Employee-related deductions and discarded asset losses require proper statutory interpretation, apportionment, and factual verification.

Section 36(1)(iia) was read with section 16 so that salary is computed after the statutory deductions under section 16, supporting the assessee's claim. Loss on discarded fixed assets under section 32(1)(iii) was treated as available on discarding as well as on sale, since "sold" and "discarded" are disjunctive; the related scrapped-assets claim still required factual verification. For employee-related expenditure under section 40A(5), motor car and residential telephone costs were not wholly disallowable where business use could be apportioned. Commission payable outside India under section 35B(1)(b)(iv) depended on the correct test for maintenance of an overseas branch, office or agency, and depreciation on moulds turned on unresolved factual findings about the manufacturing process.

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Issues: (i) Whether, for the purposes of section 36(1)(iia), salary was to be computed before or after the deductions contemplated by section 16; (ii) whether loss on discarded fixed assets under section 32(1)(iii) was allowable only in the year of sale or also on discarding; (iii) whether the claimed deduction relating to scrapped assets was allowable on the facts; (iv) whether expenditure on motor cars provided to senior employees for official and personal use was wholly disallowable under section 40A(5); (v) whether telephone expenditure at employees' residences was wholly disallowable under section 40A(5); (vi) whether commission payable outside India was deductible under section 35B(1)(b)(iv); (vii) whether depreciation on moulds was correctly restricted to 10%.

Issue (i): Whether, for the purposes of section 36(1)(iia), salary was to be computed before or after the deductions contemplated by section 16.

Analysis: The proviso to section 36(1)(iia) used the expression "chargeable under the head salaries". Section 16 is the provision that determines the salary chargeable under that head after statutory deductions. The construction adopted treated the statutory phrase in section 36(1)(iia) consistently with section 16.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether loss on discarded fixed assets under section 32(1)(iii) was allowable only in the year of sale or also on discarding.

Analysis: The words "sold" and "discarded" in section 32(1)(iii) were treated as disjunctive, so that discarding of the asset itself could attract the deduction and sale was not a necessary precondition. The Tribunal's contrary view was held to be an error of law.

Conclusion: The issue was decided in favour of the assessee.

Issue (iii): Whether the claimed deduction relating to scrapped assets was allowable on the facts.

Analysis: As the claim concerning scrapped assets was linked to the same legal issue, the deduction could not be rejected merely because the assets had not been sold. The factual genuineness of the claim still required verification on remand.

Conclusion: The issue was decided in favour of the assessee, subject to proof of the claim.

Issue (iv): Whether expenditure on motor cars provided to senior employees for official and personal use was wholly disallowable under section 40A(5).

Analysis: The Court followed the view that where motor cars were used partly for business purposes, the expenditure attributable to business use could be apportioned and allowed within the statutory ceiling. The entire expenditure was not automatically disallowable.

Conclusion: The issue was decided in favour of the assessee.

Issue (v): Whether telephone expenditure at employees' residences was wholly disallowable under section 40A(5).

Analysis: This issue was disposed of along with the interpretation of section 40A(5) governing employee-related expenditure, and the same apportionment approach applied where the expenditure served both official and personal use.

Conclusion: The issue was decided in favour of the assessee.

Issue (vi): Whether commission payable outside India was deductible under section 35B(1)(b)(iv).

Analysis: The deduction depended on whether the expenditure was incurred wholly and exclusively on the maintenance outside India of a branch, office or agency for promotion of sales outside India. The Tribunal had not applied the correct legal test in examining the claim.

Conclusion: The issue was decided in favour of the assessee.

Issue (vii): Whether depreciation on moulds was correctly restricted to 10%.

Analysis: The Tribunal's reasoning was found inadequate because the necessary factual determinations, including the nature of the manufacturing concern and the relevant process, had not been properly addressed. The finding was therefore treated as legally unsustainable.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The Tribunal's findings on the decided questions were set aside and the matter was sent back for fresh determination in accordance with the Court's directions.

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