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1971 (11) TMI 159 - SC - Income TaxWhether warranty expenses and bonus should appropriately be included in the return and not in the exworks cost? Whether the Commission has erred in allowing depreciation on the actual cost and not on the replacement value? Held that:- As we agree, with the Commission that the entire cost on account of warranty in. elusive of labour charges should be borne by the manufacturers, it is wholly unnecessary for us to refer to any specific figures except that while considering the question of return the general idea relating to cost to the manufacturers would certainly be borne in mind and taken into consideration. The Commission came to the correct conclusion that bonus is connected with profits and it cannot be included in the exworks cost. Indeed it has not been disputed on behalf of the Government and the Attorney General quite properly and fairly accepts that some proper method should be devised for escalation or de-escalation, as the case may be. We have been suggested a number of formulae on behalf of the manufacturers as also the government but we shall indicate at a later stage what, in our opinion, is the best and the simplest method of providing for escalation and deescalation. We are satisfied, however, that a provision should be made and ought to have been made by the Commission in this behalf. According to the principles discussed or to be discussed in the matter of fixing of a fair price the main objective is to protect the interest of the consumer while at the same time provide a reasonable margin of profit to the producer. The general approach has to be to determine the ex-works cost and then to arrive at the fair price after examining other claims of the industry and providing a reasonable return. We, therefore, find no such principle which has been demonstrated to be wrong in the report of the Commission so far as the fixation of the return is concerned. We are, therefore satisfied that the capacity for production of Hindustan Motors should have been assessed at the figure given by the technical team, namely, 30,000 cars and 5,000 trucks per year. Import licenses, which were granted have also not been shown to have been given on the basis of the figures of production determined by the Commission. For the first half year 1970-71 the recommendation was for the grant of 11,075 cars although in the application the estimated production was stated to be 15,000 cars. It was only for the second half year 1970-71 that the import license was recommended and granted for 15,000 cars. There is no difficulty, therefore, in arriving at the figure of production of cars, namely, 30,000 cars but the departure which the Commission made in the matter of production of trucks has been seriously disputed on behalf of the Hindustan Motors. For the reasons that have been stated the correct figures would be those which were determined by the technical team of the Commission, namely, 30,000 cars and 5,000 trucks. In view of the fact that the company had not kept any regular record of data it was not possible to determine accurately the use of locally purchased and imported steel separately. In these circumstances we do not consider that the conclusion arrived at by the Commission has been shown to be demonstrably erroneous or wrong
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