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1979 Supreme(All) 490
High Court of Allahabad
C.S.P. Singh, R.R. Rastogi, JJ.
Commissioner of Income-Tax – Appellant
Versus
Hind Lamps Ltd. – Respondent
Income-tax Reference 34 of 1976
Decided On : Aug 28, 1979
J. Swarup, S.N. Verma, R.K. Gaulati, A. Gupta
Profit bonus is excluded from the purview of Section 40(a)(v) as it is a payment referred to in sub-cl. (b) of Clause (3) of Section 17. The fair annual rent calculated on a notional basis cannot be treated as an expenditure or allowance for purposes of Section 40(a)(v).
Headnote:
INCOME TAX - Section 80J - New Unit - Relief - Section 40(a)(v) - Disallowance - Profit Bonus - Rent-free Quarters - Section 217(1A) - Levy of Interest - Appealability.
Fact of the Case:
The assessee-company claimed relief under section 80J for its new unit for manufacturing lamp caps. The ITO disallowed the claim on the ground that the manufacturing of lamp-caps was part and parcel of the assessee's existing business of manufacturing lamps. The assessee also claimed profit bonus and rent-free accommodation provided to the employees as deductible expenses under section 40(a)(v). The ITO disallowed these claims as well. The assessee appealed to the AAC, who allowed the claim for relief under section 80J but upheld the disallowance of profit bonus and rent-free accommodation. The assessee further appealed to the Tribunal, which allowed the claim for relief under section 80J and held that the profit bonus and rent-free accommodation were not to be taken into account for computing the income of the assessee.
Finding of the Court:
The Tribunal found that the assessee had established a new undertaking and was entitled to relief under section 80J. The Tribunal also held that the profit bonus was excluded from the purview of Section 40(a)(v) as it was a payment referred to in sub-cl. (b) of Clause (3) of Section 17. The Tribunal further held that the fair annual rent calculated on a notional basis could not be treated as an expenditure or allowance for purposes of Section 40(a)(v).
Issues: 1. Whether the assessee is entitled to relief under section 80J for its new unit for manufacturing lamp caps? 2. Whether the profit bonus and rent-free accommodation provided to the employees could be taken into account for computing the income of the assessee? 3. Whether the levy of interest under section 217(1A) was appealable?
Ratio Decidendi: 1. The assessee was entitled to relief under section 80J as it had established a new undertaking. 2. The profit bonus was excluded from the purview of Section 40(a)(v) as it was a payment referred to in sub-cl. (b) of Clause (3) of Section 17. The fair annual rent calculated on a notional basis could not be treated as an expenditure or allowance for purposes of Section 40(a)(v). 3. The levy of interest under section 217(1A) was not appealable.
Final Decision: The first two questions were answered in the affirmative, in favour of the assessee and against the department. The third question was answered in the affirmative, but in favour of the department and against the assessee.
C.S.P. Singh, J.
1. THIS reference, which relates to two assessment years, viz., 1967-68 and 1970-71, invites our answers to three questions, viz:
"1. Whether, on the facts and" in the circumstances of the case, the assessee is entitled to relief in respect of its new unit for manufacturing lamp caps under section 80 J of the Income-tax Act, 1961, for assessment years 1967-68 and 1970-71 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in its opinion that the benefits in the shape of rent-free quarters and the bonus paid to employees could not be taken into account for the purpose of working out disallowance under section 40(a)(v) of the Income-tax Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the levy of interest under section 217(1A) was not appealable and, therefore, the directions given by the Appellate Assistant Commissioner to the Income-tax Officer to allow certain reliefs as per his order were not proper and could not be acted upon ? "
2. THE facts relevant for answering the questions referred are these. The assessee-company was floated in the year 1951 for manufacturing electric lamps and its parts by the following companies :
1. Philips of Netherland.
2. B.T.H. of London.
3. Crompton of York.
4. G.E.C. of London.
5. Siemens of Westminster.
6. Radio Lamp Works (now Bajaj Electricals of Bombay).
7. Kaycee Company of Bombay.
3. AN agreement was entered into between these seven concerns and the assessee-company for the production of lamps and their sale. The company used to import lamp-caps for the purpose of manufacturing the electric lamps. During the previous year relevant to the assessment year 1967-68, it was felt that having regard to the assessee's requirements it would be desirable to obtain a separate licence to start a new unit for manufacturing lamp-caps instead of importing. In pursuance of this decision, the assessee took steps to establish a new unit for manufacturing lamp-caps during the previous years relevant to the assessment year 1967-68. The assessee claimed relief under section 80J "before the AAC. The AAC allowed the assessee to make the claim, although it is not clear whether such relief was sought for before the ITO. However, on the view that benefit under section 80J could be granted only in case the assessee had maintained separate accounts for the unit and placed them before the ITO for scrutiny he remanded the matter to the ITO for consideration on the necessary data being supplied by the assessee. In the assessment year 1970-71, the assessee claimed relief under section 80J before the ITO, but that was rejected on the ground that the manufacturing of lamp-caps was part and parcel of the, assessee's existing business of manufacturing lamps and Section 80J was inapplicable. AN appeal was filed before the AAC for the assessment year 1970-71, who held that the new unit was nothing but a part and parcel of the assessee's existing business, and, as such, no relief could be granted under section 80J. The assessee appealed against this order to the Appellate Tribunal while the department filed an appeal against the appellate order for the assessment year 1967-68. The Tribunal found that the assessee had established a new undertaking and was entitled to relief under section 80J. So far as the assessment year 1970-71 is concerned, an additional point arose for consideration before the Tribunal, and that was whether the profit bonus and the value of the rent-free accommodation provided to the employees were to be taken into account for computing the income of the assessee. The AAC had held that bonus was a part of the salary of the employees, and further that, as respects rent-free accommodation, only such amount as was spent by the assessee for the repair of the accommodation and its depreciation could be included provided that they did not exceed twenty per cent, of the salary of the employee
