COMMISSIONER OF INCOME-TAX VS THIAGARAJAR MILLS LTD, 2000 PTD-MADRAS-HIGH-COURT-INDIA 3281 (1997)

(a) Income-tax---

----Business expenditure---Bonus---Incentive bonus in excess of amount payable under Payment of Bonus Act---Deductible under S.37---Indian Income Tax Act, 1961, Ss.36 & 37.

Incentive bonus paid in excess of the bonus payable under the Payment of Bonus Act is allowable under section 37.

CIT v. Bhavani Mills Ltd. (1999) 237 ITR 855 (Mad.) fol.

(b) Income-tax---

----Depreciation---Investment allowance---Actual cost--Subsidy received from Government---Not deductible in computing actual cost---Indian Income Tax Act, 1961, Ss.32 & 32-A.

Subsidy received. from the Government will not go to reduce the cost of assets and, consequently, the depreciation and investment allowance should not be calculated after deducting such a subsidy when calculating actual cost.

CIT v. P.J. Chemicals Ltd. (19941210 ITR 830 (SC) fol.

(c) Income-tax---

----Capital or revenue expenditure---Guarantee commission paid to Bank. for purchase of capital asset---Revenue expenditure---Indian Income Tax Act, 1961, S.37.

The guarantee commission paid to a bank for purchase of capital asset is allowable as business expenditure.

CIT v. Sivakami Mills Ltd. (1997) 227 ITR 465 (SC) fol.

Sivakami Mills Ltd. v. CIT (1979) 120 ITR 211 (Mad.) ref.

C.V. Rajan for the Commissioner

P.P.S. Janarthana Raja for the Assessee.

JUDGMENT

N. V. BALASUBRAMANIAN, J. ---At the instance of the Revenue, the Appellate Tribunal has stated a case and referred the following three questions of law, for the assessment year 1978-79 under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"):

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in, holding that the payment of incentive bonus in excess of the bonus payable under the Payment of Bonus Act is an allowable deduction notwithstanding section 36(1)(ii)?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the subsidy received will not go to reduce the cost of the assets and consequently depreciation and investment allowance should not be calculated at the lower figure?

(3) Whether, on the facts and circumstances of the case, the Appellate "Tribunal was right in holding that the guarantee commission paid to a bank for purchase of capital asset is allowable as revenue expenditure?"

Tire first question refers to the allowability of expenditure made by way of incentive bonus under the industrial settlement arrived at between the management and the employees in the assesssee-company, dated November 12, 1977. We have taken a view in T.C. No.984 of 1985 (CIT v. Bhavani Mills Ltd. (1999) 237 ITR 855 (Mad.), by judgment of even date that the incentive bonus paid is not allowable under the provisions of section 36(1)(ii) of the Act, but it is allowable under the provisions of section 37 of the Act. The Tribunal has come to the correct conclusion and held that- the incentive bonus paid in excess of the bonus payable under the Payment of Bonus Act is allowable under section 37 of the Act. Accordingly, we answer the first question in the affirmative and against the Revenue. In so far as the second question is concerned, the point that arises is whether the subsidy received by the assessee will go to reduce the cost of the assets and, consequently, the assessee will be entitled to depreciation and investment allowance after deduction of subsidy amount received from the actual cost of the assets. The Supreme Court in the case of CIT v. P.J. Chemicals Ltd. (1994) 210 ITR 830, held that the subsidy received by the assessee will not go to reduce the cost of the assets and, consequently, the depreciation and investment allowance should not be calculated at the lower figure. We answer the second question in the affirmative and against the Revenue.

The third question relates to the payment of guarantee commission paid to a bank for purchase of capital asset is allowable as business expenditure. This Court in Sivakami Mills Ltd. v. CIT (1979) 120 ITR 211, has held that the guarantee commission paid is allowable as business expenditure. Mr. C.B. Rajan, learned counsel for the Department, stated that the above decision of this Court has now been affirmed by the Supreme Court in C.A. No.6488 of 1983 by order, dated February 4, 1997, (CIT v. Sivakami Mills Ltd. (1997) 227 ITR 465). Following the decision of the Supreme Court, we answer the third question of law referred to us in the affirmative and against the Revenue.

In the result, we answer all the three questions referred to us to the affirmative and against the Revenue. No costs.

M. B. A./61/FC

Reference answered.