TMI Blog1998 (1) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... e the same is rejected as such. 4. The next ground relates to the disallowance of the provisions made for trade guarantees. To meet the claims of its consumers during warranty period, the assessee makes provision in its accounts for such contingencies. For the year under consideration, and for the subsequent year following was the position in the accounts : . Asst. yr. 1985-86 Asst. yr. 1986-87 . (Rs. in lacs) Opening provision . 209.15 . 237.00 Add : Provision during the year : 207.00 . 203.93 . Less : Excess provision written back 44.83 162.17 55.73 148.20 . . 371.32 . 385.20 Less : Expenses during the year : . . . . (a) against opening balance 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in the assessee's own case for asst. yr. 1984-85. 7. The learned Departmental Representative opposed the claim of the assessee mainly on the ground that the liability of the assessee under the warranty arose only when there was a claim by the customer and not otherwise. The learned Departmental Representative reiterated the observations of the CIT(A) regarding the gap between the provision and actual expenditure, which, it was submitted, remained wide even after write back of excess provision. The decision of the Tribunal in the case of Wanson (India) (supra) was sought to be distinguished and it was urged that deduction should be allowed only when actual expenses were incurred. 8. We have considered the rival submissions and the material on record, of the several decisions relied upon by the learned counsel, his main stress was on the Wanson's case (supra) and obviously on the decision in the assessee's own case. However, it is worthwhile mentioning that Wanson's case was decided on the presumption that there would be only marginal differences between estimates and actuals. On the other hand, in the instant case, the main ground on which the CIT(A) sustain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax audit report, payment of ₹ 13,77,234 had been classified as expenditure liable for disallowance under s. 40A(8) (sic). The assessee had put up its claim for the allowance of the impugned expenditure under second proviso to s. 36(1)(ii) or alternative under s. 37(1). Since the impugned payment was in respect of accounting year 1982-83, during which year also 20 per cent bonus was paid, the AO considered this as excess payment over the limits prescribed by Payment of Bonus Act and negatived the claim under s. 36(1)(ii). As for the alternate plea of the assessee, the AO disallowed deduction of ₹ 13,80,495 under the first proviso to s. 36(1)(ii) and the balance amount of ₹ 13,77,234 paid to the employees' federation was disallowed under s. 40A(9) of the Act. The CIT(A) confirmed both the disallowances. 14. It was submitted by the learned counsel that the impugned payments were made on the basis of agreements, with employee federation. As per the agreement the performance reward was paid to the employees at the rate of ₹ 250 (total ₹ 13,80,495) and ₹ 13,77,234 was paid to the employees' federation directly at the rate of ₹ 200 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6(1)(ii) and the two provisions as sought to be canvassed by the authorities below is not justified. The decision of the Kerala High Court in CIT vs. P. Alikunju M.A. Nazir Cashew Industries (1987) 62 CTR (Kar) 206: (1987) 166 ITR 611(Ker) is a pointer in this direction, we reproduce below the observations of the Court appearing at p. 615 : We do not agree with the argument urged on behalf of the Revenue that the deduction is not permissible in respect of an employee covered by the Bonus Act if what is paid as bonus, or as commission, is in excess of otherwise than what is payable under that Act, even if the payment of the excess amount, whether as bonus or commission, is justifiable when considered with reference to cls. (a) to (c) of the second proviso. In our view, the two provisos must be read together to correctly understand the permissible deduction in terms of cl. (ii) of sub-s. (1) of s. 36. The object of that clause is to encourage the management to pay bonus not only to the extent to which it is statutorily bound to pay to the employee, but also in excess of that limit, provided the payment is justifiable as a reasonable payment. To say that the second proviso to cl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point of view of a normal, prudent businessman. (Underlined, italicised in print, supplied) 19. In conclusion, therefore, we hold that the impugned payment is not a bonus but an incentive for anticipated co-operation and performance. Even if it is regarded as bonus, it would not be hit by the first proviso to s. 36(1)(ii) but will be governed by the second proviso to the said section and there is nothing to show that the payment is in violation of the conditions laid down in cls. (a) to (c) of the second proviso to s. 36(1)(ii) of the Act. 20. Also, in our considered opinion, it would not make any difference if part payment is made to the federation with a stipulation that the amount shall be utilised for the welfare of the employees. As long as the contribution is genuine in absence of any claim on the part of the Department that the federation will not utilise the amount for the benefit of the employees, the deduction is allowable. For this view we derive support from the decision in 45 ITD 233. 21. Thus, to sum up, we hold that the CIT(A) was not at all justified in upholding the disallowance of ₹ 27,57,729 paid to the employees as performance reward. We dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,779 .. 8,58,107 Less : Recoveries 2,63,053 . 