1998 (3) TMI 57 - HC - Income Tax

Business Expenditure Company Depreciation Actual Cost Special Deduction Computation Of Capital

Summary

Issues:
1. Allowability of surtax liability deduction in income computation.
2. Treatment of commission paid to directors under section 40(c) of the Income-tax Act.
3. Deduction of subsidy received from SIPCOT in computing the cost of assets for depreciation.
4. Inclusion of work-in-progress and goods-in-transit in computing capital employed for section 80J relief.

Analysis:

Issue 1:
The court addressed the question of whether surtax liability is an allowable deduction in income computation. Referring to the Supreme Court's decision in Smith Kline and French (India) Ltd. v. CIT, the court held that surtax liability is not deductible in the computation of business income. Consequently, the court ruled in favor of the Tribunal's decision, denying the deduction of surtax liability.

Issue 2:
Regarding the treatment of commission paid to directors under section 40(c) of the Income-tax Act, the court analyzed the provisions of the Act. The court differentiated between sections 40A(5) and 40(a)(v) and section 40(c) of the Act. It was held that commission paid to directors falls under remuneration or benefit, subject to the ceiling limit prescribed under section 40(c). Citing a previous judgment, the court affirmed that commission paid to directors should be considered part of remuneration for computing the ceiling under section 40(c).

Issue 3:
The court examined whether the subsidy received from SIPCOT should be deducted from the cost of assets for depreciation. Relying on the decision in CIT v. P. J. Chemicals Ltd., the court concluded that the subsidy should not be deducted in computing the actual cost of assets for depreciation.

Issue 4:
In the context of including work-in-progress and goods-in-transit in computing capital employed for section 80J relief, the court referenced the decision in CIT v. Alcock Ashdown and Co. Ltd. The court upheld the view that the value of work-in-progress and goods-in-transit should be considered part of the capital employed for granting deduction under section 80J. Therefore, the court ruled in favor of including these amounts in the computation of capital employed for section 80J relief.

In conclusion, the court provided detailed analyses and rulings on each issue raised by both the assessee and the Revenue, citing relevant legal precedents and interpretations of the Income-tax Act to deliver a comprehensive judgment.