1991 (2) TMI 184 - AT - Income Tax

Approved Superannuation Fund, Deduction In Respect, New Industrial Undertaking, Profits And Gains, Setting Up

Issues Involved:
1. Eligibility for deduction under Section 80-I for a vertical shaft kiln.
2. Eligibility for deduction under Section 80HH.
3. Deduction in respect of liability estimated under a Pension Scheme.
4. Deduction of commuted pension payments under Section 40A(5).
5. Deduction of cess on royalty under Section 43B.

Detailed Analysis:

1. Eligibility for Deduction under Section 80-I for a Vertical Shaft Kiln
The primary issue is whether the vertical shaft kiln qualifies as an independent industrial unit eligible for deduction under Section 80-I. The Tribunal noted that the process for manufacturing clinkers in the new vertical shaft kiln is entirely different from the older method. The CIT (Appeals) had previously ruled that the new process was merely a change in technology and not a new industrial unit. However, the Tribunal found that the vertical shaft kiln could be considered a separate unit because it involved a distinct manufacturing process for clinkers, which are marketable commodities. Evidence showed that clinkers have their own market, and the assessee had sold clinkers separately. The Tribunal concluded that the vertical shaft kiln qualifies as a separate industrial unit eligible for Section 80-I deduction.

2. Eligibility for Deduction under Section 80HH
The Tribunal found that the findings regarding Section 80-I also apply to Section 80HH. Since the vertical shaft kiln is considered a separate industrial unit, the assessee is also eligible for deduction under Section 80HH.

3. Deduction in Respect of Liability Estimated Under a Pension Scheme
The Tribunal examined whether the liability for pension under an amended scheme is deductible. The scheme had been amended to ensure that any modifications or withdrawals would not affect the accrued liabilities. The Tribunal found that the amendment removed the contingent nature of the liability, making it an ascertained liability. The assessee was therefore entitled to deductions for the actuarially valued liability for the current year and the accumulated liabilities from prior years, totaling Rs. 14,57,153.

4. Deduction of Commuted Pension Payments under Section 40A(5)
The issue was whether commuted pension payments should be considered under Section 40A(5). The Tribunal noted that commuted pension payments are not periodic and are exempt under Section 10(10A) up to a certain limit. However, any amount exceeding the exempt limit is taxable. The Tribunal ruled that commuted pension payments have the characteristics of salary or pension and should be considered as payments to a former employee, subject to the limits prescribed under Section 40A(5). The department was directed to allow separate deductions for payments to former employees and consider only the balance for disallowance.

5. Deduction of Cess on Royalty under Section 43B
The Tribunal considered whether cess on royalty qualifies as a tax under Section 43B. The Supreme Court had ruled that the cess on royalty is not a tax on land but a payment for the use of land, invalidating the levy prospectively. The Tribunal noted that the term 'tax' in Section 43B is used in a narrower sense and does not include cess. The Tribunal held that cess, although considered a tax for constitutional purposes, does not fall under the definition of 'tax' for the purposes of Section 43B. Therefore, the assessee was entitled to the deduction of the cess amounting to Rs. 83,81,427.

Conclusion
The Tribunal ruled in favor of the assessee on all major issues, allowing deductions under Sections 80-I, 80HH, and for the pension scheme, while also ruling that commuted pension payments should be partially considered under Section 40A(5). The Tribunal also allowed the deduction of cess on royalty, holding that it does not qualify as a tax under Section 43B.

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