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2019 (9) TMI 479 - HC - Income TaxEntitlement to weighed deduction u/s 36 (1) (iia) - income of employees chargeable under the head salaries before allowance of standard deduction under Section 16 to be considered - HELD THAT - If you compare the language employed in Section 36(1)(iia) proviso, it uses the expression chargeable under the head salaries while qualifying salary. Section 16 provides for certain deductions to be made to arrive at the salary chargeable under the head salaries . It is quite plain that the legislature intended to use the phrase chargeable under the head salaries for computation of income under Section 36 (1) (iia) in the same way as under Section 16. Therefore, the first question is answered in the negative in favour of the assessee and against the revenue. Depreciation of building machinery plant or furniture sold, discarded etc, in the previous year, not being the year in which it is bought - Loss under Section 32 (1) (iii) of the Act was allowable not in the year in which fixed assets were discarded but only in the year in which they were sold? - HELD THAT - Words sold and discarded are disjunctive and denote separate dealing with the above items. Therefore, the tribunal made an error of law in coming to the conclusion that there was no evidence to prove that the items claimed to have been discarded and scrapped were actually sold by the assessee. Therefore, this question is also answered in the negative in favour of the assessee and against the revenue. Addition u/s 40A (5) - expenditure on motor cars were provided the senior employees both for official and personal use - HELD THAT - Expenditure incurred on motor cars for the use of employees for business purposes may be apportioned out of the total expenditure incurred for that purpose and deduction claimed of the apportioned amount in accordance with the section. As relying on FORBES, EWART AND FIGGIS PVT. LIMITED 1981 (6) TMI 14 - KERALA HIGH COURT appellant was entitled to deduction of the amount spent by them for business purpose subject to the ceiling, if any applicable under the said section. Decided in favour of the assessee and against the revenue. Deduction u/s 35B(1) (iv) in respect of commission payable outside India - whether the expenditure claimed was incurred wholly or exclusively on the maintenance outside India of a branch or agency for the promotion of sale of the subject goods, service or facilities? - HELD THAT - As decided in ARAVINDA PARAMILA WORKS VERSUS COMMISSIONER OF INCOME-TAX 1999 (3) TMI 14 - SUPREME COURT expenditure that is referred to therein has to be incurred on the maintenance outside India of a branch, officer or agency for the promotion of sales outside India of the assessee s goods, services or facilities. Therefore, what is requisite is that the assessee should have maintained the branch, officer or agency outside India - While we think that there is some merit in the observation of the Karnataka High Court that the words branch, officer or agency in the clause draw colour from each other and that the word agency should, therefore, be interpreted in the light of the words branch and office , it is, in any event, very clear that even if the agency is an agency established not by the assessee but by a third party, the agency must be maintained by the assessee. - Decided in favour of assessee. Depreciation on moulds used for manufacture of glass was rightly - @10% OR 30% - HELD THAT - indings of the tribunal were made on the question of fact, whether the moulds in question were used in glass manufacturing concerns except direct fire glass melting furnaces. The impugned order of the tribunal does not determine whether the appellant was a glass manufacturing concern and/or whether the manufacturing process involved direct fire glass melting in furnaces. This determination of fact was essential to come to a finding whether the appellant was entitled to a higher rate of depreciation of 30% on moulds. The reasons given by the tribunal are inadequate. More analysis of the facts and reasons were required. This is a kind of perversity. Therefore, the question is also answered in favour of the assessee and against the revenue.
Issues:
1. Entitlement to weighed deduction under Section 36(1)(ii a) of the Income Tax Act, 1961. 2. Allowability of loss under Section 32(1)(iii) of the Act. 3. Claim for deduction from income arising on sale of assets. 4. Disallowance of expenditure on motor cars under Section 40(6) of the Act. 5. Disallowance of expenditure on telephones under Section 40A(5). 6. Allowability of deduction under Section 35B(1)(iv) of the Act. 7. Restriction of depreciation on moulds under Section 10%. Analysis: Issue 1 - Entitlement to weighed deduction under Section 36(1)(ii a): The court analyzed the relevant provisions of the Income Tax Act, specifically Section 36(1)(ii a), to determine whether the income of employees chargeable under the head 'salaries' before standard deduction should be considered for weighed deduction entitlement. The court held that the phrase "chargeable under the head salaries" in Section 36(1)(ii a) should be interpreted in line with Section 16 deductions, favoring the assessee against the revenue. Issue 2 - Allowability of loss under Section 32(1)(iii): The court examined Section 32(1)(iii) concerning the deduction for depreciation on assets sold or discarded. It disagreed with the tribunal's interpretation that evidence of sale was necessary, asserting that the words "sold" and "discarded" were distinct, warranting separate treatment. The court ruled in favor of the assessee against the revenue on this issue. Issue 3 - Claim for deduction from income arising on sale of assets: This issue was related to a claim for deduction on the value of assets scrapped in a previous assessment year. The court held in favor of the assessee, subject to verifying the claim's accuracy, aligning with the assessee against the revenue. Issue 4 & 5 - Disallowance of expenditure on motor cars and telephones: The court interpreted Section 40A(5) and held that the expenditure on motor cars for business purposes could be apportioned, allowing deduction of the relevant amount. Similarly, it ruled against the disallowance of expenditure on telephones under Section 40A(5), favoring the assessee against the revenue in both cases. Issue 6 - Allowability of deduction under Section 35B(1)(iv): The court analyzed the interpretation of Section 35B(1)(iv) regarding commission payable outside India. Referring to a Supreme Court case, it emphasized the requirement for maintaining a branch or agency outside India for the promotion of sales. The court found the tribunal's interpretation lacking and ruled in favor of the assessee against the revenue. Issue 7 - Restriction of depreciation on moulds: Regarding the depreciation rate on moulds used for glass manufacturing, the court found the tribunal's analysis inadequate and highlighted the necessity for a detailed determination of facts. It ruled in favor of the assessee against the revenue, directing a reassessment of the issue. The court set aside parts of the tribunal's order on the mentioned issues, directing a fresh determination within six months. The judgment favored the assessee in interpreting various provisions of the Income Tax Act, emphasizing the need for accurate assessment and adherence to legal principles.
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