1982 (3) TMI 15 - HC - Income Tax

Tax Court Decision: Deductibility of Expenses, Guarantee Commission, Section 80-I Interpretation

The High Court ruled against the assessee on the deductibility of additional expenses due to the devaluation of the Indian rupee, stating the loss should ... Business Expenditure, Deduction From Total Income, Priority Industry, Such Profits Issues Involved:1. Deductibility of additional expenses due to devaluation of the Indian rupee u/s 37(1) of the Income-tax Act, 1961.2. Allowability of guarantee commission as capital expenditure u/s 37(1) of the Income-tax Act, 1961.3. Interpretation of 'such profits and gains' in section 80-I of the Income-tax Act, 1961.4. Admissibility of depreciation on drains, culverts, and roads for the assessment year 1969-70.Summary:Issue 1: Deductibility of Additional Expenses Due to Devaluation of the Indian Rupee u/s 37(1)The Tribunal held that the additional expenses incurred by the assessee due to the devaluation of the Indian rupee were allowable as revenue expenditure u/s 37(1) for the assessment years 1968-69 and 1969-70. The High Court, however, disagreed, stating that under the mercantile system of accounting, the loss should have been allowed in the year the devaluation took place (1967-68). The High Court referenced previous decisions, including Oil India Co. Ltd. v. CIT and Bestobell (India) Ltd. v. CIT, to support its conclusion that the liability arose in the earlier year and could not be deducted again on a cash basis in subsequent years. The first question was answered in the negative and in favor of the Revenue.Issue 2: Allowability of Guarantee Commission as Capital Expenditure u/s 37(1)The assessee-company did not wish to press this question, and therefore, the High Court declined to answer it.Issue 3: Interpretation of 'Such Profits and Gains' in Section 80-IThe High Court referred to its earlier decision in CIT v. Orient Paper Mills Ltd., concluding that the expression 'such profits and gains' in section 80-I refers to profits and gains attributable to priority industry as included in the gross total income. The question was answered in the negative and in favor of the assessee.Issue 4: Admissibility of Depreciation on Drains, Culverts, and RoadsThe High Court relied on its decision in CIT v. Kalyani Spinning Mills Ltd., determining that depreciation on drains, culverts, and roads was admissible. The fourth question was answered in the negative and in favor of the assessee.Conclusion:Each party was ordered to bear its own costs.