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TMI Blog1988 (1) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was treated as in time as there was an extension request made on 27-6-1977 in form No. 6 seeking time up to 31-7-1977, declaring a total income of Rs. 7,12,60,020. The income heads we like to notice as under : Interest on securities Rs. 1,500 Income under the head House property Rs. 41,744 Profits and gains of business Rs. 7,07,06,099 Dividends Rs. 21,631 Interest Rs. 10,41,774 ------------------- Total Rs. 7,39,54,297 Less Deduction as per Part I (Annexure 'F') Rs. 26,94,272 The assessment came to be framed at Rs. 7,30,67,449. 3. Considering the disputes which have travelled before us, apparently there were modifications not only in relation to assessable income from various sources but also variations both plus and minus in respect of deductions claimed. 4. In the assessee's appeal though there were as many as 15 grounds taken the disputes for our consideration came to be narrowed down to a great extent, inasmuch as, permission to withdraw grounds number 5 and from 8 to 15 was sought and which was given. 5. The remaining contentions are summarised and may be noted as under : " That the Commissioner(A) erred in : (1) maintaining the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act ; and (9) in directing that relief u/s 80J in respect of Diesel Engine Unit be allowed in full irrespective of its date of commencement. 7. Dealing with the assessee's appeal and the question regarding deductibility of Surtax liability of Rs. 36,78,128, not only it has been held in the case of Amar Dye Chem. Ltd. [IT Appeal No. 3643 (Bom.) of 1974-75 (SB), dated 1-12-1977] that Surtax is nothing but a tax on company's income and assessable as such and, therefore, disallowable under section 40(a)(ii) of the Act but in the assessee's own case right from the assessment year 1974-75 such disallowances have been resorted to and upheld by the Tribunal. The basis of the earlier decisions has been the case of Amar Dye Chem. Ltd. We, however, like to refer to three related judgments of three High Courts taking the view that tax imposed by Surtax Act, 1964 is essentially of the same character as Income-tax or Excess Profits Tax and, therefore, such tax levied on income cannot be said to have been paid for the purpose of earning profits of the trade : (i) Molins of India Ltd. v. CIT [1983] 144 ITR 317 (Cal.). (ii) CIT v. International Instruments (P.) Ltd. [1983] 144 ITR 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s S.R. Dinodia Co. also, he submitted that in view of their certificate and the assessee's assertion and contention that whatever may be the reason for payment in the earlier years, for this year Rs. 30,000 were paid for consultations only, should have been believed. Here, we see no justification for accepting the assessee's claim and are inclined to agree with the Income-tax Officer and the CIT(A)'s approach that primary and contemporary evidence was the bill submitted by M/s S.R. Dinodia Co. and no plausible explanation was given for withholding the same from the scrutiny of the Income-tax authorities, which gave rise to inference that character of payments was the same as in the earlier year. 9.1 Shri J.S. Rao for the Revenue was not in a position to controvert the factual findings recorded by the Commissioner (A), as also the statement made by Shri H.P. Agarwal before us, that his payments and that to Mr. Jaitley did not result from any appearances before the tax authorities or before the Income-tax Appellate Tribunal in the company's case. In view of the above facts, we lift the addition of Rs. 15,000 concerning payment to Shri H. P. Agarwal and confirm the other disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by the assessee in respect of Sector 15A property. It also must be mentioned that interest was to be paid on instalments, which clearly implied that liability was not to be on annual basis. The Income-tax Officer, however, adopted two diametrically apposite approaches in respect of the two properties though liabilities of the development cess flowed out of the same Statutory Enactments and Rules and the same authorities, inasmuch as, he held that liability against Sector 27 property in the year accrued only to the extent of Rs. 2,31,881 in relation to total development cess amounting to Rs. 10,11,350 but recorded a finding that no such liability at all could be said to arise against Sector 15A property. 10.3 To demonstrate the above and the consequent fallacious approach which came to be followed by the Income-tax Officer and the Commissioner (A), we notice paragraphs 8.4 and 8.5 of the assessment order as follows : "8.4 Land of Research Centre (Sector 27) -- In support of the contention that the liability of the company for paying the development cess in respect of this land has arisen during 1976, assessee vide letter dated 27-12-79, has filed a copy of letter dated 25-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 per sq. yard during the year 1976. As mentioned above there was a reference to a letter of Director in the letter of Administrator referred to above. Accordingly a copy of the said letter of Director was obtained from the Administrator. It is seen that this letter of Director is in reference to levy of development charges in respect of land belonging to M/s Weldon Wire Industry, Haryana and has nothing to do with assessee's land. It is therefore clear that during the year 1976 demand note or any other communication asking the assessee to pay the development cess with reference to its Sector 15-A land was served. In fact it was the non-receipt of any demand notice from the Administrator which prompted the assessee to write the aforesaid letter dated18-12-79requesting the Administrator to confirm the accrual of liability in 1976 in respect of Sector 15-A land. The reply of Administrator dated26-12-79referred to above merely provides rates at which development charges will be quantified and does not mention time of payment. It therefore does not help the assessee to prove that the liability to pay development charges has accrued in 1976. This plot of land is more than 4 acres. Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsibility over ten years. Therefore, the question that the liabilities to the extent provided accrued in the year is decided in the assessee's favour. 10.6 The next and the related question in relation to the above is whether such liabilities could be termed as capital or were allowable as revenue in character. 10.7 The assessee's case before the Income-tax authorities and before us has been that the expenditure was incurred while the business was going on and not for its extension. Further by paying the cess the company was not expected to bring or brought into existence any asset or advantage of enduring benefit. Again, it was never the intention of the Government to relate the development cess payable to the cost of land. It was very effectively submitted that when land in Sector 15A was purchased on23-9-1970there was not even a whisper that payment of land cess was a condition of sale. We like to observe at this stage that payment of cess or the provision of amenities promised were not to be for increasing the potential or the real value of the lands on which the properties were existing. Even if there could be said to be possibilities of increase in the value of the land, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir treatment and disposal ; and (vi) any other works that the Director may think necessary in the interest of proper development of the colony. Considering that the assessee was running a factory and a Research Centre on the lands in respect of which development cess was payable, it has to be appreciated that the provision for securing the above stated amenities was necessary and had direct nexus for the smooth running of the business and, therefore, by virtue of contribution, no benefit of any enduring nature was being derived, which could be said to be additionally favourable affecting the business. The judgment of the Hon'ble Supreme Court in the case of Lakshmiji Sugar Mills Co. (P.) Ltd. v. CIT [1971] 82 ITR 376 can be said to be direct authority favouring the assessee. In that case a private company carrying on business of manufacture and sale of sugar paid to the Cane Development Council certain amounts by way of contribution for the construction and development of roads between the various sugarcane producing centres and the sugar factories of the assessee. The payment was under statutory obligation for the development of roads, which were originally the property of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (vi) of sub-section (1) or under sub-section (1A) of section 32 for same or any other previous year in respect of that asset ;" For the assessee it was stated that the operation of the retrospective amendment of the above section has been directed to be stayed in the case of the company by the Hon'ble Supreme Court of India, in view of which we direct that the assessing authorities shall give effect to the Hon'ble Supreme Court judgment when the dispute is finally decided and in the meantime the status quo emerging from the assessment is allowed to stand. In other words the assessee shall not get the relief at present. 14. The next ground is whether the Commissioner (A) was justified in maintaining the addition of Rs. 1,58,718 being the dealers' contribution to the "Dealers Development Fund". While framing the assessment and perusing the advertisement expenses amounting to Rs. 46,67,784 appearing in Schedule XIII of the printed balance sheet, the Income-tax Officer noticed that a sum of Rs. 1,58,718 had been debited to Dealers Development Fund, shortly referred to as DDF in the Motor-Scooter Division under the head company's contribution to DDF. The assessee explained vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons and the head office whereas the Income-tax Officer accepted such claim to the extent of Rs. 5,87,788 in respect of expenses totalling Rs. 11,75,577, which he held to qualify for weighted relief. The Commissioner (A) by following the Tribunal's decision in the assessee's own case in respect of assessment years 1971-72 and 1972-73 directed that 65 per cent of the expenses incurred by Export Section of each division should be treated as qualifying for weighted deduction. On this issue, we do not want to interfere with the order of the Commissioner (A). For the sake of consistency and without reproducing the discussion by the learned first appellate authority, we confirm his order and the consequential directions. 16. Coming to the Revenue's appeal, grounds No. 1(a) and (b) as also ground No. 2 already stand disposed of in view of our decision in the assessee's appeal on the related issues. 17. In ground No. 3 the contention is that the first appellate authority wrongly deleted the addition of Rs. 10,01,000 made on account of contribution to Escorts Employees Welfare Trust. The said trust as irrevocable one, was created by a trust deed executed on24-12-1976. The general object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articular time and apply the same at a later stage. 18. Clause 6 stipulates various welfare activities on which funds are to be spent but this does not detract from the general objective. 19. Clause 3, which defines the expression "employees and beneficiaries" include not only employees but their dependent family members also. 20. A copy of the deed has been made available to us and in our considered view, the inference drawn by the Income-tax Officer that no legally valid, effective and enforceable trust was created and the Trustees of the Welfare Trust were not under any obligation to utilise the said contribution for the purpose of staff welfare cannot be said to be correct or a valid approach. 21. Perusal of the Trust clauses does not give any impression much less projecting any suspicion that the employees Trustees, who were to be in majority were dummies and were not to act in the best interest of the beneficiaries. We also see no rationale behind the Income-tax Officer's thinking that in the very nature of things, the purpose was to obtain substantial and lasting advantage by securing and retaining the services of an efficient staff, which was an advantage of endurin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing expenses hospital medical benefits Rs. 31-3-197812,896.31 ---- 31-3-19791,31,240.56 ---- 31-3-19803,52,939.05 ---- 31-3-19814,30,525.38 Purchased medical equipments for Rs. 1,45,929 31-3-19822,83,842.33 Out of total exp. of Rs. 94,08,22 Rs. 11,19,899 spent on medical equipments and Rs. 61,49,497 on constn. of hospital building. 