Commissioner of Income Tax, Agra vs Niryat International

The income tax Appellate Tribunal, New Delhi has referred the following two questions of taw u/s 256(1) of the income tax Act, 1961 (hereinafter referred to as the Act) for opinion of this Court:- Whether the Tribunal in the facts and circumstances of the case was legally correct in allowing the assessee''s claim of weighted deduction u/s 35-B read with Rule 6AA(c) in respect of certain percentage of salary and packing expenses towards quality control?

Whether the Tribunal, in the facts and circumstances of the case, was legally correct in allowing the depredation @ 20% instead of 10% on Generator?

The reference relates to the assessment year 1982-83 and 1983-84.

Briefly stated the facts giving rise to the present reference are as follows.

The previous year of the respondent assessee ended on 31st December, 1981 and 31st December, 1982. When the assessee''s claim in respect of weighted deduction u/s 35-B in light of amendment for a percentage of salary and packing expenses towards quality control was not-accepted by the ITO, but, accepted by the CIT (Appeals) the Revenue came before the Tribunal. The Tribunal adjudicated the issue in favour of the assessee in the following words:-

For the sake of convenience we first take up Revenue''s appeals, in which the only dispute raised far the two years is regarding deduction u/s 35-B. The learned D.R. only submitted that in light of change or amendment of section 35-B, assessee''s claim in respect of percentage of salary and packing for control should not have been allowed. However, when it was pointed him that with the amendment of the said section, Rule 6-AA(c) has also been brought on the statute and that it has been allowed in other allied cases of assessee''s group, the learned D.R. could not controvert. The action of the AAC, therefore, deserves to be confirmed. Revenue therefore, fails on common ground for both the years in its appeals.

The assessee had also claimed depredation on generator @ 20% which was neither granted by the ITO nor by the AAC. When the assessee came before the Tribunal, the Tribunal accepted the assessee in the following words:-

The second ground in the first year and third ground in the second year of assessee''s appeals pertains to depreciation on generator claimed to be allowed @ 20% against 10%. In this regard it was pointed out that as per consistent view of this Tribunal and specifically in assessee''s allied case in IT Appeal No. 896 (Delhi) of 86, depreciation on generator has been allowed at 20%. Following the same we hereby reverse the finding of the AAC and accept the claim of the assessee for both the years.

We have heard Shri A.N. Mahajan, learned Standing Counsel for the Revenue.

So far as the first question is concerned, we find that this Court in CIT v. G.S. Factory [IT Reference No. 103 of 1988, dated 19-8-2006] has held that Rule 6AA had come on the statute book only on 1-8-1981. Thus, the deduction u/s 35-B of the Act would not be available for entire year and would be proportionately allowed w.e.f. 1-8-1981 on wards. The first question of law is answered accordingly in the affirmative, i.e., in favour of the assessee and against the revenue.

So far as the second question is concerned, we find that this Court in Commissioner of Income Tax Vs. Goodyear Shoe Factory, has held that generator is not an electrical machinery falling under 3C(2)(iv) of the depredation Schedule and, therefore, normal depreciation of 10% is admissible.

Respectfully following the aforesaid decision, we answer the second question in the negative, i.e., in favour of the Revenue and against the assessee. There shall be no order as to costs.