2001 (7) TMI 279 - AT - Income Tax

Issues Involved:
1. Disallowance of Rs. 1,00,000 under the head "general charges"
2. Disallowance of expenditure for cultivation of bamboo
3. Addition under Section 41(1) of the Income Tax Act
4. Disallowance of sales tax collected but not deposited

Detailed Analysis:

1. Disallowance of Rs. 1,00,000 under the head "general charges":
The assessee claimed Rs. 1,00,000 under "general charges," which included sundries, petty expenses, and maintenance of a vegetable garden for employees' welfare. The AO disallowed this amount on the grounds that these expenses were not attributed to business purposes. The first appellate authority reduced the disallowance to Rs. 75,000, agreeing that sundry and petty expenses, including the vegetable garden, could not be considered solely for business. The Tribunal, referencing its earlier decisions for the assessment years 1984-85 and 1985-86, concluded that the expenses, including those for the vegetable garden, were for the welfare of employees and thus for business purposes. Consequently, the Tribunal directed the AO to delete the Rs. 75,000 sustained by the first appellate authority from the total income.

2. Disallowance of expenditure for cultivation of bamboo:
The assessee incurred Rs. 1,65,403 for cultivating bamboo, which was used for constructing sheds for young tea bushes and labor quarters. The AO disallowed this expenditure, treating it as agricultural expenses. The first appellate authority allowed expenses for growing thatch and shade trees but not for bamboo. The Tribunal noted that the same issue was previously decided in favor of the assessee for the assessment years 1984-85 and 1985-86, where it was held that the expenditure on bamboo cultivation was directly connected to the business. The Tribunal, finding no new reason to deviate from the earlier decision, directed the AO to allow the expenditure and recompute the total income by deducting Rs. 1,65,403.

3. Addition under Section 41(1) of the Income Tax Act:
A sum of Rs. 29,94,778, representing waived liabilities of the amalgamated Sterling Tea Co., was transferred to capital reserve by the assessee. The AO added this amount under Section 41(1), which the assessee contested, arguing that after amalgamation, the identity of Sterling Tea Co. ceased to exist. The Tribunal, referencing the Supreme Court's decision in Saraswati Industrial Syndicate Ltd. vs. CIT, held that post-amalgamation, the transferor company loses its identity, and thus, the addition under Section 41(1) was not applicable. The Tribunal directed the AO to delete the addition of Rs. 29,94,778 from the total income.

4. Disallowance of sales tax collected but not deposited:
The assessee collected Rs. 86,627 as sales tax but did not deposit it with the sales tax authorities. The AO treated this amount as a trading receipt and added it to the total income, a decision confirmed by the first appellate authority. The Tribunal upheld this view, citing the Supreme Court's ruling in Chowringhee Sales Bureau (P) Ltd. vs. CIT, which held that sales tax collected forms part of the trading receipt and must be included in the income if not paid to the government. The Tribunal dismissed the assessee's reliance on the Gauhati High Court's decision in India Carbon Ltd. vs. IAC, distinguishing it as addressing Section 43B applicability rather than the nature of sales tax as trading receipt.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to delete the disallowances and additions related to general charges, bamboo cultivation, and the Section 41(1) addition, while upholding the addition of sales tax collected but not deposited.

← Previous Next →