2002 (9) TMI 52 - HC - Income Tax

Court ruling on deduction of bank guarantee commission and bonus, varying outcomes for different assessment years.

Commissioner of Income-Tax Versus Mahavir Plantations (P.) Ltd.

The court ruled in favor of the assessee regarding the deduction of bank guarantee commission as revenue expenditure. The court upheld the deduction of ... Weighted deduction under section 35B in respect of interest paid on shipping loan and bank charges - weighted deduction under section 35B of 50 per cent. of the expenditure incurred on packing materials and printing - weighted deduction under section 35B on the expenditure on salary and bonus - weighted deduction under section 35B of commission paid to agent abroad – weighted deduction in respect of the items relating to prospect estate and warehousing charges - The next question is with regard to the deduction of bank guarantee commission as revenue expenditure - The next issue is regarding the deduction under section 37 of bonus paid in excess of the limit specified in section 36(1)(ii) of the Income-tax Act. - The next is regarding the deduction under section 37 of the commission paid to Tara Agencies and Bhansali Brothers. Issues Involved:1. Weighted deduction under section 35B for various expenditures.2. Deduction of bank guarantee commission as revenue expenditure.3. Deduction of bonus paid in excess of the limit specified in section 36(1)(ii).4. Deduction of commission paid to Tara Agencies and Bhansali Brothers.Detailed Analysis:1. Weighted Deduction under Section 35B:- Expenditure on Salary and Bonus, Godown Rent, and Motor-Car Expenses:The Tribunal allowed weighted deduction based on the Special Bench decision in J. Hemchand & Co., granting 75% for salary and bonus and 50% for other expenses. The court found that the Tribunal did not examine if the expenses were wholly or exclusively for the purposes mentioned in section 35B(1)(b). This matter is remanded to the Tribunal for further examination.- Expenditure on Packing Materials and Printing:The Tribunal allowed weighted deduction for printing but not for packing materials. The court cited Kesaria Tea Co. Ltd. v. CIT, which disallowed deduction on packing materials but allowed it for printing. Thus, the assessee is not entitled to deduction on packing materials.- Interest Paid on Shipping Loan and Bank Charges:The court referenced CIT v. Coromandel Agro Products Oil Ltd. and other decisions, ruling in favor of the Revenue, disallowing the weighted deduction.- Commission Paid to Agent Abroad:The court cited Aravinda Paramila Works v. CIT and CIT v. Assam Frontier Tea Ltd., ruling in favor of the Revenue, disallowing the weighted deduction.2. Deduction of Bank Guarantee Commission as Revenue Expenditure:The court ruled in favor of the assessee, referencing Addl. CIT v. Akkamamba Textiles Ltd. and Deputy Commissioner of Sales Tax v. B.G. Narayana Bhat, allowing the deduction as revenue expenditure.3. Deduction of Bonus Paid in Excess of the Limit Specified in Section 36(1)(ii):The Tribunal allowed the deduction, stating it was a practice in the tea industry. The court upheld this, stating the bonus paid, even if in excess, is deductible.4. Deduction of Commission Paid to Tara Agencies and Bhansali Brothers:The Tribunal granted the deduction. The Revenue argued that section 40A(2)(a) should apply. The court, referencing Salem Co-operative Central Bank Ltd. v. CIT, remanded the matter to the Tribunal for reconsideration.Judgment Summary:Assessment Year 1978-79:- Question 1: In favor of the assessee.- Question 2: Remanded to the Tribunal.- Question 3: In favor of the Revenue.- Question 4: In favor of the Revenue.- Question 5: In favor of the Revenue.- Question 6: Remanded to the Tribunal.Assessment Year 1979-80:- Question 1: Remanded to the Tribunal.- Question 2: In favor of the Revenue.- Question 3: In favor of the Revenue.- Question 4: In favor of the Revenue.- Question 5: Remanded to the Tribunal.Assessment Year 1980-81:- Question 1: Remanded to the Tribunal.- Question 2: In favor of the Revenue.- Question 3: In favor of the Revenue.- Question 4: In favor of the Revenue.- Question 6: Remanded to the Tribunal.Assessment Year 1981-82:- Question 1: In favor of the Revenue.- Question 2: Remanded to the Tribunal.The references are answered accordingly.