1982 (10) TMI 81 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of Rs. 8,76,215 under section 40A(7).
2. Depreciation rate on 'pay loaders'.
3. Addition of Rs. 3,22,27,078 to the total income of the assessee.

Detailed Analysis:

1. Deduction of Rs. 8,76,215 under section 40A(7):

The revenue contended that the Commissioner (Appeals) erred in allowing a reduction of Rs. 8,76,215 out of the disallowance made by the Income-tax Officer (ITO) concerning the assessee's claim for deduction of Rs. 10,51,000, being the contribution towards an approved granting to be administered by the LIC, despite non-compliance with the provisions of section 40A(7). The Tribunal noted that the factual position and arguments regarding this ground were similar to those in the assessee's appeal for the assessment year 1976-77. For the reasons stated in that appeal, the Tribunal upheld the order of the Commissioner (Appeals), allowing the deduction.

2. Depreciation rate on 'pay loaders':

The revenue argued that the Commissioner (Appeals) erred in directing that the depreciation on 'pay loaders,' which is not an item of each moving machinery, should be allowed at 30% as against 10% allowed by the ITO. The Tribunal again referenced the similar factual position and arguments from the assessee's appeal for the assessment year 1976-77. Agreeing with the reasons stated in that appeal, the Tribunal upheld the Commissioner (Appeals)'s order, allowing the higher depreciation rate.

3. Addition of Rs. 3,22,27,078 to the total income of the assessee:

The ITO added Rs. 3,22,27,078 to the total income of the assessee, concluding that the payment to the Central Government was merely an application of profits accrued to the assessee-corporation and not a diversion of income by overriding title. The Commissioner (Appeals) deleted this addition, observing that the payment was a necessary condition under which the assessee had to carry on its business and should be allowed as a business expenditure. The Commissioner (Appeals) noted that the payment was akin to a cess levied on the assessee to be used for developing the country's foreign trade and was not an application of income.

The Tribunal considered the departmental representative's arguments, who cited various decisions to support the view that the payment was an application of profits. However, the Tribunal also considered the assessee's arguments, which relied on different case laws supporting the view that the payment was a diversion of income by overriding title.

The Tribunal noted that the Government of India had provided the source for making the profit, with a stipulation that the profits earned should be shared between the assessee-corporation and the Government. The Tribunal concluded that the payment of Rs. 3,22,27,078 to the Consolidated Fund of India represented a diversion of income by overriding title, as there was a charge on the profit-making apparatus. Therefore, the amount could not be added to the total income of the assessee. The Tribunal upheld the Commissioner (Appeals)'s order, deleting the addition.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the Commissioner (Appeals)'s orders on all grounds.