1981 (1) TMI 164 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of rebate on Excise Duty.
2. Deduction of Guest House expenses.
3. Allowance for provision for gratuity.
4. Claim for money kept apart for storage facilities for molasses.

Detailed Analysis:

1. Deduction of Rebate on Excise Duty:
The assessee claimed a deduction of Rs. 21,46,400 credited to the profit and loss account as a rebate on Excise Duty payable for the assessment year 1975-76. The rebate was based on a notification by the Ministry of Finance for factories producing sugar. Initially, the Excise authorities approved the rebate, but later withdrew it, claiming it was erroneously given since the assessee had no production during the base period. The assessee contested this withdrawal and filed a Writ Petition in the High Court of Madras, which ruled in favor of the assessee. However, the Central Excise authorities appealed against this decision. The ITO rejected the assessee's claim for deduction, maintaining that the rebate was already received and not refunded. The appellate authority upheld this decision, reasoning that the rebate was receivable at the end of the accounting year. The Tribunal, however, found that the assessee was entitled to revise its return before assessment and exclude the rebate amount, as the legal position at the time of assessment was that the rebate was not receivable. The Tribunal allowed the assessee's appeal for the deduction of Rs. 21,46,400.

2. Deduction of Guest House Expenses:
The ITO disallowed Rs. 15,359 claimed as Guest House expenses, considering them as inadmissible. However, the first appellate authority found that these expenses were for providing tea and food to sugarcane suppliers and customers, which are admissible under s. 37(2). The Tribunal upheld this view, dismissing the departmental appeal on this point.

3. Allowance for Provision for Gratuity:
The assessee claimed a provision for gratuity amounting to Rs. 8,46,400, which the ITO partially disallowed, allowing only the incremental liability of Rs. 1,20,738. The first appellate authority found that the gratuity fund was constituted and the application for approval was made within the stipulated time. Since the Commissioner had recognized the Trust retrospectively, the Tribunal found no reason to disallow the provision. The Tribunal dismissed the departmental appeal, directing the allowance of the full amount of Rs. 8,46,400.

4. Claim for Money Kept Apart for Storage Facilities for Molasses:
The assessee claimed Rs. 34,006 kept apart from the sale proceeds of molasses for creating storage facilities as directed by the Central Government. The first appellate authority allowed this claim, following the rationale of the Supreme Court decision in CIT vs. Tollygunge Club Ltd. The Tribunal upheld this decision, dismissing the departmental appeal on this point.

Conclusion:
The assessee's appeal was allowed, granting the deduction for the rebate on Excise Duty, while the departmental appeal was dismissed on all points, including the deductions for Guest House expenses, provision for gratuity, and money kept apart for storage facilities for molasses.