Pieco Electronics & Electricals Ltd. v. C.I.T W.B. – I, Cal
[Citation -2019-LL-0906-18]

Citation 2019-LL-0906-18
Appellant Name Pieco Electronics & Electricals Ltd.
Respondent Name C.I.T W.B. – I, Cal
Court HIGH COURT OF CALCUTTA
Relevant Act Income-tax
Date of Order 06/09/2019
Assessment Year 1983-84
Judgment View Judgment
Keyword Tags income tax appellate tribunal • higher rate of depreciation • appellate jurisdiction • reference application • computation of income • expenditure incurred • commission payable • standard deduction • payment of salary • income chargeable • total expenditure • business purpose • previous year • personal use • assessment • furniture • applicant • building • plant
Bot Summary: Whether the Tribunal was justified in holding that for the purpose of entitlement to weighed deduction under Section 36 of the Income Tax Act, 1961 the income of employees chargeable under the head salaries before allowance of standard deduction under Section 16 of the Act was to be considered 2. Whether on the facts and in the circumstances the Tribunal was right in rejecting the assessee s claim that the sum of Rs.4,25,450 having been estimated as the value assets scrapped in the immediately preceding assessment year and added back, should be allowed as deduction from income arising on sale of the said assets in the previous year 4. Whether, the Tribunal was justified in holding that depreciation on moulds used for manufacture of glass was rightly restricted to 10 against 30 claimed by the assessee To answer the first question, one has to consider Section 36(1) of the Income Tax Act, 1961 as prevailing in the assessment year 1983-84. The first question is answered in the negative in favour of the assessee and against the revenue. As questions 2 and 3 are related the answer to question 3 is also in the negative in favour of the assessee and against the revenue but with the rider that the veracity of the claim of the assessee is to be established. What is requisite is that the assessee should have maintained the branch, officer or agency outside India While we think that there is some merit in the observation of the Karnataka High Court that the words branch, officer or agency in the clause draw colour from each other and that the word agency should be interpreted in the light of the words branch and office , it is, in any event, very clear that even if the agency is an agency established not by the assessee but by a third party, the agency must be maintained by the assessee. The question is also answered in favour of the assessee and against the revenue.


IN HIGH COURT AT CALCUTTA Civil Appellate Jurisdiction Original Side Present :- Hon ble Mr. Justice I. P. Mukerji Hon ble Mr. Justice Md. Nizamuddin ITR 135 of 1995 Pieco Electronics & Electricals Ltd. Vs. C.I.T W.B. I, Cal For Appellant :- Mr. J. P. Khaitan, Sr. Adv. Mr. Sanjay Bhowmick, Mr. A. K. Dey. For respondent :- Mr. P. K. Bhowmick. Judgment On :- 06.09.2019 I.P. MUKERJI, J.:- This is reference application under Section 256(1) of Income Tax Act, 1961. In statement of case drawn up by Income Tax appellate tribunal, further to direction of this Court, ten questions of law were framed by it. Mr. J. P. Khaitan, learned Senior Advocate appearing for applicant does not canvas questions 5, 7 and 8. other questions are set out below: 1. Whether Tribunal was justified in holding that for purpose of entitlement to weighed deduction under Section 36 (1) (ii a) of Income Tax Act, 1961 income of employees chargeable under head salaries before allowance of standard deduction under Section 16 of Act was to be considered? 2. Whether Tribunal was justified in holding that loss under Section 32 (1) (iii) of Act was allowable not in year in which fixed assets were discarded but only in year in which they were sold? 3. Whether on facts and in circumstances Tribunal was right in rejecting assessee s claim that sum of Rs.4,25,450 having been estimated as value assets scrapped in immediately preceding assessment year and added back, should be allowed as deduction from income arising on sale of said assets in previous year? 4. Whether, in view of fact that motor cars were provided senior employees both for official and personal use, Tribunal was justified in holding that entire expenditure on such motor cars was liable to be disallowed under Section 40(6) of Act? 6. Whether in view of fact that telephones were provided at residence of employees both for official and personal use Tribunal was justified in confirming disallowance under Section 40A(5) of entire expenditure on telephones amounting to Rs.2,14,690? 9. Whether, on facts, Tribunal was right in holding that deduction claimed under Section 35B(1) (iv) of Act in respect of commission payable outside India amounting to Rs.27,95,058 was not allowable? 10. Whether, Tribunal was justified in holding that depreciation on moulds used for manufacture of glass was rightly restricted to 10% against 30% claimed by assessee? To answer first question, one has to consider Section 36(1) (iia) of Income Tax Act, 1961 as prevailing in assessment year 1983-84. It laid down that assessee was entitled to deduction amounting to 1 and 1/3rd times amount of expenditure incurred on payment of salary for period of employment before 1st March, 1984 to employee suffering from physical disabilities mentioned in sub-section. proviso is very important. It said that this subsection would not apply to employee whose income chargeable under head salaries exceeded Rs.20,000/- per month. Now, question is: what is to be taken as salary gross amount or net after deduction. case of revenue is that it is gross amount whereas assessee contends that it is only net amount as mentioned in Section 16 which is relevant. Now, if you compare language employed in Section 36(1)(iia) proviso, it uses expression chargeable under head salaries while qualifying salary. Section 16 provides for certain deductions to be made to arrive at salary chargeable under head salaries . It is quite plain that legislature intended to use phrase chargeable under head salaries for computation of income under Section 