1981 (1) TMI 85 - AT - Income Tax

Appeal Dismissed for Weighted Deduction Claim under IT Act Section 35B: Development Charges Ruled as Revenue

The Appellate Tribunal ITAT Ahmedabad-B dismissed the appeal regarding the rejection of the claim for weighted deduction under s. 35B of the IT Act, ... - Issues:1. Rejection of claim for weighted deduction under s. 35B of the IT Act.2. Disallowance of development charges paid to Gujarat Industrial Development Corporation (GIDC) as capital expenditure.Analysis:1. The Appellate Tribunal ITAT Ahmedabad-B addressed the rejection of the claim for weighted deduction under s. 35B of the IT Act. The Tribunal dismissed the appeal on this ground as it was covered by a previous decision of the Special Bench of the Tribunal.2. The main issue considered was the disallowance of development charges paid to GIDC as capital expenditure. The company purchased land for setting up an engineering unit and later exchanged a portion of it with GIDC. The dispute arose regarding the nature of the development charges paid by the company. The company claimed the expenditure should be allowed as a deduction, while the ITO and Commr. (Appeals) considered it capital in nature due to the enduring advantage gained. The Tribunal analyzed the agreement, correspondence between the parties, and relevant case laws to determine the nature of the payment.3. The Tribunal examined the correspondence between the company and GIDC, which indicated that the company had already developed infrastructural facilities before GIDC's involvement. The Tribunal noted that the additional benefits from GIDC's development scheme were supplementary, not substantial. Drawing a distinction from a previous case, the Tribunal concluded that the development charges did not result in a direct accretion to the company's capital structure.4. Considering the lack of evidence showing a direct advantage in the capital field or alteration to the capital structure, the Tribunal held that the development charges were of revenue nature. Citing relevant case laws, the Tribunal directed the deduction of the charges in computing the taxable profits. Ultimately, the appeal filed by the company was partly allowed based on this analysis.