1983 (1) TMI 145 - AT - Income Tax

Summary

Issues Involved:
1. Relief under section 35C of the Income-tax Act, 1961.
2. Depreciation in respect of immovable properties at Vijayawada and Tanuku.
3. Disallowance of alleged liability for 'price insurance'.

Issue-wise Detailed Analysis:

1. Relief under Section 35C of the Income-tax Act, 1961:

Summary of the Issue:
The assessee claimed a weighted deduction under section 35C for various expenses related to processing seeds, which was partially allowed by the Commissioner (Appeals) but contested by both the assessee and the department.

Detailed Analysis:
- The assessee claimed weighted deduction at 120% of the expenditure incurred on processing seeds, totaling Rs. 13,81,187.
- The Income-tax Officer (ITO) disallowed the claim, arguing that the total expenditure was recovered through sales and that section 35C applies only to companies engaged in agro-based industries, not those manufacturing seeds.
- The Commissioner (Appeals) partially allowed the claim, stating that section 35C applies to services rendered to agriculturists but excluded depreciation, interest, and overhead expenses from the deduction.
- The Tribunal agreed with the Commissioner (Appeals) that the assessee is entitled to weighted deduction under section 35C, referencing the Allahabad High Court decision in Tarai Development Corpn. v. CIT.
- The Tribunal directed the ITO to recompute the expenditure incurred towards services rendered after deducting any consideration received and to extend the relief to other items claimed by the assessee, in line with the Allahabad High Court judgment.

2. Depreciation in Respect of Immovable Properties at Vijayawada and Tanuku:

Summary of the Issue:
The assessee claimed depreciation on properties acquired from the National Seeds Corporation, which was disallowed by the ITO and Commissioner (Appeals) due to the absence of registered sale deeds.

Detailed Analysis:
- The assessee acquired capital assets worth Rs. 26,66,640.90, but sale deeds for properties valued at Rs. 13,41,432 were not executed.
- The ITO disallowed depreciation, stating the ownership was not vested with the corporation.
- The Commissioner (Appeals) upheld the ITO's decision, citing the necessity of ownership for granting depreciation.
- The Tribunal, referencing the Allahabad High Court decision in U.P. State Agro Industrial Corpn. Ltd. and section 53A of the Transfer of Property Act, allowed the depreciation claim. The Tribunal emphasized that the assessee was de facto owner enjoying use and possession of the properties.

3. Disallowance of Alleged Liability for 'Price Insurance':

Summary of the Issue:
The assessee claimed an expenditure of Rs. 3,42,504 for 'price insurance' as per a quadripartite agreement, which was disallowed by the ITO and Commissioner (Appeals).

Detailed Analysis:
- The ITO rejected the claim, considering it a contingent liability and not an outgoing.
- The Commissioner (Appeals) confirmed the ITO's view, stating the liability was not accrued or ascertained.
- The Tribunal agreed with the authorities below, stating that the 'price insurance account' represented a reserve for future contingencies and did not constitute an enforceable debt by a third party against the appellant. Therefore, the disallowance was upheld.

Conclusion:
- The appeal filed by the department was dismissed.
- The appeal filed by the assessee was allowed in part, specifically in relation to the weighted deduction under section 35C and depreciation on immovable properties. The disallowance of the 'price insurance' claim was upheld.