5,95,054 Out of the above, the assessee had treated as sum of ₹ 1,20,490 as disallowance under s. 37(4) and 37(5). Since the assessee had treated the amount of rent, rates and taxes and repairs and insurance as being out of the purview of s. 37(4) and 37(5), the AO included it for disallowance and accordingly the entire sum of ₹ 5,95,054 ws disallowed. The CIT(A) confirmed the same. 26. In this regard the learned counsel has relied on the order of the Tribunal in its own case for asst. yr. 1984-85 and also on several other decisions of various High Courts. The learned Departmental Representative has relied on two decisions of the Bombay High Court in CIT vs. Ocean Carriers (P) Ltd. (1995) 123 CTR (Bom) 200: (1995) 211 ITR 357(Bom) and Raja Bahadur Motilal Poona Mills Ltd. vs. CIT (1996) 130 CTR (Bom) 348: (1995) 212 ITR 175(Bom). After due consideration, we are of the view that the decisions relied upon by the learned Departmental Representative are not relevant for the issue before us. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid to appellant's car drivers amounting to ₹ 8,72,784. In this regard we follow the decision of the Tribunal in the case of Dy. CIT vs. Addison Co. Ltd. in (1995) 53 ITD 514(Mad) and hold that the disallowance is uncalled for. 32. The next ground pertains to the disallowance of ₹ 1 lac made under r. 6D of the IT Rules, 1962 (the Rules). It was observed that with regard to the expenses incurred on travelling on other than to and fro fare, the disallowance was worked out on the basis of total trips undertaken by an employee during the year and not on the basis of per trip. The AO, therefore, in keeping with the stand of the Department, in absence of requisite details, estimated the disallowance of ₹ 1 lac for per trip basis over and above the disallowance of ₹ 4,07,813 as per tax audit report. The CIT(A) confirmed the disallowance. 33. It is fairly conceded by the learned counsel that the decision in CIT vs. Coromandal Fertilizer Ltd. (1996) 135 CTR (AP) 354: (1996) 220 ITR 298(AP) and that of the Bombay High Court in Acro India Ltd. (hitherto unreported) are against the assessee. Respectfully following the said decisions we dismiss the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital nature. The decisive factor, as observed by the Tribunal, would be whether there was a complete transfer of the know-how by the American company in favour of the assessee or whether it was for a limited period only. The present agreement, in our view, do not contemplate outright sale of the American company's know-how, technical data and information. It is stipulated in cl. 18.1 that the agreement shall remain in force for an initial period of 5 years from the date the licences (i.e. the assessee) commences commercial production of the licenced products or for a period of 8 years from the date of the agreement, whichever is earlier. As per the same clause the agreement is renewable for a further period of 5 years. 38. On almost similar grounds the Tribunal, in the earlier appeals, held the payment to be of revenue in nature. Following the earlier order, we do not see any reason to deviate. Accordingly, we allow the ground of the assessee and direct that the assessee be allowed deduction of ₹ 5,70,000. 39. The next ground relating to the allowance of expenditure incurred during construction period, amounting to ₹ 28.38 lacs, was not pressed at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipments, and also on data processing machines. The CIT(A) confirmed the disallowance except for the additional depreciation on computer rooms and electrical work of computers. The learned counsel has relied on the earlier order of the Tribunal and the learned Departmental Representative has relied on the order of the lower authorities. 44. We have perused the order of the Tribunal in the assessee's case for asst. yr. 1984-85. In that year the Tribunal has rejected the claim of the assessee for additional depreciation, inter alia, on copiers, drafting machines and air-conditioning machineries which figure in this year's depreciation statement forming part of the assessment order. Following the earlier order, we, therefore, reject the claim of additional depreciation on the assets mentioned above. So far as additional depreciation on data processing machines is concerned, we allow the claim of the assessee following the decisions of the Tribunal in ITO vs. Ganges Printing Co. Ltd. (1986) 24 TTJ (Cal) 404: (1986) 15 ITD 212(Cal) and ITO vs. V.M. Salgookar Bros. (P) Ltd. (1986) 18 ITD 440(Bang). 45. Ground No. 16(a) relates to the levy of interest under s. 139(8) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO to grant consequential relief to the assessee, if so entitled, in accordance with law. II. ITA No. 7687/Bom/90 (Department's Appeal) 49. The first ground relates to the CIT(A)'s direction to delete the addition made on account of provision for trade guarantees. This issue has already been dealt with by us in the assessee's appeal above. In it we have deleted the addition sustained by the CIT(A) and hence in this appeal the ground taken by the Department stands rejected. 50. The second ground is against not including the following expenses for disallowance under s. 37(3A) on account of advertisement, publicity and sales promotion : . Rs. Printing mailing 8,94,702 Commission 90,97,347 Conveyance 45,00,000 In our opinion, none of the above expenses relate to advertisement. The first item relates to printing and mailing of catalogues which, by it very nature, is in the form of information demanded by the customers. Commission is paid in respect of services rendered and ₹ 45 lacs per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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