9911796707
TMI Blog1991 (9) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... awing wages upto Rs. 750 p.m. As regards employees drawing wages above Rs. 750 p.m. and upto Rs. 1600 p.m. the view taken was that the claim was to be allowed in full upto Rs. 750 p.m. and the balance was to be disallowed. This was also the view taken by the ITO in respect of those persons who were drawing wages exceeding Rs. 1600 p.m. The ITO also rejected the claim in respect of those employees who had worked less than 30 days in the year. By this method the ITO allowed deduction to the extent of Rs. 22,26,758 as against Rs. 24,76,536 claimed by the assessee leading to a disallowance of Rs. 2,49,778. This disallowance was upheld by the CIT(A). 3. The learned counsel for the assessee at the outset stated that a similar issue had arisen before the Tribunal in asst. yr. 1980-81 and on identical facts the Tribunal had been pleased to allow the claim in full viz. a flat rate of 20 per cent on the total wages paid. It was urged that the necessary relief be allowed in the assessment year under appeal as well in view of the aforesaid decision of the Tribunal. Faced with this situation the learned Deptl. Representative strongly supported the orders passed by the tax authorities reitera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid are the undisputed facts of the case. Both the parties are in appeal before us; the assessee contending that the disallowance of Rs. 1,60,642 remaining after the order of the CIT(A) be deleted whereas the Department in the cross appeal has contended that the order of the ITO be restored. The discussion hereafter will dispose of the common grounds in both the appeals. 7. The learned counsel for the assessee at the outset invited our attention to the relevant clause in the agreement (No. 9) which was as follows: "(9) In consideration of your rendering the aforesaid services, you shall be entitled to commission at the following rates on the value of the goods sold against orders placed or produced by you or through your efforts or sold by you on consignment basis : ................... The commission will become due and payable only after the sale proceeds have been fully realised/received by us and shall be payable annually after the close of our financial year................ The contention was that the aforesaid clause had two distinct parts and the first of these pertained to the accrual of the commission as soon as the goods were sold and the second i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the goods supplied. (cl. 5 of the agreement). The learned counsel for the assessee finally made an impassioned plea for the acceptance of the claim for deduction in full placing reliance on the decision of the Hon'ble Supreme Court in the case of Calcutta Co. Ltd. vs. CIT (1959) 37 ITR 1 (SC) and that of the Special Bench of the Tribunal in the case of K.C.P. Ltd. vs. ITO (1991) 40 TTJ (Hyd) 528 : (1991) 38 ITD 15 (Hyd). 8. The learned Deptl. Representative on the other hand strongly supported the order passed by the ITO referring in this connection to the language of the agreement (cl. 9) which according to him, provided for the accrual and payment of the commission only after the sale proceeds had been realised or and not earlier, viz., at the time when the sale was effected. He accordingly made a request for the restoration of the order passed by the ITO reiterating thereafter the reasons recorded in the said order in rejecting the assessee's claim. 9. We have examined the rival submissions and have also perused the orders of the tax authorities. The authorities cited at the bar have also been considered by us in deciding the issue in question. At the outset we may mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion claimed by the assessee in the preceding assessment year, viz., 1980-81 on the ground that it had been paid during the assessment year under consideration, viz., 1982-83. This issue, however, is the subject matter of a separate appeal before the Tribunal arising out of the order passed by the ITO under s. 154 withdrawing the said deduction and no further comments are required on our part. 10. The next ground in the appeal pertains to the claim for investment allowance in respect of increase in the cost of certain fixed assets consequent to the fluctuation in the rates of foreign currency. The ITO disallowed the claim taking note of the rejection in the earlier year and also on the ground that the investment allowance was to be given either in the year of purchase or installation of the assets or in the year in which these were put to use. This view was upheld by the CIT(A) in his original appellate order dt. 16th Nov., 1987 read with order under s. 154 dt. 5th July, 1991. He recorded a specific finding of fact to the effect that no plant and machinery had been installed or put to use in asst. yr. 1982-83 and in respect of which there was an increase in the cost due to fluct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the liability to pay the interest had arisen as a result of the order of the Gujarat High Court and the fact that further proceedings had been taken up before the Supreme Court which had granted an interim stay, was immaterial. According to him, the claim in question pertained to the interest relatable to the year under appeal and since the assessee was following the mercantile system of accounting the same was allowable. He also referred to the fact that the Supreme Court while granting the stay had laid down a condition that the interest would be payable from the date of refund to the date of actual payment. He thereafter invited our attention to the Special Bench decision of the Tribunal in case of KC.P. Ltd. vs. ITO for the proposition that on identical facts the claim for interest had been allowed. The learned Deptl. Representative on the other hand strongly supported the orders passed by the tax authorities reiterating thereafter the reasons recorded in the said orders in rejecting the assessee's claim. 