1981 Supreme(Cal) 307

High Court Of Calcutta
SABYASACHI MUKHERJI, C. K. BANERJEE
INDIAN LEAF TOBACCO DEVELOPMENT CO.LTD - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
Income-Tax Reference 254  Of  1979
Decided On : 08/10/1981

Depreciation is an expenditure which is eligible for deduction as such and can be legitimately treated from the accountancy principle as the expenditure incurred.

Headnote:

INCOME TAX - Agricultural development allowance - Depreciation - Whether depreciation is an expenditure which is eligible for deduction as such - Whether depreciation can be legitimately treated from the accountancy principle as the expenditure incurred - Whether the profit on exchange of Rs. 1,40,529 was liable to tax and was, therefore, includible in the total income of the assessee-company - Whether the monetary payments made by the assessee-company to its employees for reimbursement of medical expenses incurred by the employees did not represent expenditure resulting directly or indirectly in the provision of any benefit or amenity or perquisite - Whether the ex gratia payments to the dependants of the former employees were allowable in working out the business income of the assessee-company.

Fact of the Case:

The assessee, a limited company, was mainly engaged in the business of export sales of leaf tobacco purchased and cured in India. For the relevant assessment year, among the claims made by the assessee were, that the profit on exchange amounting to Rs. 1,40,329 was not liable to tax, the weighted deduction on account of agricultural development allowance should be allowed on the entire expenses claimed amounting to Rs. 18,20,670, which included depreciation of Rs. 64,732 and scientific research expenses in the field of agriculture amounting to Rs. 81,847. It was also claimed that the expenses on account of ex gratia payments to widows or dependants of the deceased employees as well as expenses on reimbursement of the medical expenses to the employees should be allowed as a deduction in working out the business income.

Finding of the Court:

1. Depreciation is an expenditure which is eligible for deduction as such and can be legitimately treated from the accountancy principle as the expenditure incurred. 2. The profit on exchange of Rs. 1,40,529 was not liable to tax and was, therefore, not includible in the total income of the assessee-company. 3. The monetary payments made by the assessee-company to its employees for reimbursement of medical expenses incurred by the employees did not represent expenditure resulting directly or indirectly in the provision of any benefit or amenity or perquisite. 4. The ex gratia payments to the dependants of the former employees were allowable in working out the business income of the assessee-company.

Issues: 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that no weighted deduction on account of agricultural development allowance under Section 35c of the Income-tax Act, 1961, was admissible in respect of depreciation on assets used for the purpose of providing goods, services or facilities as laid down in Section 35c (1) (b)? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the profit on exchange of Rs. 1,40,529 was liable to tax and was, therefore, includible in the total income of the assessee-company? 3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the monetary payments made by the assessee-company to its employees for reimbursement of medical expenses incurred by the employees did not represent expenditure resulting directly or indirectly in the provision of any benefit or amenity or perquisite to the said employees within the meaning of Section 40a (5) of the Income-tax Act? 4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the ex gratia payments to the dependants of the former employees were allowable in working out the business income of the assessee-company?

Ratio Decidendi: 1. Depreciation is an expenditure incurred by the assessee within the meaning of Section 44a of the I. T. Act, 1961, and should be deducted in computing the depreciation under the said section. 2. The profit on exchange was an appreciation in the value received by the assessee on export sales on account of favourable fluctuations in the foreign exchange rates at the relevant time and is, therefore, of the nature of a trading receipt which is liable to be assessed as income. 3. Direct payments to the employees do not come within the scope of expenditure resulting directly or indirectly in the provision of any benefit or amenity or perquisite to the employees, whether convertible into money or not, for the purpose of working out the disallowance under Section 40a (5). 4. Ex gratia payments to the dependants of the former employees were motivated by considerations of commercial expediency and were wholly and exclusively for business purposes.

Final Decision: 1. The first question referred to at the instance of the assessee is answered in the negative and in favour of the assessee. 2. The second question referred to at the instance of the assessee is answered in the negative and in favour of the assessee. 3. The first question referred to at the instance of the Revenue is answered in the affirmative and in favour of the assessee. 4. The second question referred to at the instance of the Revenue is answered in the affirmative and in favour of the assessee.