1980 (1) TMI 73 - HC - Income Tax

Summary

Issues involved:
1. Whether centrifugal pumps and motors constitute agricultural implements for tax purposes?
2. Whether the assessee is entitled to higher development rebate and deduction under section 80-I?
3. Whether the 'margin amount' paid by the assessee can be considered as a revenue loss incidental to carrying on the business?

Issue 1: Centrifugal pumps and motors as agricultural implements:
The assessee claimed relief under section 80-I and higher development rebate on the grounds that centrifugal pumps and electric motors manufactured by them constitute agricultural implements. The ITO initially rejected this claim, but the AAC accepted it. Upon appeal, the Tribunal also upheld the AAC's decision based on the interpretation that these items were intimately connected with agricultural operations, similar to the criteria for exemption under the Sales Tax Act. Citing a previous case, it was concluded that these items indeed qualified as agricultural implements, leading to a favorable decision for the assessee.

Issue 2: Higher development rebate and deduction under section 80-I:
The Tribunal's decision on the first issue also impacted the entitlement to higher development rebate and deduction under section 80-I. The Tribunal's confirmation of the AAC's order in favor of the assessee was based on the understanding that the centrifugal pumps and electric motors fell within the definition of agricultural implements, as per the relevant schedules of the Income Tax Act. Consequently, the assessee was deemed eligible for the higher development rebate and deduction under section 80-I.

Issue 3: Margin amount as revenue loss:
The third question pertained to a margin amount paid by the assessee for government securities, resulting in a loss. The ITO initially disallowed this amount as a revenue loss, but the AAC disagreed, considering the purchase of bonds as serving a business purpose. The Tribunal upheld the AAC's decision, emphasizing that the purchases were not intended for investment but to maintain goodwill with the sales tax authorities, essential for the smooth operation of the business. Drawing parallels with a previous case involving similar circumstances, the Tribunal concluded that the loss incurred was incidental to the business and should be allowed as a revenue loss, ruling in favor of the assessee.