1990 (9) TMI 152 - AT - Income Tax

Concessional Rate, Expenditure Incurred, Previous Year, Profits And Gains, Wholly And Exclusively

Issues Involved:
1. Deduction of Rs. 50,00,000 contributed to Dynavision Dealers' Welfare Trust under Section 37(1) of the Income-tax Act, 1961.
2. Deduction claimed under Section 80-I for a new industrial undertaking for manufacturing Colour Television sets.

Issue-wise Detailed Analysis:

1. Deduction of Rs. 50,00,000 Contributed to Dynavision Dealers' Welfare Trust:
The appellant, a public limited company, claimed a deduction of Rs. 50,00,000 contributed to Dynavision Dealers' Welfare Trust under Section 37(1) of the Income-tax Act, 1961. The assessing officer disallowed the deduction, citing several reasons, including the absence of trust accounts, the trust benefiting third-party dealers rather than employees, and the lack of details on trust activities. The Commissioner (Appeals) upheld the disallowance, noting the disproportionate quantum of expenditure and potential collusiveness.

Preliminary Objections:
- The appellant argued that it was not open to the Revenue to challenge the validity of the Trust at this stage, having accepted its validity in earlier proceedings.
- The Tribunal rejected this contention, stating that defects and deficiencies in the trust deed could be raised at any stage as they go to the root of the matter.

Validity of the Trust Deed:
- The Tribunal found that the trust deed dated 27-11-1984 was invalid as it lacked signatures, witnesses, and the transfer of property to the trustees.
- However, the Tribunal held that a valid trust came into existence on 26-12-1984 when Rs. 50,00,000 was transferred to the trust, fulfilling the requirements of Sections 5 and 6 of the Indian Trusts Act.

Allowability of the Deduction:
- The Tribunal held that the contribution was a business expenditure laid out wholly and exclusively for the purpose of the appellant's business.
- The expenditure was found to be for promoting sales and ensuring the loyalty of dealers, thus fulfilling the requirements of commercial expediency under Section 37(1).

2. Deduction Claimed Under Section 80-I for New Industrial Undertaking:
The appellant claimed a deduction under Section 80-I for a new industrial undertaking for manufacturing Colour Television sets, arguing that it had established a distinct and separate unit.

Conditions for Section 80-I:
- The assessing officer and Commissioner (Appeals) disallowed the claim, arguing that the new unit was not distinct and was formed by splitting up or reconstructing the existing business.
- The Tribunal examined the evidence, including the new industrial licence, separate shop floor, additional machinery, and increased workforce, and concluded that the new unit was distinct and separate.

Investment in New Machinery:
- The Tribunal noted that the appellant had invested in new machinery and that the value of old machinery used was within the permissible limit of 20% under Explanation 2 to Section 80-I(2).

Profit Attribution and Allowability:
- The Tribunal directed the assessing officer to rework the profit of the Colour Television Division based on the proportion of sales turnover and allow the deduction under Section 80-I accordingly.

Conclusion:
The Tribunal allowed the appellant's claims for deductions under both Section 37(1) for the contribution to Dynavision Dealers' Welfare Trust and Section 80-I for the new industrial undertaking for manufacturing Colour Television sets. The decisions were based on the fulfillment of legal requirements and the principles of commercial expediency.

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