1990 (1) TMI 9 - HC - Income Tax

Appeal To Tribunal Business Expenditure Export Market Development Allowance Gratuity Insurance Commission New Industrial Undertaking Priority Industry Special Deduction Weighted Deduction

Summary

Issues Involved:
1. Entitlement to weighted deduction under section 35B for emoluments paid to employees in the export promotion department.
2. Computation of relief under section 80J in accordance with previous Calcutta High Court decisions.
3. Allowability of actuarial valuation of gratuity liability as a deduction.
4. Allowability of deduction under section 80-I for income from interest on securities and insurance commission.

Issue-wise Detailed Analysis:

1. Entitlement to Weighted Deduction under Section 35B:
The Tribunal referred the question of whether the assessee was entitled to weighted deduction under section 35B on the emoluments paid to employees in the export promotion department. The Income-tax Officer disallowed the claim on two grounds: the staff performed various functions not exclusively related to export promotion, and salaries paid in India were excluded by section 35B(1)(b)(iii). The Appellate Assistant Commissioner allowed the deduction, finding that the expenses qualified under section 35B(1). However, the Tribunal did not thoroughly examine the facts and law, merely upholding the Appellate Assistant Commissioner's decision without detailed analysis. The High Court held that the Tribunal must investigate the nature of the expenditure and the specific sub-clause under which it is allowable. The answer to this question was in the negative, favoring the Revenue, and the case was remanded to the Tribunal for fresh examination.

2. Computation of Relief under Section 80J:
The Tribunal had to determine if the relief under section 80J should be computed in line with previous Calcutta High Court decisions. The High Court referenced the Supreme Court judgment in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308, concluding that the question must be answered in the negative, favoring the Revenue.

3. Allowability of Actuarial Valuation of Gratuity Liability:
The Tribunal considered whether the sum representing the actuarial valuation of gratuity liability was an allowable deduction. The High Court referred to its earlier judgment in CIT v. Eastern Spinning Mills Ltd. [1980] 126 ITR 686, concluding that the question should be answered in the affirmative, favoring the assessee.

4. Allowability of Deduction under Section 80-I:
The Tribunal examined whether the deduction under section 80-I was allowable for income from interest on securities and insurance commission. The Tribunal found that the interest on securities was incidental to the business of the priority industry, thus qualifying for deduction under section 80-I. However, the insurance commission was earned by the assessee acting as an insurance agent, a distinct activity from the priority industry, and thus did not qualify for deduction. The High Court upheld the Tribunal's findings, concluding that the income from interest on securities qualifies for deduction, but the insurance commission does not.

Conclusion:
- Question No. 1: Answered in the negative and in favor of the Revenue. The Tribunal must re-examine the allowability of the expenditure under section 35B.
- Question No. 2: Answered in the negative and in favor of the Revenue.
- Question No. 3: Answered in the affirmative and in favor of the assessee.
- Question No. 4: The income from interest on securities qualifies for deduction under section 80-I, but the insurance commission does not.

There was no order as to costs.