1990 (1) TMI 114 - AT - Income Tax

Business Expenditure, Carrying On Business, Deduction In Respect, High Court, Sales Tax Act, Sales Tax Authorities, Wholly And Exclusively

Issues Involved:
1. Disallowance of penalty under section 22(2) of the Tamil Nadu General Sales Tax Act.
2. Disallowance of expenditure on maintenance of cars provided for Directors.
3. Taxability of unclaimed balances.
4. Eligibility for deduction under section 35B for expenditure on samples.
5. Investment allowance on computers.
6. Eligibility for higher depreciation rate on computers and data processing equipment.
7. Additional depreciation on computers and data processing equipment.
8. Depreciation on generators at a higher rate due to contact with corrosive materials.

Issue-wise Detailed Analysis:

1. Disallowance of Penalty under Section 22(2) of the Tamil Nadu General Sales Tax Act:
The assessee, a public limited company, contested the disallowance of Rs. 6,99,947 levied as a penalty under section 22(2) of the Tamil Nadu General Sales Tax Act. The penalty was imposed for collecting sales tax on freight, which was later deemed unauthorized by the High Court in Ramco Cement Distribution Co. (P.) Ltd. v. State of Tamil Nadu. Despite the High Court's decision, the Income-tax Officer and the Commissioner of Income-tax (A) disallowed the penalty as a business expenditure, citing the Supreme Court's ruling in Haji Aziz & Abdul Shakoor Bros. v. CIT. The Tribunal, however, distinguished this case from others by noting that the assessee had no alternative but to collect and pay the sales tax as per the then-prevailing understanding of the Sales-tax Department. The Tribunal concluded that the penalty was incurred in the course of business and allowed the deduction.

2. Disallowance of Expenditure on Maintenance of Cars Provided for Directors:
The assessee challenged the disallowance of part of the expenditure incurred on maintaining cars provided for Directors. The Income-tax Officer had disallowed one-third of the expenditure, which the Tribunal found reasonable and upheld, thus requiring no interference.

3. Taxability of Unclaimed Balances:
The assessee contested the inclusion of unclaimed balances amounting to Rs. 20,429 and unclaimed wages and bonuses of Rs. 1,750 in taxable income. The Tribunal held that the unclaimed wages and bonuses could not be taxed under section 41(1) due to the preserved liability under other statutes. However, the excess advances received from customers (Rs. 13,985) and unpaid expenses (Rs. 6,445) were treated differently. The Tribunal ruled that the advances were correctly brought to tax, while the unpaid expenses were liabilities that had not ceased and thus should be deleted from taxable income.

4. Eligibility for Deduction under Section 35B for Expenditure on Samples:
The assessee claimed a deduction under section 35B for expenditure on samples and brochures. The Tribunal allowed the deduction for Rs. 28,029 spent on brochures, considering it as advertisement expenditure under clause 1 of section 35B(2). The rest of the items were not allowed.

5. Investment Allowance on Computers:
The assessee sought an investment allowance on computers used for monitoring raw materials in the factory. The Tribunal followed its prior decision for the assessment year 1981-82 and allowed the deduction.

6. Eligibility for Higher Depreciation Rate on Computers and Data Processing Equipment:
Following the decision on investment allowance, the Tribunal held that the assessee was entitled to a higher depreciation rate on computers and data processing equipment.

7. Additional Depreciation on Computers and Data Processing Equipment:
This issue was consequential to the earlier finding on investment allowance and higher depreciation, and the Tribunal decided in favor of the assessee.

8. Depreciation on Generators at a Higher Rate Due to Contact with Corrosive Materials:
The assessee claimed a higher depreciation rate on generators, arguing they were in continuous contact with corrosive materials. Despite the department's contention that mere exposure to exhaust fumes was insufficient for higher depreciation, the Tribunal followed its earlier decision in the assessee's favor for the year 1981-82, thus allowing the claim.

Conclusion:
The appeal was partly allowed, with several issues decided in favor of the assessee, including the penalty under the Tamil Nadu General Sales Tax Act, investment allowance on computers, and higher depreciation on generators. Other claims, such as the disallowance of car maintenance expenses and certain unclaimed balances, were upheld in favor of the department.

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