Court rules against assessee on expense deductions & ex-gratia payment, instructs Tribunal to review eligibility.

The court ruled against the assessee in both issues. Expenses on stevedoring charges and port dues were not allowed as weighted deduction under section 35B. The ex-gratia payment made to employees was not deductible under section 37 but should be assessed under the second proviso to section 36(1)(ii). The Tribunal was instructed to provide the assessee with an opportunity to establish eligibility for deduction under that section. The court concluded the matter without awarding costs.

---

---

Issues:
1. Whether expenses on stevedoring charges and port dues for loading and unloading iron ore are to be allowed as weighted deduction under section 35BRs.
2. Whether the payment of ex gratia amounting to Rs. 1,58,828 made to the Income-tax Act and entitled for deduction for the assessment year 1977-78Rs.

Analysis:

Issue 1:
The court referred to a previous decision in Forbes Forbes Campbell and Co. Ltd. v. CIT [1994] 206 ITR 495, where it was concluded in favor of the Revenue that expenses incurred on stevedoring charges and port dues for loading and unloading iron ore are not to be allowed as weighted deduction under section 35B. Therefore, the court answered question No. 1 in the negative, in favor of the Revenue and against the assessee.

Issue 2:
Regarding question No. 2, the controversy revolved around the deduction of ex-gratia payment of Rs. 1,58,828 made to the employees as a bonus. The Tribunal allowed this claim under section 37 of the Income-tax Act, 1961. The Revenue argued that the deduction should be determined by the test under section 36(1)(ii) for expenditure in the nature of bonus paid to employees. The court referred to the decision in Subodhchandra Popatlal v. CIT/EPT [1953] 24 ITR 566, supporting the Revenue's contention. The assessee's counsel acknowledged the court's decision and agreed that the deduction cannot be claimed under section 37(1) of the Act. However, the counsel argued that the ex-gratia payment was made to workers not covered by the Payment of Bonus Act, and thus, should be decided based on the test under the second proviso to section 36(1)(ii) of the Act. The court agreed that the Tribunal's conclusion was incorrect and answered question No. 2 in the negative, in favor of the Revenue and against the assessee. The Tribunal was directed to allow the assessee a reasonable opportunity to establish that the conditions under the second proviso to section 36(1)(ii) are met for deduction under that section.

In conclusion, the court disposed of the reference accordingly, with no order as to costs.

---