1988 (1) TMI 99 - AT - Income Tax

Summary

Issues Involved:
1. Interpretation of Explanation 8 to section 43(1) of the Income-tax Act, 1961.
2. Deduction of contributions made to the Death Relief Fund.
3. Deduction of surtax liability.

Issue-wise Comprehensive Details:

1. Interpretation of Explanation 8 to Section 43(1) of the Income-tax Act, 1961:

The primary issue was whether the interest component included in the deferred payment price of capital assets under the IDBI Bills Rediscounting Scheme should be excluded from the "actual cost" of the assets u/s 43(1) as per Explanation 8. The assessees argued that the total installment amounts, inclusive of the interest component, constituted the actual cost of assets. They contended that the interest component was part of the price, not an independent liability, especially since no loans were taken. The revenue, however, argued that the interest component was distinct and should be excluded as it was interest on unpaid price. The Tribunal held that the enhanced price due to the deferred payment facility was distinct from interest on borrowed capital or unpaid price. The Tribunal concluded that Explanation 8 did not apply to the interest component of the price paid under the IDBI Scheme, and the entire price, including interest, constituted the actual cost of the asset.

2. Deduction of Contributions Made to the Death Relief Fund:

The second issue was whether contributions to the Death Relief Fund set up by the assessees were deductible. The fund was set up by an agreement u/s 18(1) of the Industrial Disputes Act, which was enforceable u/s 29 of the same Act. The assessee claimed that the contribution was a liability under the law, despite section 40A(9) introduced by the Finance Act, 1984, which generally disallowed such contributions. The Tribunal held that the fund was required to be set up under the Industrial Disputes Act, making it an exception to section 40A(9). The Tribunal allowed the deduction, noting that the fund was genuine and properly administered, unlike the discretionary trusts targeted by the amendment.

3. Deduction of Surtax Liability:

The third issue was the claim for deduction of surtax liability. The Tribunal disallowed this claim, citing the decision in CIT v. Sudarshan Chemical Industries (P.) Ltd., which held that surtax liability is not deductible.

Case-specific Orders:

ITA No. 2519/Mds/85:
The order u/s 263 disallowing the interest component was cancelled, and the appeal was allowed.

ITA No. 1559/Mds/85, 1560/Mds/85, 2336/Mds/85, 2036/Mds/85, 2384/Mds/85, 1939/Mds/85, 1940/Mds/85, 273/Mds/85, 17/Mds/85, 2316/Mds/85:
The Tribunal directed the actual cost to be taken without excluding the interest component and allowed the claims for enhanced depreciation and contributions to the Death Relief Fund. Surtax liability claims were disallowed where applicable. These appeals were partly or fully allowed.

ITA No. 1776/Mds/85, 1360/Mds/85:
The Tribunal confirmed the actual cost without deduction of interest and dismissed the appeals. The claim for bonus deduction in ITA No. 1360/Mds/85 was also allowed.

The Tribunal's decisions consistently emphasized that the interest component under the IDBI Scheme should be included in the actual cost of the assets, and contributions to the Death Relief Fund were deductible under the Industrial Disputes Act.