1993 (1) TMI 18 - HC - Income Tax

Court rules against assessee on gratuity claim, depreciation, and business income deduction.

The court disallowed the gratuity provision claim of the assessee, citing non-satisfaction of conditions under section 40A(7). The claim for depreciation ... Business Expenditure, Depreciation, Gratuity, Remuneration, Scientific Research Issues:1. Disallowance of the claim of the assessee for gratuity provision.2. Rejection of the claim for depreciation on capital expenditure for scientific research.3. Allowance of deduction while computing business income.Analysis:Issue 1: Disallowance of Gratuity Provision ClaimDuring the assessment year 1974-75, the assessee claimed a deduction of Rs. 2,39,814 for gratuity provision made for employees, out of which Rs. 1,57,170 was debited to the profit and loss account. The Income-tax Officer disallowed the claim citing non-satisfaction of conditions under section 40A(7). The Appellate Assistant Commissioner upheld this decision. The Tribunal allowed a deduction of Rs. 90,249 but disallowed Rs. 1,49,565. The Supreme Court precedent in Shree Sajjan Mills Ltd. v. CIT clarified that gratuity deduction is subject to conditions under section 40A(7) and cannot be allowed based on general principles. As no provision was made, section 40A(7) applies, and unless conditions are met, the gratuity amount is not deductible. Thus, the disallowance of Rs. 1,49,565 was justified, and the allowance of Rs. 90,249 was not justified.Issue 2: Rejection of Depreciation Claim on Scientific Research ExpenditureThe assessee's claim for depreciation of Rs. 1,38,773 on capital expenditure for scientific research was rejected by the Income-tax Officer, the Appellate Assistant Commissioner, and the Tribunal. The Supreme Court precedent in Escorts Ltd. v. Union of India established that a capital asset used for scientific research, also used for business purposes, cannot claim double deduction under both depreciation (section 32) and allowance (section 35(1)(iv)). As the two deductions do not completely overlap, the rationale does differ. Therefore, the rejection of the depreciation claim was justified.Issue 3: Allowance of Deduction in Business Income CalculationThe Tribunal allowed a deduction of Rs. 90,249 while computing the business income of the assessee. However, based on the above analysis, this allowance was not justified. Therefore, the allowance of deduction in the business income calculation was not upheld.In conclusion, the judgment favored the Revenue and ruled against the assessee on all three issues. The references were disposed of accordingly, with no order as to costs.