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TMI Blog1983 (1) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... d to profit and loss account and the assessee's sales amounted to Rs. 1,63,86,164 and receipts in respect of services amounted to Rs. 2,32,962. The consideration is fixed taking into account the cost of purchase, trading expenses and other expenses. The profit and loss account shows a profit of Rs. 1,57,537 after providing for depreciation and income-tax. Hence, according to the ITO, the total expenditure incurred by the assessee is received back in the shape of sale consideration. Further according to him the intention of section 35C was also explained by Circular No. 6P(LXXVI-66), dated 6-7-1968 [See Taxmann's Direct Taxes Circulars, 1980 Edn., Vol. 1, p. 186] that where the company received any consideration or compensation for the goods, services or facilities provided whether from the cultivator, grower or producer or from any other source, the expenditure qualifying for the weighted deduction will be computed after excluding such consideration or compensation. He was also of the view that the weighted deduction has been provided only in the case of companies engaged in agro-based industries, i.e., those which use as raw material or process the products of agriculture, etc., a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction towards the expenditure claimed by the appellant under section 35C. It was further contended that the Commissioner (Appeals) misconstrued the provisions of section 35C while observing in para 1 of the appellate order that the depreciation, interest and other overhead expenses were not entitled for weighted deduction. 5. Being aggrieved by the order of the Commissioner (Appeals), the department also filed an appeal before us. The revenue contended that the Commissioner (Appeals) erred in directing the ITO to compute the expenditure incurred towards services rendered to agriculturists after deducting any consideration received and compute the allowance due under section 35C. 6. The assessee is a company in which the public are substantially interested. The assessee claimed deduction under section 35C with regard to expenses involved in the following activities and functions during the year ending 30-6-1977 as under : Rs. 1. Trading Processing Expenses 5,88,956.96 2. Establishment Expenses 5,03,334.31 3. Administration Expenses 3,78,320.96 4. Depreciation 4,09,828.65 ------------------------ 18,80,440.88 ------------------------ According to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Indian Leaf Tobacco Development Co. Ltd. v. CIT [1982] 137 ITR 827, wherein it was held that depreciation debited in the accounts was expenditure entitled to weighted deduction under section 35C. The learned counsel further relied upon the decision in the case of Sri Venkateswara Hatcheries (P.) Ltd. v. ITO [1982] 1 ITD 1077 (Mad.). In that case, the Tribunal allowed the assessee's claim for deduction of agricultural development allowance under section 35C as the assessee was using raw material product of poultry farm, i.e., eggs. The Tribunal in that case rejected the revenue's contention that the assessee was not manufacturing or producing. 7. On the other hand, the learned departmental representative contended that the judgment of the Allahabad High Court in the case of Tarai Development Corpn. will not be applicable to the facts of this case inasmuch as the judgment therein was rendered in view of section 80J of the Act. Similarly, the learned departmental representative further pointed out that the case of Sri Venkateswara Hatcheries (P.) Ltd. will not also be applicable to the facts of this case inasmuch as the facts dealt therein are related to poultry farms. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Sixth Schedule also treat 'Processed seeds' as an article obtained by the process of manufacture or production. And again section 80-I of the Act which granted relief to specified industries including those which sold 'processed seeds' occurred in Chapter VI-A of the Act along with section 80J. Therefore, interpretative uniformity supports the view that 'processed seeds' should be taken as an article which is obtained either by the process of manufacture or production for purposes of section 80J. This was the view taken by the Allahabad High Court in the case of Tarai Development Corpn. Thus, the assessee-company purchased seeds from agriculturists and tested the purity, viability and moisture content in the laboratory. The seeds purchased are again tested and if found suitable, approved for processing. The seeds are then graded and cleaned by mechanical process and sorted out in categories. The approved category is treated with mixture of various chemicals and then passed to a mixing tank where the seeds and chemicals are mixed mechanically as a result of which the chemical mixed is coated on each grain and thereafter it is bagged and kept in godowns where precaution is ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is