36 (1) (iia) in same way as under Section 16. Therefore, first question is answered in negative in favour of assessee and against revenue. second question concerns Section 32(i)(iii) of said Act. It lays down that in respect of depreciation of building machinery plant or furniture on which depreciation is claimed and allowed under Clause (i) and which is, inter alia, sold, discarded etc, in previous year, not being year in which it is bought, deduction is allowed for amount by which value of items falls short of written down value. Although in two cases cited by Mr. Khaitan Arunkumar Mohota (HUF) Vs. First Wealth-tax-Officer reported in 216 ITR 578 and Allied Electronics and Magnetics Ltd. Vs. Deputy Commissioner of Income- Tax reported in 304 ITR 160, being Division Bench judgments of Bombay and Delhi High Courts respectively there is no clear cut ratio that deduction is allowable on sale or discarding of goods and that there need not be sale as held by tribunal in impugned order, line of reasoning adopted by learned judges in coming to their conclusion, could not have been adopted, unless premises that sale and discarding of goods were disjunctive was accepted as matter of principle. By my interpretation of this sub-section, words sold and discarded are disjunctive and denote separate dealing with above items. Therefore, in my view, tribunal made error of law in coming to conclusion that there was no evidence to prove that items claimed to have been discarded and scrapped were actually sold by assessee. Therefore, this question is also answered in negative in favour of assessee and against revenue. As questions 2 and 3 are related answer to question 3 is also in negative in favour of assessee and against revenue but with rider that veracity of claim of assessee is to be established. Questions 4 and 6 relate to interpretation of Section 40A (5) of said Act which was existing during financial year in question, that is, 1982-83. We have been shown very well considered judgment of full bench of Kerala High Court Commissioner of Income Tax Vs. Forbes, Ewart and Figgis (P) Ltd. reported in 138 ITR 5. We are also shown, division bench judgment of same high court Periakaramalai Tea and Produce Co. Ltd. Vs. Commissioner of Income Tax reported in 199 ITR 100 following said full bench judgment. It held that expenditure incurred on motor cars for use of employees for business purposes may be apportioned out of total expenditure incurred for that purpose and deduction claimed of apportioned amount in accordance with section. I respectfully follow said decisions and hold that appellant was entitled to deduction of amount spent by them for business purpose subject to ceiling, if any applicable under said section. Therefore, this question is also answered in favour of assessee and against revenue. Question 9 concerns interpretation of section 35B(i)(b)(iv) of said Act at relevant point of time. question is whether expenditure claimed was incurred wholly or exclusively on maintenance outside India of branch or agency for promotion of sale of subject goods, service or facilities. This sub-section was interpreted by Supreme Court in Aravinda Paramila Works Vs. Commissioner of Income Tax reported in 237 ITR 284. highest court remarked: expenditure that is referred to therein has to be incurred on maintenance outside India of branch, officer or agency for promotion of sales outside India of assessee s goods, services or facilities. Therefore, what is requisite is that assessee should have maintained branch, officer or agency outside India While we think that there is some merit in observation of Karnataka High Court that words branch, officer or agency in clause draw colour from each other and that word agency should, therefore, be interpreted in light of words branch and office , it is, in any event, very clear that even if agency is agency established not by assessee but by third party, agency must be maintained by assessee. In result, we uphold view taken by Karnataka High Court in judgment and order under appeal and dismiss appeal with costs. We think that learned tribunal has not applied above legal test in interpreting section in considering case of assessee. This question is answered in negative in favour of assessee and against revenue. Question 10 is question of fact. tribunal has interpreted item no.5 of part III of appendix 1 to Rule 5 of Income Tax Rules, 1962. Based on this interpretation, findings of tribunal were made on question of fact, whether moulds in question were used in glass manufacturing concerns except direct fire glass melting furnaces. impugned order of tribunal does not determine whether appellant was glass manufacturing concern and/or whether manufacturing process involved direct fire glass melting in furnaces. This determination of fact was essential to come to finding whether appellant was entitled to higher rate of depreciation of 30% on moulds. reasons given by tribunal are inadequate. More analysis of facts and reasons were required. This is kind of perversity. Therefore, question is also answered in favour of assessee and against revenue. I clarify that while answering questions in favour of assessee, I only hold that impugned order of tribunal on these issues was erroneous. I do not hold that issue itself is answered in favour of assessee. That would depend on adjudication by tribunal on remand, on basis of my observations above. In those circumstances, those parts of impugned order of tribunal relating to subject-matters covered by questions 1, 2, 3, 4, 6, 9 and 10 are set aside. We direct tribunal to re-determine these issues in accordance with this judgment and order and to pass fresh order on hearing parties and by reasoned order within six months of communication of this order. This reference application is accordingly disposed of. Certified photocopy of this judgment and order, if applied for, be supplied to parties upon compliance with all requisite formalities. I agree, (MD. NIZAMUDDIN, J.) (I. P. MUKERJI, J.) Pieco Electronics & Electricals Ltd. v. C.I.T W.B. I, Cal
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