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TMI Blog1984 (6) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... item No. 5 in the import licence of the assessee. The sizes did not indicate to the customs authorities that the goods concerned could be treated as spare parts of any machinery. According to the customs authorities, the goods could not be readily fitted into any machinery. It was, therefore, held that they were raw materials and not spare parts. In the circumstances, the customs authorities held that the import was made without a cover of valid licence resulting in the commission of an offence attracting the provisions of section 111(d) of the Sea Customs Act read with section 3 of the Imports and Exports (Control) Act, 1947. The ITO referred to the Supreme Court decision in the case of Haji Aziz & Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 and disallowed the assessee's claim. The assessee appealed before the AAC and relied on the Bombay High Court decision in the case of CIT v. Pannalal Narottamdas & Co. [1968] 67 ITR 667. The AAC, however, rejected the assessee's claim by relying upon the Gujarat High Court decision in the case of CIT v. Mihir Textiles Ltd. [1976] 104 ITR 167. The Tribunal for the first two years observed that it was yet to be established whether the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained on behalf of the assessee that as the goods were vital for the purpose of manufacture of the petrochemical products by the assessee, the assessee paid the fines and redeemed the goods. The Commissioner (Appeals) also considered the Bombay High Court decision in the case of Pannalal Narottamdas & Co. and found that the assessee had not carried on the business in an unlawful manner or in conscious contravention of the rules and regulations regulating import of goods. After considering the entire evidence on the subject and after considering the law on the subject, the Commissioner (Appeals) was of the opinion that it was clear that in the present case there was no moral guilt involved on the part of the assessee. At best, the lapse on the part of the assessee could be considered as a mere technical breach of law. Further, he made a pointed reference to the fact that no evidence was brought on record by the department to show that the assessee had acted in an unlawful manner in carrying on its business. Had the assessee acted in an unlawful manner, there was no doubt that the imported goods would have been confiscated and would not have been released for the use in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee was not interested in it as a raw material, but merely as spare parts for replacement of its petrochemical works going (sic). Perhaps for this reason, on an appeal by the assessee, the Board reduced the penalty on the ground that the assessee had used the material for itself. In our opinion, there is certain element of uncertainty in the definition of the word ' spares '. As per the clarification given later in the Import Policy Book, the pipes and flanges imported by the assessee could well be called ' spares '. In the circumstances, in our opinion, at worst, it can be said that the assessee had committed any venial offence in the import of these pipes. At this stage we have to consider whether the assessee's case is covered by the Bombay High Court decision in the case of Pannalal Narottamdas & Co. or by the Gujarat High Court decision in the case of Mihir Textiles Ltd. In the case of Pannalal Narottamdas & Co., the Bombay High Court has held that the actual cost of the goods to the assessee was not only what it had paid to the importers but in addition thereto what it had to pay by way of penalty in order to save the goods from being confiscated and lost to it. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37(1) of the Income-tax Act, 1961 (' the Act '). During the course of the assessment proceedings, the ITO found that the assessee had debited under the head ' salaries, wages and bonus ' a sum of Rs. 3,81,65,845, which included an amount of Rs. 18,47,255 in respect of the bonus for the previous year. It was explained on behalf of the assessee that this bonus payment was made on the basis of a memorandum of settlement made with the employees' organisation by an agreement dated 8-8-1978. As per the terms of the agreement, it was agreed between the parties that the annual profit bonus for the accounting year ending December 1975 had to be paid at an amount equivalent to 20 per cent of the salary or wages earned by the employees during the accounting year 1976 and such bonus was to be calculated on the actual salary or Rs. 750 per month, whichever was lower. The non-supervisory staff was to be paid in respect of each of the calendar years 1977 and 1978 at the rate of 20 per cent of the actual salary or wages or Rs. 750 per month, whichever was lower. It was further explained on behalf of the assessee that the agreement was arrived at on 28-8-1978 and, hence, it was a liability for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls) could not have made an allowance of bonus to the extent of 20 per cent of the salary or wages of the employees. 8. On behalf of the assessee, the learned representative has proceeded to argue that the ITO has seen only the provisions of section 10, according to which, the assessee was under an obligation to pay bonus of 8.33 per cent of the salary or wages irrespective of the fact whether the employer had earned any profits during the year. If the ITO had seen the very next section of the Payment of Bonus Act, viz., section 11, it would have been clear that where the allocable surplus for any accounting year exceeded the amount of minimum bonus payable to the employees under that section, the employer was under an obligation to pay to every employee in respect of that accounting year bonus, which would be an amount in proportion to the salary or wages earned by the employee during the accounting year subject to a maximum of 20 per cent of such salary or wages earned by the employee during the year. The learned representative has proceeded to point out that under this section, the assessee had the freedom to pay bonus as high as 20 per cent in a year. Further, he has proceeded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our notice by the learned representative for the assessee under section 11, the assessee had the freedom to make the payment up to 20 per cent of the salary or wages provided the allocable surplus was more than 50 per cent of the amount of minimum bonus payable to the employees. Therefore, the ITO's decision on the mere reference to section 10 was totally erroneous it is the assessee's plea that its claim in addition to being admissible as a contractual obligation, was also unexceptionable in view of the provisions of section 11. In our opinion, without any clear finding on behalf of the ITO that the assessee's case was not covered by section 11, the ITO could not have proceeded to disallow the claim. Being contractual obligation, the assessee is fully entitled to the deduction. The order of the Commissioner (Appeals) in this respect calls for no interference. 10. The next ground for the assessment year 1978-79 is that the Commissioner (Appeals) erred in directing the ITO to allow depreciation on roads at the rates applicable to plant and machinery when no depreciation is admissible at all on roads. Without prejudice to this ground, it is urged that the Commissioner (Appeals) had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essman for carrying on business, and whether with that asset he carries on the trade as opposed to the place where and the setting in which the trade was carried on. Roads within the factory premises are adjuncts of the factory buildings and, therefore, must be treated as buildings. Roads do not have any different nature or character than the buildings to which they are adjunct. It cannot be said that buildings in the instant case plays any part in production as such, to be treated as plant. They are factory buildings used as places where production goes on and cannot, therefore, be treated as ' plant '. Roads constructed by the assessee in the premises of the factory would not constitute ' plant ' as defined in section 43(3) of the Act. They must be treated as building, for purposes of section 32 of the Act. In our opinion, in the circumstances, the revenue is entitled to succeed on this ground. We have also taken note of the fact that the Tribunal in IT Appeal Nos. 990 to 992 of (Bom.) 1979, for the assessment years 1974-75 to 1976-77 decided the issue in favour of the assessee. We find that the Tribunal did not have the benefit of the guidance of the Bombay High Court decision i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 217(1A) or under section 215. In the circumstances, he found it difficult to verify the correctness regarding the chargeability of the interest. He proceeded to observe that he would not have entertained the grounds of appeal if the interest was prima facie chargeable. From the discussion in the ITO's order nothing was clear. He, therefore, set aside the order of the ITO on this point only with a direction to him to go through the assessee's claim and pass necessary order after verifying the facts. While doing so, the ITO should also give credit to the instalments paid by the assessee on 14-12-1977, which apparently was not taken into consideration by the ITO while imposing the levy. 16. The revenue has, therefore, filed the appeal firstly, on the ground that the Commissioner (Appeals) has erred in setting aside the assessment with reference to this levy ignoring the fact that he had no power to set aside the assessment merely with reference to a particular point. Further, it was submitted that the Commissioner (Appeals) erred in entertaining the grounds of appeal against the levy of interest under section 215/217(1A) when no appeal was provided against such a levy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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