METAL POWDER CO. LTD. vs Commissioner of Income Tax

V.S. Sirpurkar, J :

The questions came to be referred at the instance of an assessee, they being :

Whether the Tribunal was right in holding that in computing the relief u/s 80J of the Income Tax Act for purpose of arriving at the capital

employed in various units, the liabilities of head office mainly sales-tax loan and fixed deposits should be deducted ?

Whether the Tribunal was right in holding that the commission is apart of remuneration and confirming the disallowance u/s 40(c) of the Income

Tax Act of Rs. 48,000 paid to general manager of the company ?

Insofar as the second question is concerned, the learned counsel Mr. Janardhana Raja very fairly states that it is covered against him by the

order in the case of Metal Powder Co. Ltd. Vs. Commissioner of Income Tax, . In that view, that question is answered against the assessee and in

favour of the revenue.

Insofar as the first question is concerned, the following facts will be essential to understand the controversy :

The assessee is a public limited company engaged in the manufacture of aluminium powder, zinc powder and other metal powers used in fire-

works, paints, etc. The relevant assessment year is 1982-83. It is found that there are few units of this company established by the company.

During the assessment proceedings, the assessee claimed deduction u/s 80J of the Act amounting to Rs. 12,29,040. This was in respect of its five

units. The Inspecting Assistant Commissioner held that the entitlement for deductions u/s 80J was only to the tune of Rs. 5,59,637 and he has also

ordered the amount of Rs. 3,74,872 in respect of unit No. 10 to be carried forward, as that unit was found running in loss. It was found that the

head office had raised interest-free sales-tax loan of Rs. 2,47,037 and the fixed deposits of Rs. 6,35,631. The plea of the assessee was that it was

not as if these amounts were allocated to the said units. It was claimed that it is not as if these amounts alone were made available for the

aforementioned units and, therefore, they cannot be excluded from the allowable deductions u/s 80J.

The matter went before the Commissioner (Appeals) and the Commissioner (Appeals) also came to the conclusion that it was not proved

whether there amounts were not made available for the aforementioned units. The Tribunal has also upheld that order necessitating the present

reference.

The learned counsel for the assessee made a very novel argument. He contends that it would not be for the assessee to prove that the particular

loan amounts or borrowings have not come to the units and it would be required to be established by the concerned authorities that in fact, the

borrowings and the loan monies travelled from the head office to the units. According to the learned counsel, there was nothing to suggest that the

aforementioned amounts alone were utilised in the aforementioned units so as to be excluded from the benefit of section 80J.

The Tribunal has specifically observed that apart from making a general submission, which has been made before us also by the learned counsel,

nothing was established before the Tribunal. Unfortunately, the same situation continues before us also. There is no specific contention raised that

these monies did not proceed from the head office to the unit heads. All that the learned counsel has to argue is that there were number of other

amounts which travelled from the head office to the units and there could be a mix-up of the aforementioned two amounts with the amounts which

travelled from the head office to the units and, therefore, it was not established that these two aforementioned amounts did actually travel from the

head office to the units.

We are afraid that it would be for the assessee to establish the fact clearly once the department finds that the head office has actually raised the

borrowings, firstly by the interest-free sales-tax loan and secondly on the basis of the fixed deposits. Once it is found that the head office has

utilised these two amounts, the onus would then naturally shift to the assessee to prove that these were not the amounts which were utilised in the

capital. It would be a fact known only to the assessee and it would not be for the department to establish otherwise because, it is impossible for the

department to do so. In this case, there is a specific finding recorded by the Tribunal that the assessee did not make any such efforts, nor did he

pinpoint the amounts which travelled from the head office to the unit heads.

Under the circumstances, we are of the clear opinion that the Tribunal was right in rejecting the claimed deductions u/s 80J. In that view, we

answer the question No. 1 against the assessee and in favour of the revenue. No costs.

OPEN