1969 (6) TMI 16 - HC - Income Tax

Development rebate u/s 10(2)(vib) of Indian Income-tax Act, 1922 - commission paid to Bank for standing guarantee for the purchase must be treated as a part of actual cost for the purposes of allowing development rebate

Summary

Issues:
1. Allowability of wealth-tax paid as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.
2. Treatment of a sum paid for a guarantee commission as part of the actual cost of new machinery for the purpose of development rebate under section 10(2)(vib) of the Income-tax Act, 1922.

Analysis:
1. The first issue pertains to the allowability of wealth-tax paid by the assessee as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. The court answered this question in the negative, citing the Supreme Court judgment in Travancore Titanium Products Ltd. v. Commissioner of Income-tax.

2. The second issue revolves around whether a sum paid for a guarantee commission should be considered as part of the actual cost of new machinery for claiming development rebate under section 10(2)(vib) of the Income-tax Act, 1922. The assessee had paid Rs. 36,000 to a bank as a guarantee commission for securing a guarantee for machinery purchase. The Tribunal ruled in favor of the assessee, prompting a reference to the High Court.

3. The court referred to the provisions of section 10(2)(vib) which allow for development rebate on new machinery used for business purposes. The department argued that there is a distinction between interest paid on debentures and commission paid for a guarantee, contending that only interest directly related to the purchase of machinery can be included in the actual cost.

4. The court analyzed previous judgments, including Commissioner of Income-tax v. Standard Vacuum Refining Co. of India Ltd., emphasizing that "actual cost" includes all essential costs incurred to acquire a capital asset. The term "actual cost" was interpreted to mean the real cost incurred by the assessee in acquiring the asset.

5. Applying the principles from previous judgments, the court concluded that the expense of Rs. 36,000 paid for the guarantee commission was essential for acquiring the machinery, thus forming part of the assessee's actual cost. Consequently, the court answered the second question in the affirmative, ruling in favor of the assessee.

6. Each party was ordered to bear its own costs. Justice SABYASACHI MUKHARJI concurred with the judgment delivered by Justice SANKAR PRASAD MITRA.