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1986 (2) TMI 25 - HC - Income TaxDevelopement Rebate, Export Profits Rebate, New Industrial Undertaking, Priority Industry, Special Deduction
Issues Involved:
1. Proportionate export rebate on qualifying income. 2. Disallowance of expenditure incurred towards the issue of bonus shares. 3. Computation of average capital employed. 4. Nature of expenditure on repairing and reconditioning a room for IBM machines. 5. Allowance of development rebate at 35% on PVC compound and processing plants. 6. Entitlement to relief under section 80E of the Income-tax Act for profit attributable to the direct sale of PVC resin. Detailed Analysis: Issue 1: Proportionate Export Rebate on Qualifying Income The Tribunal's decision denying the assessee's claim for proportionate export rebate on qualifying income for the assessment years 1966-67 and 1967-68 was upheld. This issue was previously settled in the assessee's own case (Ahmedabad Mfg. & Calico Printing Co. Ltd. v. CIT [1982] 137 ITR 616), where the court rejected the claim for deduction under similar provisions. Consequently, the court confirmed the Tribunal's view and answered the question in the affirmative and against the assessee. Issue 2: Disallowance of Expenditure Incurred Towards Issue of Bonus Shares The court examined whether the expenditure of Rs. 52,555.50 incurred by the assessee for issuing bonus shares was of a capital or revenue nature. The Tribunal had held that the expenditure was capital in nature, as it was intimately connected with the capital structure of the company. The court agreed, noting that the issuance of bonus shares resulted in the capitalisation of profits, which provided enduring benefits to the company, such as increased creditworthiness and permanent retention of past accumulated profits. The court rejected the argument that no new asset was acquired and upheld the Tribunal's decision, answering the question in the affirmative and against the assessee. Issue 3: Computation of Average Capital Employed The question of whether the figure arrived at by computation under rule 19(5) should be added to the figure under rule 19(1) for determining the average capital employed was directly covered by previous decisions (CIT v. Elecon Engineering Co. Ltd. [1976] 104 ITR 510 and Karamchand Premchand Pvt. Ltd. v. CIT [1982] 137 ITR 209). Following these precedents, the court answered the question in the affirmative and against the Revenue. Issue 4: Nature of Expenditure on Repairing and Reconditioning a Room for IBM Machines The court considered whether the expenditure of Rs. 59,331 incurred for repairing and reconditioning an existing room to accommodate IBM machines was of a capital or revenue nature. The Tribunal had held that the expenditure was revenue in nature, as it did not create any new asset or benefit of enduring nature. The court agreed, noting the concurrent findings of the Appellate Assistant Commissioner and the Tribunal that the expenditure was for repairs. Therefore, the court answered the question in the affirmative and against the Revenue. Issue 5: Allowance of Development Rebate at 35% on PVC Compound and Processing Plants The court examined whether the assessee was entitled to a higher development rebate of 35% on PVC compound and processing plants under item 18 of the Fifth Schedule. The Tribunal had upheld the Appellate Assistant Commissioner's decision granting the higher rebate, noting that the machinery was used for manufacturing petrochemicals, which fell under the specified item. The court found no reason to disturb the Tribunal's finding, which was based on evidence and not perverse. Consequently, the court answered the question in the affirmative and against the Revenue. Issue 6: Entitlement to Relief Under Section 80E for Profit Attributable to Direct Sale of PVC Resin This question was consequential to the previous one. Since the court answered the question regarding the development rebate in the affirmative, it similarly answered the question on the entitlement to relief under section 80E in the affirmative and against the Revenue. Conclusion: The court answered all the questions referred to it, with the majority of the decisions being against the assessee, except for the questions regarding the computation of average capital employed, the nature of expenditure on repairing and reconditioning a room, and the development rebate, which were answered against the Revenue. The reference was answered accordingly, with no order as to costs.
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