2000 (8) TMI 258 - AT - Income Tax

Tribunal allows deductions but upholds sales-tax inclusion in net profit on contract receipts.

The Tribunal partly allowed the assessee's appeal by directing the Assessing Officer to allow deductions for expenditure separately from the income ... Depreciation Issues:Depreciation allowance, Interest paid to partners, Interest to third parties, Computation of net profit on sales-tax and royalty.Depreciation Allowance:The appeal involved issues related to the allowance of depreciation, interest paid to partners, and interest to third parties out of income from contract receipts. The Tribunal noted that these issues were covered in favor of the assessee by previous judgments of the Jurisdictional High Court. The Tribunal directed the Assessing Officer to allow the deductions for expenditure involved in these grounds separately from the income computed by applying the net profit rate.Computation of Net Profit on Sales-Tax and Royalty:Regarding the computation of net profit on sales-tax and royalty included in the contract receipts, the Tribunal considered the argument that sales-tax and royalty were received separately for further payment to the respective authorities. The assessee contended that these amounts should not be included in the contract receipts for computing income by applying the net profit rate. However, the Department argued that sales-tax and royalties form part of trading receipts and cannot be excluded. The Tribunal upheld the Department's position, stating that sales-tax and royalties, although received separately, are incurred incidentally in respect of the relevant material and are of trading nature. Therefore, the net profit rate was rightly applied on the amount of sales-tax and royalty as part of the contract receipts. The Tribunal dismissed the ground of the assessee on this issue.In conclusion, the Tribunal partly allowed the assessee's appeal, directing the Assessing Officer to allow deductions for expenditure separately from the income computed by applying the net profit rate. However, the Tribunal upheld the inclusion of sales-tax and royalty in the computation of net profit on contract receipts, dismissing the ground raised by the assessee on this matter.