1990 (5) TMI 68 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of commission and brokerage as 'sales promotion expenses' under Section 37(3A).
2. Disallowance under Section 43B regarding unpaid liabilities.
3. Entitlement to triple shift allowance.

Detailed Analysis:

1. Treatment of Commission and Brokerage as 'Sales Promotion Expenses' under Section 37(3A):

The first issue concerns whether commission and brokerage paid to dealers should be treated as 'sales promotion expenses' under Section 37(3A). The Income Tax Officer (ITO) found that the assessee did not add back any amount as disallowance under Section 37(3A). The ITO noted various expenditures, including Rs. 1,69,520 as commission to dealers and Rs. 93,642 as brokerage, and opined that these should be considered for disallowance under Section 37(3A). The Commissioner (Appeals) held that 'sales promotion' includes commission and brokerage payments.

The Tribunal considered the submissions and the relevant sections of the Income Tax Act. It concluded that the term 'sales promotion' has a narrow scope and should not include expenditures for services rendered, such as commission and brokerage. The Tribunal held that commission and brokerage paid for services rendered could not be considered for disallowance under Section 37(3A).

2. Disallowance under Section 43B Regarding Unpaid Liabilities:

The second issue involves the disallowance of unpaid liabilities under Section 43B. The ITO found that the assessee had several outstanding liabilities, including employees' contributions to provident fund and ESI, and sales tax, which were not paid at the end of the accounting year. The ITO disallowed these amounts under Section 43B.

The Commissioner (Appeals) confirmed the additions, stating that Section 43B creates a bar and makes it obligatory to allow sales tax liability only on the basis of actual payment. The Tribunal upheld this view, noting that the sales tax collected is a trading receipt and must be included in the income computed. The Tribunal also referred to Explanation (2) introduced by the Finance Act, 1989, which clarifies that 'any sum payable' means a sum for which the assessee incurred liability in the previous year, even if it was not payable within that year under the relevant law.

The Tribunal rejected the contention that the proviso introduced in 1988, which allows deduction if the sales tax liability is paid by the due date for filing the income-tax return, was declaratory. It held that the proviso was not declaratory and that Section 43B would be applicable.

3. Entitlement to Triple Shift Allowance:

The third issue is whether the assessee is entitled to triple shift allowance. The ITO denied the claim on the ground that the factory did not run round the clock. However, the Commissioner (Appeals) found that the rolling mill worked for three shifts of six hours each, and the furnace worked for 21 hours or more. The Commissioner (Appeals) accepted that the assessee is eligible for the deduction, noting that there is no requirement that an extra shift should constitute eight hours.

The Tribunal upheld the Commissioner (Appeals)'s decision, stating that the furnace working for 21 hours indicates that more than two shifts were worked, and therefore, the claim for triple shift allowance should not be denied.

Conclusion:

In conclusion, the Tribunal allowed the assessee's appeal partly by holding that commission and brokerage paid for services rendered could not be considered for disallowance under Section 37(3A), and upheld the disallowance under Section 43B and the entitlement to triple shift allowance. The departmental appeal was dismissed.