entitled to weighted deduction in terms of various items claimed by the appellant under this section has got to be ascertained separately. In doing so, relief has got to be calculated in accordance with Explanation to section 35C. In the matter of services rendered, the Commissioner (Appeals) directed the ITO to recompute the expenditure incurred towards such services after deducting any consideration received. We are also in agreement with the Commissioner (Appeals) to the extent to which this direction is given. With regard to the conclusions arrived at by the Commissioner (Appeals), in the matter of other three items we are not in agreement with the Commissioner (Appeals). Accordingly, we set aside his findings and direct the ITO, while recomputing the expenditure with regard to services rendered as directed by the Commissioner (Appeals) also to redo the assessment by taking into consideration to what extent the assessee is entitled to the relief under section 35C in the matter of other three items claimed by the assessee in view of the ratio of the judgment of the Allahabad High Court in the case of Tarai Development Corpn. and dispose of the matter in accordance with law. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that the appellant had not become the owner of these properties as the sale deeds were not executed. Even the sale considerations for these properties have not been made. There were only book entries debiting the property accounts and crediting the National Seeds Corporation. The sale deeds were stated to be executed and registered in January 1980. The appellant before us contended that in terms of clause 20 of the four party agreement the National Seeds Corporation Ltd. transferred buildings with the plant and machinery, etc., to the assessee-company in 1977 and since then the assessee-company was de facto owner enjoying use and possession of the buildings, plant and machinery, etc. Since the Central Government and the Andhra Pradesh Government are also parties to the four party agreement under which the assets were transferred to the assessee-company and keeping in view the decision in the case of U.P. State Agro Industrial Corpn. Ltd. and section 53A of the Transfer of Property Act, depreciation on buildings should be allowed for the assessment year 1979-80. It was further contended that the delay in execution of the title deeds is purely of technical nature and shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the decision of the Delhi High Court in the case of CIT v. Hindustan Cold Storage Refrigeration (P.) Ltd. [1976] 103 ITR 455 (Delhi) the Tribunal held that it was necessary that a building must be registered in the name of owner assessee before he could claim depreciation thereon under section 32. The AR, has referred to a decision of Allahabad High Court in the case of Addl. CIT v. U.P. State Agro Industrial Corpn. Ltd. [1981] 127 ITR 97 (All.) where a contrary view has been taken. Similarly Rajasthan High Court in the case of CIT v. Amber Corpn. [1981] 127 ITR 29 (Raj.). Both High Courts have interpreted that the term 'owned' by the assessee does not refer to ownership arising under a registered sale deed. If the asset is used by the assessee for his business and is under his unfettered dominion or control, the requirement of section 32 is fulfilled. It is not necessary that transfer must be recorded by a registered purchase deed when section 32(1A) permits depreciation on capital expenditure incurred by the assessee where the land or building belongs to another person, it would be unreasonable to refuse the claim for depreciation where the assessee is not only in actual po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging the order passed by the authorities below. 17. Before us the appellant contended that the Commissioner (Appeals) erred in not allowing the said amount of Rs. 3,42,504 under section 37(1) of the Act as it is laid out wholly and exclusively for the purpose of business. It was further contended that the authorities below failed to appreciate the fact that this expenditure was incurred solely in pursuance of clause 12 of the quadripartite agreement dated 8-10-1976. 18. On the other hand, the learned departmental representative supported the order passed by the Commissioner (Appeals). 19. We have heard the rival submissions made by the parties. In terms of agreement, dated 8-10-1976, between the Ministry of Agriculture, State Government of Andhra Pradesh, the National Seeds Corporation and the assessee, under clause 12, a 'price insurance account' was to be created and credited with 2 1/2 per cent of the sale proceeds. In the said agreement it was stated that if in any year there are losses on account of unsold stock or sales below cost price, the losses shall be shared equally by the assessee and the National Seeds Corporation out of the receipt of 'price insurance account' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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