1981 (7) TMI 143 - AT - Income Tax

Summary

Issues:
1. Deduction of gratuity liability
2. Disallowance on maintenance of flats at Bombay
3. Claim for development rebate
4. Claim for higher rate of depreciation on plant and machinery

Deduction of Gratuity Liability:
The appeal by M/s Kothari Sugars and Chemicals Ltd. contested the disallowance of Rs. 7,14,317 as gratuity liability by the AAC of IT, Special Range, Madras for the assessment year 1974-75. The assessee claimed the deduction based on actuarial valuation principles, with certification by a professional actuary and the existence of a trust fund and a contract with LIC under a group gratuity scheme. The AAC disallowed the claim under section 40A(7) due to non-compliance with the provision and funding requirements. The ITAT noted the absence of a provision in the accounts and held that the eligibility for deduction under section 40A(7)(b) was academic in this case. The ITAT allowed the deduction once a provision was made or on actual payment under section 36(1)(v). Additionally, the ITAT directed relief for the premium paid towards gratuity liability, even though the insurance policy was discontinued.

Disallowance on Maintenance of Flats at Bombay:
The issue of disallowance of Rs. 11,460 for the maintenance of two flats at Bombay was raised, contending that the flats were not guest houses but used for employees or the company's business activities. Citing precedent and the decision of the Madras High Court, the ITAT allowed the appeal, granting relief for the maintenance expenses.

Claim for Development Rebate:
The claim for development rebate of Rs. 14,40,468 was made as a precautionary measure, although the amount had already been directed to be allowed in a previous assessment year. The department argued that excess reserves from earlier years could not be considered for the rebate. The ITAT rejected the ground as the issue was deemed academic, given the allowance in the previous year.

Claim for Higher Rate of Depreciation on Plant and Machinery:
The appeal included a claim for a higher rate of depreciation at 15% instead of the 10% allowed on plant and machinery, based on exposure to corrosive chemicals. This claim was not raised in the first appeal and was deemed beyond the Tribunal's jurisdiction to entertain. Consequently, the claim was rejected.

In conclusion, the ITAT partly allowed the appeal, granting relief for the gratuity liability deduction and the maintenance expenses, totaling Rs. 77,942.