TaxTMI 
TaxTMI 
1992 (11) TMI 80
X X X X Extracts X X X X
X X X X Extracts X X X X
....Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in directing the Income-tax Officer to work out and allow the assessee relief under section 80J of the Income tax Act, 1961, in respect of Mahuda Unit of the assessee ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in directing the Income-tax Officer to compute the capital employed under rule 19A of the Income-tax Rules, 1962, read with section 80J of the Income-tax Act, 1961, in the manner laid down in the case of Century Enka Ltd. v. Income-tax Officer [1977] 107 ITR 909 (Cal) and thereby permitting the inclusion of the borrowed money for the purpose of capital employed in the industrial undertaking of Mahuda Unit ? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in directing the Appellate Assistant Commissioner to decide on merit the assessee's objections against the computation of interest under section 214 ? " We will firstly deal with the reference which has been made at the instance of the assessee. During the year in question, the assessee had paid interest of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cisions of the Gauhati High Court, every other High Court has come to the conclusion that the surtax computed is not an allowable deduction under section 37 of the Act and, that some of the other High Courts have held that the tax so paid also comes within the ambit of section 40(a)(ii). The contention of Shri Bishamber Lal, learned counsel for the assessee, is that, except for the Gauhati High Court, the other decisions do not lay down the correct law. Strong reliance is placed by him on decision of the Supreme Court in the case of Jaipuria Samla Amalgamated Collieries Ltd. v. CIT [1971] 82 ITR 580. In that case cesses were levied on owners of mines on the average of annual net profits of the last three years. A question arose as to whether the amounts so paid were allowable as a deduction. The Supreme Court, in that case, had an occasion to construe the provisions of section 10(4) of the Indian Income-tax Act, 1922, which was in pari materia with section 40(a)(ii) of the 1961 Act and it came to the conclusion that the words "profits and gains of any business, profession or vocation" occurring in section 10(4) can have reference only to profits or gains as determined under sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsation or payment referred to in section 28(ii) of the Income-tax Act, profits and gains of any business of life insurance, income referred to in section 41(2) of the Income-tax Act, income chargeable under the head " Interest on securities " of certain kinds, 50 per cent. of the deduction allowable under section 80G of the Act, income from dividends, income by way of royalties received from Government or local authorities or any other Indian concern, certain types of income of banking companies and amount of any deduction from income-tax chargeable on the total income in connection with the export of, any goods, etc. It is clear from a reading of section 4 along with section 2(5) and the First Schedule of the 1964 Act that the surtax is sought to be computed primarily On the profits and gains from business of an assessee. The tax is in respect of the assessment year and the chargeable profits are the total income computed under the Income-tax Act, 1961, but adjusted in accordance with the provisions of the First Schedule. There can be a number of cases where the types of incomes and gains referred to in the First Schedule to the said Act may not have accrued or arisen to an as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evident from the fact that, if the assessee suffers a loss or does not have any chargeable profits, then no surtax is payable but the assessee can carry on its business activity. The payment is to be made only in the event of chargeable profits being there and not otherwise. It is clear, therefore, that the provisions of section 37 of the Income-tax Act cannot be invoked by the assessee while claiming deduction. A view different from that of all the other High Courts has, however, been expressed by the Gauhati High Court in the case of Makum Tea Co. (India) Ltd. v. CIT [1989] 178 ITR 453. In that case, the question that arose was whether the payment of surtax could be disallowed under section 40(a)(ii) of the Act. The court was not, in that case, called upon to examine the question whether surtax was an allowable deduction under section 37 of the Act. The Gauhati High Court referred to the decision of the Supreme Court in Jaipuria Samla's case [1971] 82 ITR 580 and observed as follows (at page 456) : " The ratio of Jaipuria's case [1971] 82 ITR 580 (SC) is squarely applicable to the facts of the present case inasmuch as the amount of tax whose deduction is barred by section 4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndition of payment of surtax under the said Act. For the abovesaid reasons, it must be held that the payment of surtax is not allowable as a deduction under section 37 of the Act. Mr. Bishamber Lal, however, contended that the Supreme Court has observed in the case of CIT v. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 that the true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader. The expenditure incurred on the preservation of a profit-earning asset of business is always a deductible expenditure. The said test, as laid down by the Supreme Court, has no applicability in the present case. As we have already observed, the money spent by the assessee in paying surtax was not for the purpose of carrying on any trade or business. The assessee was obliged to part with money by way of tax which was imposed on the profits which it had earned as a result of the carrying on of the business. The payment was not made for the preservation of any asset. It was, in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....reviously used in any other business, the court should take into account the value of the transferred building, machinery or plant vis-a-vis the total cost involved in the setting up of the new industrial undertaking. If, in the context of the total cost involved in the setting up of the new industrial undertaking, the value of the transferred building, machinery or plant constitutes only a small fraction, the new industrial undertaking would not be held to have been formed by the transfer to a new business of building, machinery or plant previously used in any business. It is only if the value of the transferred building, machinery or plant is substantial when compared to the total cost involved in the setting up of the new industrial undertaking, could the said undertaking be regarded as being hit by the concluding words of clause (i) of sub-section(2) of section 15C. The said reasoning of this court in Ganga Sugar Corporation's case [1973] 92 ITR 173 is clearly applicable in the instant case. It has been contended by Shri Gupta that the value of the old machinery which was used in the instant case was not a small fraction. He further submits that Explanation 2 to section 80J(....