribunal disallowed the claim for maintenance of a bungalow at Prospect Estate, used as a guest house, under section 37(5).

9. Consultancy Fees to M/s. Nonsuch Tea Estates:
The Tribunal allowed the consultancy fees paid to M/s. Nonsuch Tea Estates as a revenue expenditure, noting the services provided were necessary for the proper maintenance of the tea estates.

10. Deepawali Expenses:
The Tribunal allowed most of the Deepawali expenses, disallowing only half of the amount spent on office tea as entertainment.

11. Disallowance of Bonus:
The Tribunal allowed the bonus paid in excess of the limits specified under the Bonus Act, noting it was a customary bonus and necessary to avoid unrest in the plantation.

12. Excess Salary Paid to Directors:
The Tribunal allowed the salary paid to directors, noting their experience and the workload they handled.

13. Classification as an Industrial Company:
The Tribunal upheld the classification of the assessee as an industrial company, noting the blending activity involved before the sale of tea.

14. Investment Allowance on Tea Packing Machine:
The Tribunal allowed the investment allowance on the tea packing machine, noting the activities of the Cochin office were industrial.

15. Interest Claim:
The Tribunal deleted the disallowance of Rs. 2,30,000 made by the I.T.O. for interest on amounts due from a director, noting the amounts were not from borrowed funds.

Separate Judgments:
The Judicial Member and the Accountant Member differed on the issues of commission paid to M/s. Tara Agencies and M/s. Bhansali Brothers, and the taxability of cash compensatory support. The Third Member agreed with the Judicial Member on allowing the full commission and the non-taxability of cash compensatory support.