23. The Revenue's grievance in ground number 4 that the Commissioner (A) wrongly deleted the addition of Rs. 6,708 made on account of interest earned by Escorts Employees Welfare Trust is rejected because of our decision that the Trust is a genuine set up independent of the assessee and the assessee's contributions were of revenue nature. 24. The next ground, that is ground No. 5, contests the Commissioner (A)'s decision in allowing the reduction of Rs. 1,50,000 out of addition of Rs. 2,25,000 made on account of sale promotion expenses. For rejecting the Revenue's appeal on this score, we completely rely on paragraphs 11.2 and 11.3 of the order of the Commissioner (A) and to complete the picture, the same are noticed below : "11.2 Regarding disallowance of Rs. 2,25,000 out of sales promotion expenses, as entertainment expenses, Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aily newspapers, setting up of Shamiyanas and hiring of furniture and erection of Mandap. The assessee's claim of revenue expenditure came to be rejected by the Income-tax Officer on the ground that there was no stipulation in the agreement to incur such expenses and secondly there was no responsibility for the inauguration of CGR, which was an independent company having its own entity under the Indian Companies Act. The plea that exports by CGR would be beneficial to the assessee company was considered as a far-fetched idea. The claim was also held to be not allowable against the income from compensation/commission as the assessee was to act like a forwarding, transporting and shipping agent and for rendering such services no advertisement or publicity was required. The expenditure was also held to be not allowable as a deduction against dividend income as for computing taxable income under the head "other sources" only such expenses, which were specifically referred to under section 57 could be allowed. 26. The figures of compensation/commission of Rs. 31,241, Rs. 9,78,184 and Rs. 6,39,550 received in the calendar years 1976, 1977 and 1978 respectively from the CGR also did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r after a business set up and since there was no benefit of enduring nature brought into existence, inauguration ceremony expenses amounting to Rs. 38,792 was permissible deduction. 31. We do not propose to go to more authorities as the above judgments, as stated above, are based on the principle laid down by the Hon'ble Supreme Court. Therefore, on the facts, since it is not even Revenue's case that the assessee acquired or could possibly get any benefit of enduring nature, we see no occasion to depart from the approach taken by the Commissioner (A), whatever may be his reasons for allowing the relief. The Revenue therefore fails on this ground too. 32. In view of our decision in relation to the assessee's appeal that the Commissioner (A) rightly gave directions to allow deduction u/s 35B of the Act on the basis of earlier years' pattern directed by the Tribunal in the assessee's own case for the assessment years 1971-72 and 1972-73, we find no case for interference with the direction that 65 per cent of the expenses incurred outside India in Farm Equipment Division and spare parts division respectively should be considered for relief u/s 35B of the Act. Similar direction with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT [1984] 149 ITR 457, in which it has been held that the provisions of section 40A(5) of the Act are inapplicable to cash payments to employees. Analysing the words appearing in sub-clause (ii) of clause (a) of sub-section (5) of section 40A, "whether convertible into money or not", the Hon'ble High Court held that the use of the words goes to show that the term 'benefit, amenity or perquisite' cannot relate to cash payments. The Revenue fails here also. 34. This brings us to the last ground that is ground No. 9 and we like to reproduce the same because of the limited controversy projected whether relief u/s 80J could be said to be allowable in respect of diesel engine unit at full rates when the same was not operational for the whole year ; "9. On the facts and in the circumstances of the case, the CIT (A)-VIII, New Delhi was not justified in directing the ITO to allow full relief u/s 80-J in respect of the Diesel Engine Unit irrespective of its date of commencement." The admitted facts being clearly projected, we have to refer only to the judicial precedences. The first case, which may be noticed is that of the Hon'ble Madras High Court in the case of CIT v. Simpson Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that even if a new undertaking functioned for only a part of an accounting year, the deduction has to be allowed to the full extent land percentage cannot be reduced in proportion to the part of the year during which the undertaking was in productive operation. In the present case, to repeat, in the ground there is no other agitation but that since Diesel Engine Unit did not operate for the full year, 80-J relief also should have been curtailed. 36. The next judgment is that of the Hon'ble Kerala High Court in the case of CIT v. English Indian Clays Ltd. [1984] 149 ITR 112, judgment dated June 16, 1983. In that case the above principle is little more elaborated and it has been held that there is no justification in the scheme of things to so limit the deduction, for, evidently, what is intended is that an assessee who commences a new undertaking must get relief for a period of five years and that tax relief during the five years is six per cent per annum of the capital employed. Naturally the term "capital employed" will have to be explained with reference to the date on which such capital is taken into account. That is provided in rule 19A. But there is nothing in section 80-J ..... X X X X Extracts X X X X X X X X Extracts X X X X
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