1982 (12) TMI 72 - AT - Income Tax

Summary

Issues:
1. Disallowance of claim for damages due to breach of export contracts.
2. Consideration of losses as speculative transactions.
3. Disallowance of deduction for quality difference payment.
4. Disallowance of weighted deduction under section 35B(1)(b) for commission and salary expenses.
5. Classification of the assessee as an industrial company.

Analysis:
1. The case involved an appeal by the assessee and the revenue regarding the disallowance of a claim for damages due to breach of export contracts for the assessment year 1977-78. The Income Tax Officer (ITO) disallowed the claim as the damages were not quantified and the contracts were not settled before the breach. The Commissioner(A) upheld the disallowance as there was no provision made for the claim at the time of closing the accounts. The Tribunal considered the contracts' delivery periods and allowed the claim only for specific contracts with Fishernut Company and Nollander Trading Corporation where the delivery period ended before the accounting year closed.

2. The revenue argued that the losses should be treated as speculative transactions under section 43(5) of the Income Tax Act. The Tribunal referred to legal opinions from various High Courts and concluded that if the damages were paid or settled after the breach of contract, they would not be speculative in nature. The Tribunal directed the ITO to examine the timing of payments to determine their deductibility based on speculative transaction criteria.

3. The Tribunal addressed the disallowance of a deduction for quality difference payment, which was part of the overall claim. The Tribunal allowed this deduction as it related to a specific quality difference payment and should be considered separately from the main claim for damages due to breach of contracts.

4. Regarding the weighted deduction under section 35B(1)(b) for commission and salary expenses, the Tribunal allowed the deduction for commission paid to Indian agents for export and directed the calculation of the deduction for the salary and allowances of the Managing Director and staff based on export turnover percentage.

5. The revenue's appeal contested the classification of the assessee as an industrial company. The Tribunal referred to a previous decision and concluded that the assessee qualified as an industrial company based on similar provisions, rejecting the revenue's argument.

In conclusion, the Tribunal partially allowed the assessee's appeal and dismissed the revenue's appeal based on the detailed analysis of each issue raised in the case.