1991 (3) TMI 86 - HC - Income Tax

Summary

Issues Involved:
1. Carry forward and set-off of deficiency under section 80J for the assessment year 1968-69.
2. Allowability of provision for gratuity as an expenditure for the assessment year 1972-73.
3. Classification of technical fees paid under a collaboration agreement as revenue expenditure for the assessment year 1972-73.

Issue-wise Detailed Analysis:

1. Carry forward and set-off of deficiency under section 80J for the assessment year 1968-69:
The Tribunal directed that the deficiency under section 80J for the assessment year 1968-69, which was neither claimed by the assessee nor allowed in the assessment order for that year, should be computed and allowed to be carried forward and set off in the assessment years 1971-72 and 1972-73. The Income-tax Officer had rejected this claim on the grounds that the assessee had failed to make the necessary claim during the relevant assessment year, and thus the deficiency could not be verified or computed in the subsequent year. The Tribunal, however, concluded that there was no provision in the Income-tax Act, 1961, or the Rules requiring the assessee to claim and get the deficiency computed in the year of deficiency as a condition precedent to carrying it forward. The Tribunal's view was supported by judgments from various High Courts, which held that the assessee's substantive right to carry forward and set off section 80J deficiency was not contingent upon such procedural requirements. The court agreed with the Tribunal's view and answered the question in the affirmative and in favor of the assessee.

2. Allowability of provision for gratuity as an expenditure for the assessment year 1972-73:
The Tribunal held that the provision for gratuity amounting to Rs. 1,70,000 was an allowable expenditure for the assessment year 1972-73 under the Income-tax Act. Both counsels agreed that this issue was covered by the Supreme Court's judgment in CIT v. Andhra Prabha P. Ltd. [1986] 158 ITR 416. Consequently, the court answered this question in the affirmative and in favor of the assessee.

3. Classification of technical fees paid under a collaboration agreement as revenue expenditure for the assessment year 1972-73:
The Tribunal held that the technical fees amounting to Rs. 86,643 paid as per a collaboration agreement were revenue expenditure allowable in the assessment year 1972-73. Both counsels agreed that this issue was covered by the court's judgment in LIC v. CIT [1978] 115 ITR 45. Therefore, the court answered this question in the affirmative and in favor of the assessee.

Conclusion:
All three questions referred to the court were answered in the affirmative and in favor of the assessee. The court upheld the Tribunal's decisions regarding the carry forward and set-off of section 80J deficiency, the allowability of provision for gratuity as an expenditure, and the classification of technical fees as revenue expenditure. There was no order as to the costs of the reference.