16. After examining the rival submissions we are of the view that there is sufficient merit in the arguments raised on behalf of the assessee inasmuch as it is maintainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to accept the arguments of the assessee's counsel to the effect that the said loss be set off or allowed to be carried forward. The relevant ground in the appeal is accordingly rejected. 19. The next ground in the appeal (Ground No. 8.1) pertains to the claim for deduction on account of surtax liability. This was rejected by the ITO as also by the CIT(A). 20. The learned counsel for the assessee stated that the issue had been raised in the appeal to keep it alive. He invited our attention to the decision of the Hon'ble Gauhati High Court in the case of Doom Dooma Tea Co. vs. CIT (1989) 78 CTR (Gau) 10 : (1989) 180 ITR 126 (Gau) holding that surtax paid was deductible under s. 37 of the IT Act, 1961. According to him, the matter was now before the Hon'ble Supreme Court for a final decision. The learned Deptl. Representative on the other hand strongly supported the orders passed by the tax authorities in rejecting the claim. 21. After examining the rival submissions we find no good ground to interfere with the decision taken by the CIT(A) inasmuch as the issue is squarely covered against the assessee by the binding decision of the Gujarat High Court in the case of S.L.M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's counsel. A plain reading of the section viz. 43(6)(b) does not leave any doubt in our mind that WDV in the case of assets acquired prior to the previous year would mean the actual cost to the assessee less all depreciation 'actually' allowed to him under this Act. The key word in cl. (b) is "Actually". This would mean a positive action on the part of the ITO in allowing the necessary deduction against the receipts of the assessee in order to compute the taxable income. It can never mean a notional deduction and going one step further even if an assessee has written off the depreciation in his books of accounts but the ITO has not passed an order it cannot be said that the same has been "actually" allowed. In other words when there is no assessment and no computation of taxable profits it could not be said that depreciation has been "actually" allowed. It is an accepted fact in the present case that the assessment has been annulled by the Tribunal and this according to us amounts to no assessment since the matter rests at the return stage. Under these circumstances one would have to revert to the WDV as computed by the ITO in respect of asst. yr. 1980-81 ignoring in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be solved at Delhi. The ITO also referred to the fact that the assessee company was having well paid and efficient persons on its pay-roll and from whom every type of work and advice could be obtained. On the basis of the aforesaid facts the ITO opined that a sum of Rs. 1,000 per month was adequate and proceeded to disallow the sum of Rs. 3,48,000 out of the total claim of Rs. 3,60,000. 29. In the course of the first appellate proceedings it was submitted that the assessee company had lot of liaison and other work at Delhi and to maintain its own office and keeping employees would have been more costlier than the payment being made to M/s Ajax. The CIT(A) taking note of the material available on record allowed the claim on the following lines: "The next point in appeal is regarding the disallowance of Rs. 3,48,000 being the amount paid to M/s Ajax Business Services Ltd., Delhi. In this behalf, the approach of the ITO that only an amount of Rs. 12,000 is allowance being the amount paid to this company is, obviously, incorrect. The appellant is a very large company having a large turn over and he has a lot of liaison work and other work in Delhi. As submitted before me th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim in full was justified. The learned counsel in addition to what had been stated in the order of the CIT(A) highlighted the following: (1) The assessee company was not having an officer at Delhi and, therefore, the payee company for all practical purposes constituted the office of the assessee. (2) The ITO had applied the provisions of s. 40A(2) although the assessee company did not have a substantial interest in M/s Ajax, the shareholding being hardly 8.75 per cent. (3) M/s Ajax had highly qualified professionals on its payroll and had incurred a substantial amount of expenditure to earn service charges from various organisations. (4) That the legitimate business needs of an assessee had to be judged from the view point of a businessman and not that of the ITO. In other words the payment to M/s Ajax could not be subjected to the opinion of the Assessing Officer as to its reasonableness or needs of the business. In support of the aforesaid arguments reliance was placed on the decision of the Gujarat High Court in the case of Voltamp Transformers P. Ltd. vs. CIT (1987) 23 CTR (Guj) 312: (1981) 129 ITR 105 (Guj). 31. We have examined the rival submissions and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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